Exchange- Traded Fund 401(k) PlaNorm. 40 Walnut St. Wellesley, MA

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Marvin Garrison
8 years ago
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1 Exchange- Traded Fund 401(k) PlaNorm 40 Walnut St. Wellesley, MA

2 Table of Contents Who we are What we do Rethinking ReQrement Plans The Best opqon: Charles Schwab 401(k) ETF PlaNorm - ETFs (exchange- traded funds - Mutual Fund- based 401(k) Plans - Benefits of ETFs over Mutual Funds - Risks of ETFs

3 Who we are Registered Full Service Investment Advisory Firm Located in Wellesley, MA Specialize in consulqng with: High net worth clients Endowments/Trusts ReQrement CorporaQons/InsQtuQons

4 Advantages of Registered Investment Advisor RIA Required to provide fully unbiased advice to clients No undisclosed fees or commissions Required to use a registered custodian for your assets Broker/Dealer Not required to give you unbiased advice Free to collect undisclosed fees or commissions May recommend products or services that may not be in your best interest, only for the broker/dealers financial gain

5 What we do Individual investment plans based upon customer needs and financial goals The use of all methods of invesqng to reduce risk and improve performance Offer advice for estate planning, tax preparaqon, long term care, etc. Customized 401(k) plans for individuals and corporaqons

6 Rethinking ReQrement Plans Common problems with 401(k) s Outdated Many plans do not include modern invesqng tools such as exchange- trades funds Costly Loaded with operaqonal costs (up to $95 a year per $10,000 invested) 1 Mismanaged Investments not tailors to specific customer s needs Underperforming Return on investments lower expected, below industry benchmark

7 The Best opqon for your 401(k) Charles Schwab 401(k) ETF planorm The first 401(k) program that fully integrates exchange- traded funds as core investments Offers more than 70 low- cost ETFs represenqng more than 25 asset categories from major providers such as Charles Schwab Investment, PowerShares, ishares ETFs, and Vanguard

8 ETFs (exchange- traded funds) EssenQally mutual funds that are traded on exchanges like stocks Track securiqes such as stocks, commodiqes or bonds

9 ETFs (exchange- traded funds) Cover every major index and sector of the equiqes market (large caps, small caps, growth, value) and country- specific (Japan, Australia, U.K.) Specialized ETFs cover specific industries (technology, biotech, energy) and market niches (precious metals, real estate, emerging market bonds)

10 Mutual Fund- based 401(k) plans Too costly: $55- $95 per year for every $10,000 invested 1 (for a $10 million fund, that amounts to $1.1- $1.9 million over 20 years) Lijle flexibility Many mutual fund- based 401(k) s have minimum holding periods, minimum investment values, redempqon fees and do not allow for intraday trading Lack of transparency Difficult to target specific market niches

11 Benefits of ETFs over Mutual Funds OperaQonal Cost Savings ETF- based 401(k) plan can decrease costs up to 90% vs. acqvely managed mutual fund plans 2 ETF- based plan costs on average just $10- $15 per $10,000 invested 2

12 Benefits of ETFs over Mutual Funds Opera0onal Cost of $10 million Mutual fund plan 1 Opera0onal Cost of $10 million ETF plan 2 Average Total savings Over 5 years $275,000- $475,000 $50,000- $75,000 $225,000- $400,000 Over 10 years $550,000- $950,000 $100,000- $150,000 $450,000- $800,000 Over 20 years $1,100,000- $1,900,000 $200,000- $300,000 $900,000- $1,600,000

13 Total OperaQonal Costs of $10 mil 401(k) * $1,200,000 $1,000,000 $800,000 $600,000 $400,000 Mutual Fund- based ETF- based $200,000 $ * Low- end of cost range for both plans displayed

14 Benefits of ETFs over Mutual Funds Increased Flexibility ETFs prices are updated throughout the day, allows for intraday trading No redempqon fees No minimum holding periods (can buy and sell nearly instantaneously) No investment minimums

15 Benefits of ETFs over Mutual Funds Target Specific Markets Mutual Funds hidden danger: overlap Lack of transparency in mutual fund industry Several apparently different mutual funds can actually hold some of the same stocks, causing overexposure to single companies ETFs are far more transparent If you own a commodity- linked ETF versus large- cap ETF, there in not typically overlap (overexposure) because of the specificity, allowing you to target specific markets

16 Risks of ETF- based plans There is no guarantee that the market price of the ETFs are the same as the underlying securiqes Thinly traded, highly specific ETF markets may lack liquidity

17 Charles Schwab ETF- based 401(k) Compared to tradiqonal mutual fund plan: Lower operaqng expenses More flexible More specific market targeqng

18 1 Based on Schwab ReQrement Plan Services, Inc., research using (1) 2010 data from 195 defined contribuqon plans serviced by Schwab ReQrement Plan Services, Inc., and Schwab ReQrement Plan Services Company, and (2) 2010 data from a comparison set of plans serviced by other providers. In this comparison set, the weighted average operaqng expense raqo (OER) for midsize plans ($20 million $100 million) using primarily acqvely managed funds was $55 to $95 per $10,000 invested 2 Based on Schwab ReQrement Plan Services, Inc., research using (1) 2010 data from 195 defined contribuqon plans serviced by Schwab ReQrement Plan Services, Inc., and Schwab ReQrement Plan Services Company, and (2) 2010 data from a comparison set of plans serviced by other providers. In this comparison set, the weighted average operaqng expense raqo (OER) for midsize plans ($20 million- $100 million) for the exchange- traded fund version of Schwab Index advantage was $10 per $10,000 invested.

19 3 For illustraqve purposes only. Based on Schwab ReQrement Plan Services research using 1) 2010 data from 195 defined contribuqon plans serviced by Schwab ReQrement Plan Services, Inc. and Schwab ReQrement Plan Services Company and 2) 2010 data from a comparison set of plans serviced by other providers. In this comparison set, the weighted average operaqng expense raqo (OER) for midsize plans ($20MM $100MM) using acqvely managed funds was $55 to $95 per $10,000 invested, and for large plans ($100MM $350MM) the OER was $50 to $75 per $10,000 invested. This example does not include any fees associated with professional, independent advice services, or other fees that may be charged to a parqcipant account. 65 basis points is the average of the range. 4 Schwab ReQrement Plan Services internal data: The esqmated average investment operaqng expense raqo (OER) for the Schwab Index Advantage exchange- traded funds offer is derived by using the esqmated weighted average OER of the exchange- traded funds being considered for inclusion within the offer. The weighted average is calculated by mulqplying the OER of the exchange- traded funds being considered for inclusion within the offer by the esqmated allocaqon to the respecqve exchange- traded funds. The allocaqon esqmates for the asset categories and exchange- traded funds within the offer are based on historical trends of clients currently enrolled in the Schwab Index Advantage mutual fund offer. The exchange- traded funds to be included in the Schwab Index Advantage offer are subject to change.

Mutual Funds. What is a Mutual Fund? Diversification A mutual fund may hold 30 to 500 different investments under one name.

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