As we’ve mentioned before on this blog, many mutual fund industry analysts have been predicting gloom and doom for mutual fund companies over the next few years. The market drops have been killing their asset levels, and the move of market share into ETFs is only exacerbating the problem. The industry has been laying off employees by the thousands.
Some companies have started to hedge their bets, and have gotten into the ETF industry either through acquisitions or by internally developing their own ETFs. But none of the big boys had gotten into the game until now. As Investment News Reports, Charles Schwab has now thrown its hat into the ring by filing with the SEC to issue its first ETF. The ETF will track a total market index (not really an ETF anyone needs), but that’s not really important. What is important, however, is the simple fact that they filed.
Schwab makes a ton of money distributing mutual funds through its popular OneSource platform. So do the mutual fund partners that participate with Schwab. Getting into the ETF game won’t make those fund companies very happy, and Schwab is surely going to take a profitability hit if assets begin to flow from their mutual fund platform into their ETFs.
Schwab is figuring out what many in the financial services industry already have – the fat profit margins of the past are over, and the dollars that used to pay executive bonuses are now moving into the back pockets of investors. Schwab will survive by driving its own profit margins lower. The other big players in the industry will follow.
