By Andrew Welsch

While some Wall Street companies are sprinting to offer more alternative investment products to clients, Charles Schwab's approach may be best described as a slow walk. The company's alternative investment platform for retail clients launched in April and currently has just six funds available, with plans to grow to about 30. Other wealth managers are adding dozens of alternative investments to their platforms every year. What's more, Schwab is also restricting access to clients with more than $5 million in household assets at Schwab. That's well above the minimum for an accredited investor.

The approach is a deliberate one, says Neesha Hathi, head of Charles Schwab's Wealth & Advice Solutions unit. Alternative investments can be structured differently than traditional stock and bond funds and carry higher fees, so the company wanted to start with a curated set of products and a high threshold for access, she says. "We wanted [to set] a bar where we would be likely to find investors who are more highly educated, and more likely to have a need for noncorrelated assets," she says.

Schwab's offering comes as a slew of asset and wealth management companies seek to broaden access to alternatives, a broad category of investments and products that can include private equity, hedge funds, and private credit. Access to alternatives has traditionally been restricted to institutional investors and the ultrawealthy. The products can be illiquid, costly, and have high minimums for investing. Some financial advisors suggest alternatives are worth it if you have access to top tier managers, otherwise the fees may outweigh the benefits. Nonetheless, there is growing interest in the category among advisors and retail investors who are looking for investment options that don't correlate with traditional stocks and bonds, and that can generate income, capital appreciation, or both.

Schwab has long made alternative investments available to the thousands of registered investment advisors, or RIAs, who custody client assets at the company. Schwab provides independent advisors with asset management, technology and other services. The RIA makes asset allocation decisions on behalf of their clients, and does his or her own due diligence so Schwab feels comfortable making a broader array of alternative investing options available.

In contrast, Schwab has developed a separate process for vetting alternative investments that would be made available to self-directed investors and advised clients (that is customers who have a Schwab financial consultant) who meet its criteria, Hathi explains.

Schwab currently makes available one to two funds in categories such as private equity, private credit, hedge funds, and private real estate from third-party asset managers. It will add other categories such as exchange funds. Although Schwab can go above its target number of investment products, it prefers a more curated list, Hathi says. "We could put a lot more things on the shelf, and we might, but our focus is on getting really good products, education for clients, and in the model they want," Hathi says.

"It takes six months to get a fund on the shelf," she adds. "It's not a quick process. And that's another reason we want to keep it small and focused."

Westlake, Texas-based Schwab declined to name the funds, asset managers, or the fees they charge, but said it tries to leverage its scale to negotiate lower costs for investors. The company has about $10 trillion in assets. "We can use our size to bring the best asset managers to the table and deliver good value for customers," she says.

It has also created a team of alternative investment specialists to talk with clients about the products and the clients' needs. Hathi says its critical clients understand key features of alternatives, such as their potential liquidity constraints and that valuation methods can be different in private markets compared with public markets.

Alternative investments won't be appropriate for all clients, even those who meet Schwab's criteria. But there is growing interest in private markets because there is a lot of wealth creation occurring there; companies are taking longer to go public, if they ever do, Hathi notes.

"I think the asset managers are looking at retail as their next big opportunity, so they are trying to make it easier to access alternatives, " she says. That may mean lowering investment minimums or launching interval funds, which are closed-end investments that offer investors limited opportunities to sell shares.

"All those things are about making it easier for retail investors," she says. "That means there will be products, but that doesn't mean we should lower the bar. We are trying to take a measured approach by starting with that $5 million."

Write to Andrew Welsch at andrew.welsch@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 04, 2025 14:49 ET (18:49 GMT)

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