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Charles Schwab (SCHW) to Tap T Rowe's (TROW) NTF Funds

Charles Schwab (SCHW) partners with T. Rowe Price (TROW) to gain no-transaction-fee access to the least-expensive share class mutual funds offered by the latter.

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This story originally appeared on Zacks

Charles Schwab SCHW has entered into a strategic partnership with T. Rowe Price TROW, under which advisors who custody their clients’ assets on the Charles Schwab’s platform can access a large spectrum of lowest-cost institutional share class funds from TROW without any transaction fee.

Starting early February 2022, T. Rowe Price will garner Charles Schwab advisors the opportunity to access nearly 120 institutional no-transaction-fee (NTF) funds, covering around 65 Morningstar categories. Terms of the deal remain undisclosed.

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Charles Schwab will find its suite of passively managed funds to be pleasantly complemented by joining T. Rowe Price, a provider of actively managed mutual funds. The move will also enable Charles Schwab to trim the range of products that advisors have to filter out by accessing a menu of T. Rowe’s acclaimed funds with an innate cost advantage.

Lower costs in constructing the portfolios will capacitate the Charles Schwab advsiors to deploy more of the clients’ initial funds to lucrative investments.

Per Charles Schwab management, the move comes in response to burgeoning demand from Charles Schwab’s advisors for access to NTF funds. The firm had conducted a small survey of advisors, each of whom identified NTFs as “somewhat” or “very important”. The advisors polled confirmed that only the price and performance are more important considerations than transaction charges when assessing a fund.

“In 2022, we’ll continue to evaluate the potential benefits of expanding availability of institutional share classes with no transaction fees,” said Heather Fischer, Charles Schwab’s head of third-party platforms.

Fischer went on to say, “The transaction fee that is being removed would typically go to Schwab, and we’re eliminating that. But we receive compensation from T. Rowe Price for giving their funds greater visibility and prominence on our platform. So, there are mutual incentives here.”

Charles Schwab partnered with T. Rowe Price as the latter shows prowess in the active management space with a possession of 70 of 159 institutional share class funds earning a 4-or 5-star Overall Morningstar Rating as of Oct 31, 2021. Further, more than 90% of T. Rowe Price’s institutional share classes have expense ratios at or below the average Morningstar Category expense ratio for institutional share classes, making the company an attractive pick.

According to an InvestmentNews article, T. Rowe Price will be giving up 12-16 basis points of fund management fees by navigating assets away from its pricier retail investor class funds, which are already available to advisors for no transaction fees.

So far this year, shares of Charles Schwab have jumped 58.2% while T. Rowe Price has witnessed 25.9% growth.

Zacks Investment ResearchImage Source: Zacks Investment Research

Currently, both firms carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the finance space are Southern First Bancshares SFST and Shore Bancshares SHBI. At present, SFST sports a Zacks Rank #1 while SHBI carries a Zacks Rank #2 (Buy).

In the year-to-date period, shares of Southern First and Shore Bancshares have gained 69.3 and 36.8%, respectively.

Over the past 60 days, the Zacks Consensus Estimate for Shore Bancshares’ current-year earnings has been revised 21.7% upward. The same for Southern First has moved 13.3% north.



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