Using Schwab for selling Mutual Funds

A Conversation With Doug Hanson of Charles Schwab


Dan Sondhelm

Doug Hanson is in charge of Asset Management Strategic Alliances for Schwab. He helped build, test and ultimately launch the Mutual Fund OneSource program.

Dan: What mutual fund trends are you seeing these days?

Doug: There is a lot of consolidation in the industry at the fund complex and individual fund level. I think more than anything else that adds to confusion on the part of investors about what is happening with their specific investments. The ongoing development and utilization of multiple share classes further compounds the issue. Based on this, we’re seeing more clients than ever coming to us for help in navigating that mutual fund landscape.

Dan: How would you describe Schwab over the competition?

Doug: The Schwab platform is very robust. We continue to be a leader in terms of assets, and net new flows. In 2004 we experienced $25 billion of net flows into mutual funds overall, with about half of that directed toward the OneSource program. Our platform is designed and managed to specifically accommodate clients in terms of where they want to put their money. So while it may not be the leader in terms of the actual number of products on the shelf, it has the products that our clients want to use.

Dan: Which attributes make a fund a likely winner with Schwab?

Doug: Several things will get the attention of both retail investors and advisors. First, consistent performance and manager tenure is key. Second, do investors get what they expect when they buy a fund, or does the mandate allow too much drift in the portfolio? Third is strong communication, including what’s going on with the portfolio in good and particularly in bad times.

Dan: What can a fund company do to get noticed on Schwab?

Doug: There are a number of things they can do to get noticed. My perspective is that in a lot of ways the Schwab supermarket is something of a proxy for the industry. Basically, whatever approach a fund is going to take to launch, market, and sell its product, they have to think about some combination of those efforts and how they will work with Schwab’s different client groups and markets that we appeal to. How can they adapt their approach with retail investors to work with Schwab? Likewise in their approach to advisors, and retirement plans. What goes on overall in the fund business happens much like a test lab here, and the trends are very similar.

Dan: How do you work with fund companies? What’s the relationship like?

Doug: There are four full time professionals in a relationship-management capacity. Collectively they manage over 450 relationships with asset managers who offer funds on the platform. We basically run the gamut in terms of activity in the initial engagement with a fund group. We perform due diligence to initiate any new relationship, execute contracts and implement products onto the Schwab shelf, be it the transaction part of the program or the OneSource program. There are also some ongoing mutual opportunities to explore from the marketing perspective, whether that be advertising, or web connections, mailings to their clients, or events in the retirement or the advisor group. There are a lot of different ways they can leverage their presence in our MarketPlace, and be proactive in developing their business with our clients.

Dan: Can you describe the most popular of those marketing services you provide, and possibly go into detail on one of those tactics.

Doug: The most heavily subscribed opportunity is our annual IMPACT conference for registered investment advisors. That would be where the widest number of OneSource fund groups participate with us. There are over 1000 RIA firm representatives there every year.We also offer more targeted events. These are regional events and allow for networking and relationship building among RIAs and the asset managers that serve them. In the past we have developed web based activities where we connect some of our content to their content. That was certainly popular in the 2000/2001 period when the web was new and all the rage. Lately we’ve turned more towards events versus online content, as both fund companies and our financial advisors have indicated a preference for more interactive ways of engaging with one another. Generally these events are focused around portfolio manager presentations; however there are certainly opportunities for wholesaler type activities at those events as well. It’s about building relationships out of those scenarios.

Dan: What about external from Schwab with regard to marketing; what works to get in front of Schwab, in terms of external communication and sales?

Doug: Well I think what really works, but we don’t hear enough about it, is what you and your firm provide in the area of public relations. The issue is how the funds can make themselves more visible in the right places at the right time. I don’t think enough fund groups coming through our offices think about that, or spend much time focusing on it. But they should; I think there could be a lot of success stories for those who make public relations a priority.

Dan: Can you talk about a fund company or two that has really blossomed since working with Schwab?

Doug: There are a number. In the early days it was folks like Baron Funds and Soundshore. Today groups like Hennessy, AmeriStock, Calamos, and Julius Baer have really done a great job of leveraging their presence in the mutual fund business.


Dan: And what do they have in common, or what are they doing to be on your top seller list?

Doug: Besides meeting most or all of the attributes we spoke about earlier, I think what they do well is focus their efforts to a high degree on markets they know. Some of these groups will pay attention to the RIA market because they know and understand it. They can penetrate very deeply into that area. Others know the retail world, or they might know the retirement world. The key is that they are successful because they really focus all of their efforts in those areas they know best.

Dan: What can fund companies expect from Schwab over the next few years? Look into your crystal ball.

Doug: I think the story continues to be largely about mutual funds. It has been about mutual funds since the 1980’s, and then in 1992 of course with the launch of OneSource. And it’s true today. Mutual funds represent nearly 50% of the assets in our client accounts at Schwab, and on the OneSource side, total assets grew by 26% in 2004. The other big story for our high net worth clients is the separate accounts business. Starting from a small base just a few years ago, we’ve built considerable scale and are on a great trajectory with that business. But again, mutual funds are the core. It is the vehicle that Chuck [Schwab] believes is right for the vast majority of investors. I think what you will continue to see at Schwab is continued support and promotion of the OneSource supermarket in particular, and a lot of advice offerings that help investors build the right portfolio.

Dan: What do you say to fund companies that have not turned to Schwab? The most common reason I hear is that it’s just too expensive.

Doug: We hear occasionally that price is a barrier, but we also know that the folks who ultimately join the platform are very thankful that they did. Once they are here and get to learn the client enterprises and initiatives that they can leverage, it works out very well for them, particularly many of the smaller firms.

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