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Schwab Slaps Funds With Five Basis Point Fee Hike


Charles Schwab & Co. will be raising its fees for mutual funds on both OneSource and the load fee platforms. The current cost to funds from the no-load platform is 35 basis points, which is likely to increase to 40 basis points.

"The mutual fund companies that use our platforms benefit not only from the eight million Schwab client accounts that we have but also from the back-office standpoint, so we think it's reasonable to ask them to share the cost on that," said Marta von Loewenfeldt, spokeswoman for the firm.

While processing costs have not risen for Schwab, Loewenfeldt said that the company "provides a lot of services" for funds. Recently, however, the firm announced a $79 million loss in the fourth quarter of 2002. Christopher Dodds, CFO, told the San Francisco Chronicle, "It was a disappointing end to a difficult year."

While the fee hike is clearly alarming to mutual funds that have already suffered enough erosion to earnings through a reduction in asset-based fees, investors are aware that such costs are likely to come from their pockets. Furthermore, on the informal discussion board at FundAlarm.com, one user speculated that some fund companies might no longer elect to offer their funds through Schwab. Schwab has charged 35 basis points since 1998. In the past, Schwab has used the higher fee standard to negotiate sweeter deals intended to lure choice fund companies onto its platform, notably with ailing fund giant Janus.

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