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TheStreet Open House

Schwab Under Wraps

Discount broker Charles Schwab (SCHW) is expanding its mutual fund wrap-account offerings with a new group of mutual fund portfolios, a move that shows Wall Street's interest in increasing its fee-based businesses.

Wrap accounts are mutual fund portfolios that bundle a group of individual mutual funds. The service can help clients weed through the thousands of mutual funds available.

While the service often comes with a hefty price tag, Schwab's new offering is less expensive. Total costs for Schwab's managed portfolios, which will include Schwab's fee of 0.25% to 0.5% as well as the underlying expense for each mutual fund, will range from 1% to 1.45%, according to a report in the Wall Street Journal on Wednesday. Total costs for other funds can be as high as 2.5%.

"Many investors prefer to rely on our investment expertise to keep their portfolios in line given the unpredictable movements of the market. They may also be put off by the high fees often associated with other mutual fund advisory programs," said Walt Bettinger, president of Schwab Investor Services. "We created Schwab Managed Portfolios to address this increasing demand from investors for a simpler but sophisticated and affordable solution to their investment needs."

Schwab will be offering clients eight new mutual fund portfolios. Each portfolio invests in about 12 individual mutual funds which consist primarily of Schwab's own equity funds. The investment minimum is $50,000.

Schwab's initiative shows how some brokers are trying to move away from the traditional trading business. Online brokers such as E*Trade (ET - Get Report), Ameritrade (AMTD - Get Report) and Charles Schwab have each tried to outdo the others by slashing trading charges. Mutual fund wrap accounts are one way that brokers can boost revenue beyond ordinary trading commissions.

Schwab rose a penny to $16.36.

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