Charles Schwab is Letting Customers Invest in Personalized Indexes
(Bloomberg) -- Charles Schwab Corp. unveiled a new feature that allows customers to invest in personalized indexes, an increasingly competitive area that appeals to tax-conscious customers.
Clients will be able to invest directly in securities of an index through Schwab Personalized Indexing, according to a statement Thursday from the Westlake, Texas-based brokerage. The approach can help reduce taxes compared to investing in mutual or exchange-traded funds.
Money managers have been snapping up direct index businesses. Schwab acquired Motif, a company with personalized index features, in 2020. Competitors including BlackRock Inc., Morgan Stanley and Vanguard Group all purchased direct index businesses of their own.
“Our goal since the very beginning has been to bring these sophisticated research and investment products to a wider audience,” said Divya Krishnan, Schwab’s product management director, in an interview.
Schwab investors will have three strategies that can be modified including a U.S. large cap, U.S. small cap, and environmental, social and governance-focused index. Schwab will start at a fee of 0.4% of assets, or $400 for the minimum account size of $100,000.
Direct index strategies come with flexibility. A customer can own the stocks in an index, but can sell shares that lost value to reduce their overall tax bill -- something that’s not possible with an ETF. For a customer who owns stock as part of a compensation package, direct indexing also allows for tailoring and trimming exposure elsewhere in their investment portfolio.
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