Schwab, adding 11 funds, eyes marketing coup

In an effort to wow investors and calm their nerves in a single marketing collaboration, San Francisco-based Charles Schwab & Co. Inc. has slapped its newly minted Laudus brand on 11 funds managed by AXA Rosenberg Investment Management LLC, an Orinda, Calif., money manager with $33 billion under management.

The compounded branding move serves a crying need in a marketplace that’s been rattled by scandals, says Randall W. Merk, president of Charles Schwab Investment Management Inc., which manages $143 billion. “We have customers that say, `We want you to stand behind your products,”‘ he says.

As a result of the new branding effort, the AXA Rosenberg U.S. Discovery Fund, for example, will now be sold as the Laudus Rosenberg U.S. Discovery Fund [RDISX]. Mr. Merk says he decided not to add the Schwab label, for fear of overshadowing. “We want to highlight the third-party manager,” he says.

first big move

The new branding is of one of his first bold moves since coming to Schwab in August 2002 from Kansas City, Mo.-based American Century Investments, where he was chief investment officer and oversaw the management of $75 billion.

Robert Powell III, a Boston-based consultant to the mutual fund industry, says that Schwab is wise to amplify the Rosenberg brand name. He says that AXA Rosenberg, known for its doctorate-degree-holding founders, is often mentioned in the same breath as Dimensional Fund Advisors Inc. in “alpha circles” of top financial advisers. The latter, in Santa Monica, Calif., manages $15 billion in assets for independent advisers.

Indeed, Mr. Merk says, DFA indeed is in his sights. “We believe AXA Rosenberg has that same type of appeal,” he says. “They have Barr Rosenberg. It’s known as a gray-matter-type shop.”

The immediate benefit of the change to financial advisers is that the 11 renamed funds, with $1.4 billion in assets, will all be moved from Schwab’s transaction fee platform to OneSource, where customers can buy mutual fund shares without paying a commission.

The fee savings add up. Had this arrangement been in effect over the 12 months ended Sept. 30, financial advisers would have saved $250,000 in transaction costs, Mr. Merk says.

He adds that Schwab is guaranteeing the expenses for these funds are capped for at least three years. He is also introducing pricing “break points” next year to provide discounts for larger-volume purchases.

Mr. Merk believes Schwab can reduce the overall expenses for these 11 funds by taking over the back-office functions to capitalize on his company’s efficiencies of scale.

Schwab will have to gather assets on a grander scale for AXA Rosenberg before it can see returns. Though Schwab paid Rosenberg no fee to adopt its funds, the deal gives Rosenberg 70% of the take in fees. That split will work its way closer to 50-50 only as Schwab fulfills its promise of ballooning assets.