Schwab's Financial and Other Relationships with Mutual Funds

No Transaction Fee Funds
Transaction Fee Funds
Load Funds
Schwab-Affiliated Funds
Share Classes, Investment Minimums, Fees and Expenses
Fund Marketing and Sponsorships
Fund Education
Additional Information

Load Funds

Schwab receives two types of fees from any load fund that you choose to purchase through the Mutual Fund Marketplace: (1) a sales “concession” or “commission”, and (2) an asset-based shareholder servicing fee.  Generally load fund transactions are made available on an accommodation basis, and Schwab annually processes relatively few load fund trades.

A. Sales Concessions. When you purchase or redeem shares of a load fund through Schwab, you may pay either a front-end or back-end sales charge (a “sales load”) the amount of which is described in the fund’s prospectus. All or a portion of any front-end sales load that you are charged on your purchase of fund shares will be paid out of your investment to Schwab (but not to the Schwab representative that sold you the fund). The amount of the front-end sales load due to Schwab (i.e., the sales commission) varies from fund to fund and from share class to share class, and will also vary based on other factors, such as the size of your investment. In some cases, an investor may be entitled to purchase a fund at a lower load or no load based on certain levels of aggregate investments in the same fund or even fund family (a “breakpoint”). Before investing in a load fund, an investor should carefully review the load structure in the fund prospectus, including any applicable breakpoints, to determine when a breakpoint might be available.

A fund that charges a sales load when shares of the fund are redeemed is called a “back-end” load fund. Generally, Schwab does not allow the purchase of back-end load funds, but as an accommodation to its customers will custody shares and process redemption transactions for shareholders. Schwab does not receive any portion of the sales charge in connection with your purchase or redemption of shares of back-end load funds. The amount of the back-end load or contingent deferred sales charge that may be assessed is set forth in the fund’s prospectus. Generally, back-end load funds also carry higher service or distribution fees than front-end load funds which will have the effect of increasing a back-end load fund’s operating expense ratio; this information is also available in the fund’s prospectus.

B. Shareholder Service Fees. In addition to the sales concession, load funds may pay Schwab for shareholder services out of a fund’s assets either pursuant to a fund’s distribution and/or servicing plan (sometimes called a “Rule 12b-1 plan”) or under a separate non-Rule 12b-1 shareholder agreement. The amount paid to Schwab under a Rule 12b-1 plan or shareholder services agreement may be negotiated between Schwab and the fund, but the maximum payment under the Rule 12b-1 plan or shareholder services agreement is determined by each fund’s board of trustees (a “Board”). The amount of the fee authorized by the Board under a Rule 12b-1 plan or shareholder services plan is disclosed in the fund’s prospectus or statement of additional information and varies from fund to fund and from share class to share class. The Rule 12b-1 fee or shareholder services fee is included in the fund’s operating expense ratio (OER). A fund’s operating expenses are paid out of fund assets, and therefore, the 12b-1 fee and shareholder service fee which are paid by the fund are borne indirectly by fund shareholders. The OER of any fund generally reduces the fund’s performance. You should carefully consider fund OERs relative to other important investment considerations when making an investment decision. You should also review a fund’s prospectus for more information about that fund’s Rule 12b-1 plan and fees.

C. Omnibus Processing, or Networking Fees. Schwab may also receive fees for the sub-accounting services that Schwab provides to load funds. These fees differ depending on the operation model deployed.  In omnibus processing Schwab performs record maintenance, transaction processing, dividends and other distribution processing, delivery of account statements and fund documents, among other services.  In a networking structure, the fund’s agent (typically a transfer agent) performs most of these services, and Schwab reflects these transactions on its’ books and records.  These fees are charged annually based on number of accounts, and generally range from $13 to $20 annually per account in an omnibus environment, and $3 to $6 per account annually in a networked environment.

D. An Example.
Assume on January 1 you purchase $10,000 Load Fund Class A shares, subject to a 4% front-end sales charge and for which the fund is authorized to pay Schwab 0.25% of the average fund assets pursuant to its Rule 12b-1 plan for shareholder servicing. Schwab would receive up to $400 in dealer concessions at the time of your purchase and, assuming further that you hold your position in the fund through December 31 and that there is no change in value, an additional $25 in annual shareholder service fees with respect to your $10,000 investment. Schwab may also receive from the fund an annual omnibus processing fee, most often $20.

The $400 dealer concession would be paid by you out of your investment. The $25 annual shareholder servicing fee and $20 omnibus processing fee does not come directly out of your $10,000 investment in the fund, but is paid indirectly over time out of fund expenses (or, with respect to a networking fee only, by a fund affiliate). Keep in mind, if the fee is paid in full or in part by the fund, the portion paid by the fund is included in the fund’s OER and borne indirectly by fund shareholders.