SAN FRANCISCO - In a sign that the lines between load and no-load funds continue to blur, Charles Schwab & Co. is hoping to attract major broker-sold mutual fund families to One Source, its no-transaction-fee funds distribution network.
While a growing number of fund companies and brokers have their own mutual fund networks - including brokerage units of Fidelity, Vanguard and soon, Merrill Lynch. Schwab's Mutual Fund Marketplace - including the no-fee One Source unit - is the oldest and biggest, with assets of $46.5 billion.
John Philip Coghlan, executive vice president of Schwab Institutional, San Francisco, acknowledged OneSource has not attracted the leading sales-force-marketed fund companies such as Putnam Management Co., the American Funds and Franklin-Templeton, but thinks the tide might turn.
Already Schwab & Co. has signed on John Nuveen & Co. for the unit of One Source which markets mutual funds to 401(k) plans through third-party administrators.
Other load companies in One Source include: Morgan Stanley Funds; SoGen Funds; Van Eck Funds; and Vista Mutual Funds.
Mr. Coghlan said load fund companies are much more willing to talk to Schwab than in the past, and Schwab is seeking them out as well.
"As wirehouse firms are starting no-load wrap-fee programs, some load companies will be squeezed off that shelf. They are much more willing to talk now than in the past. They have to look at alternative distribution. Some are calling us."
Whether Schwab will be able to lure the big, low-cost direct-marketed funds is less certain.
Fidelity, T. Rowe Price Associates Inc., Vanguard Group and Scudder, Stevens & Clark Inc. have not been willing to share their already low mutual fund management fees with Schwab in exchange for distribution; in some cases, Schwab's administrative charge is bigger than a fund's expense ratio.
"Vanguard is one of our top three relationships" with clients buying Vanguard funds through Schwab's mutual fund marketplace and paying a transaction fee, Mr. Coghlan said.
But Vanguard will not make its funds available through OneSource. "They don't want to spare the 25 basis points (Schwab charges) for administration. Sometimes there isn't 25 basis points in a fund's whole expense ratio."
"It's a price issue where the math is hard to work out. For others, there are retail cannibalization issues. Very successful direct marketers are afraid they'd give up clients that they would get anyway."
In other words, will a fund company ever see a given client again if that client has the ease of switching to another fund family through One Source?
To address such concerns, Schwab has begun reporting the names of clients to fund companies so they can market to them directly, unless a client requests their name not be offered.
