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Jim McCool, Charles Schwabb EVP of Institutional Services, on the company's new 401K plan, which launched Tuesday.
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-- -- for most of us are 401K is our primary and often only source of retirement saving saving Social Security which may or may not be there in the future.
Well now a unique new 401K plan watch today by Charles Schwab.
Promises to revolutionize the industry and potentially say participants tens of thousands of dollars.
Here to tell us about it in an exclusive interview is James Smith cool the executive vice president of institutional services at Charles Schwab.
-- thanks for coming then it's great to have you here that users so I wanna share first of -- some numbers with our viewers you we talk a lot about equity investing.
But they're different wasted you're right you know that would -- look at the power of indexing look at these numbers from Dow bar.
Equity investors earned three point 83% over the twenty years.
Ended just last year.
If he just bought the S&P 500 in index fund didn't think -- thing about it it just -- money right into the index fund.
-- would have hurts our return of nine point 14%.
These number numbers are annualized.
So the answer the question is why -- more of its indexing.
Well first off the industry has that made it available and it's not easy.
But the real point in your story about the index is about the cost in what employees and employers alike are seen more and more now.
They want certainty they want certainty associated with low cost passive investing.
Because the real benefit of that is that's more dollars in the pocket.
On the right on a participant.
Well you know we see over time -- expense typically cheaper.
And you're gonna have this in your new 401K plan which is -- -- be exclusively index funds right so.
-- Winnie go -- you choose an investment is going to be an index investment what will that mean for long term say.
There's actually -- more than that it's not just the low cost from the passive index oriented funds it's about answering the question the participants have asked us for years.
-- -- -- And so using an independent professional manager to -- -- savings and by solution.
Putting that together along with low cost those are two powerful forces which participants need to understand today.
-- looks about your FDIC insured deposit feature this is such chuck Schwab bank basically.
And and why are you making this part of the 401K plan.
You know participants are asking for certainty and -- so much and certainly in the world today and certainly they understand.
FDIC insured savings so for the cash part of their 401K that's in Schwab bank that's insured by the federal government up to 250000.
That's we talk a lot about FDI insured -- institutions it means a lot people out there who were worried about.
The banking crisis they've been through -- they know the downside -- that.
Let's talk a little bit about the fees that you were planned purchase of -- participants that is might cut how much money could they actually say.
As much as 50% or more and that includes advice let's talk about a participant today who's in a typical size 401K plan.
They're paying about ninety basis points almost 4%.
On their entire -- and -- -- gonna find out about that because -- disclosure rules.
Through low cost passable only invest in index funds that cost can be as low as ten to twenty.
Basis points a fraction of -- percent big cities.
It doesn't sound like a lot but when you talk about 203040.
Years of savings -- really adds up.
Of course the cheapest way to invest would be T -- running do that.
While that'll be face to right now we're focused on launching.
The industry's first indexed only 41 K with the Schwab bank settings and matched with the advice solution together.
Phase two will be the same thing the plan sponsors.
Using them all the ETF lineup for right now we're focused on the -- only solution.
That you know it's funny I don't think of Schwab is number wine and retirement accounts necessarily.
-- Fidelity.
Vanguard the big players out there are you hoping to make a big inroads into this market place do you think can -- really shake -- up.
You know it's not about our competitors because those are fine companies -- were looking that is.
The outcomes for participants.
We know that not enough market and advice in fact the only one out of ten are getting advice and as a huge impact when they get advice they -- more that they -- twice as much more.
And they earn better returns and you know they stay invested even when it's not fun to stay invested as we saw a couple of years ago brain and those participants who -- using advice getting managed services from an independent professional.
They -- invested even when it was so bad and they've been able to recover when the markets nearly doubled since that time.
Jim interesting stuff loved having you -- here thanks so much it's great to -- talk with somebody from Charles Schwab appreciate it thanks so much thanks.
