Schwab Debuts New RIA Alternative Investment Platform, Absent Fees

The new platform’s first participant is iCapital Network and Schwab plans to add more.

(Callaghan O'Hare/Bloomberg)

(Callaghan O’Hare/Bloomberg)

Earlier this month, Charles Schwab eliminated commissions to trade U.S. stocks, ETFs and options, spurring TD Ameritrade, Fidelity Investments, and Raymond James to do the same. But the custodian to more than 7,500 RIAs didn’t stop there.

Schwab’s fee-slashing continued Thursday morning. The company debuted a new alternative investments platform for its RIAs, absent costs that typically come with the asset class. Schwab is waiving custody fees, a $250 annual fee and all $25 charges for capital call processing, Jalina Kerr, senior vice president of Client Experience at Schwab Advisor Services, told RIA Intel.

Many RIAs who custody with Schwab already view alternative investments as a key part of their value proposition and others are interested in using the asset class as a means to differentiate their business, Kerr said.

But 55% of advisors don’t allocate any client money to alternative investments and those who do might not be allocating enough. Alongside private equity and hedge funds, even a compelling case can be made for art as an investment.

For those reasons, Schwab set out to create a new platform where its advisors could more easily access and manage alternative investment funds for clients.

To start, the only third-party platform available in the new marketplace is iCapital Network, which has $41.2 billion invested across 430 funds and 100,000 underlying accounts. Morgan Stanley, UBS, Bank of America’s renamed Merrill wealth management business, and other institutions use iCapital Network.

Schwab’s RIAs will be able to access and manage iCapital investments directly through its core platform instead of alongside it. Letters of instruction are now electronic and can be signed digitally and the intention is to continue to streamline the service, Lawrence Calcano, CEO of iCapital Network, said.

His company is working “tirelessly” to improve the accessibility of alternative investments to high net worth investors and the relationship with Schwab furthers that mission, Calcano said.

Kerr acknowledged there is a subset of financial advisors who are willing and able to create their own in-house alternative investment funds. However, the regulatory burden and costs associated with those make it difficult for most RIAs to run effectively. Moreover, fusing iCapital Network’s technology with Schwab’s eliminates some of those burdens and cuts costs. Fees associated with alternative investments are typically passed on to the client.

Schwab is custodian to about $1.5 trillion in assets managed by its over 7,500 RIAs.

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