Investors Hunger for Greater Transparency and Clarity on Bonds, Finds New Schwab Study

Wednesday, October 26, 2011 5:30 am PDT

Dateline:

SAN FRANCISCO

Public Company Information:

NYSE:
SCHW
"Is there any other marketplace where a consumer would purchase something without being clear on the costs or understanding what they are buying?"

SAN FRANCISCO--(BUSINESS WIRE)--According to a study released today by Charles Schwab, many U.S. retail bond investors don’t think their brokerage firm is sharing enough information about how individual bonds are priced and the way that they’re sold.

“Investors are tired of being kept in the dark. It’s time for this industry to take a fresh look at how to talk about bond prices and broker fees, and re-evaluate whether there is the right transparency and straightforward information available for investors,” said Peter Crawford, senior vice president of Charles Schwab.

The study reveals that although three quarters (73 percent) of bond investors surveyed want these pricing details, 44 percent say they can’t figure out how much their bonds are “marked up,” and 24 percent simply don’t know how their bond firm is compensated.

The Bond Investor Study by Charles Schwab was developed to explore the perceptions of individual investors about investing in the U.S. bond market. The online survey, conducted by Koski Research in September 2011, was completed by 510 individual investors in the U.S. with a minimum of $250,000 in total investable assets and at least $25,000 in bonds that were purchased within the past two years. These bond holders were fairly affluent, with an average of $486,000 invested in individual bonds, and an average of $1.8 million in household savings and investable assets.

What’s This Bond Gonna Cost Me? Investors Really Don’t Know

Two-thirds of respondents say it’s extremely important that they receive competitive pricing, and half say it’s extremely important to have a clear understanding of all mark-ups and fees. Sixty percent of bond investors appreciate that bond prices vary across firms, although once armed with this information, they seem resigned to the status quo:

  • Only 35 percent believe they always get the best price from their bond broker.
  • Forty percent say they do not know how to get the best price on bonds.
  • Roughly 40 percent claim it is either too complicated or too time-consuming to shop for the best price.

Half of investors surveyed confirm that they pay some type of additional fee when they invest in bonds. But only 27 percent know what they pay – which they say, on average, is a $6.10 mark-up on the base price of a $1,000 bond.

“Investing in the bond market shouldn’t be an act of faith,” said Crawford. “It’s clear that bond investors find the fixed income markets opaque and confusing, which is why we have worked to help demystify what they pay and how they can invest.”

At Schwab, investors have access to a wide variety of U.S. bonds, screening tools and research, and guidance from bond professionals to help them make more informed bond investing decisions. Schwab’s $1.00 mark-up per bond on domestic U.S. bonds is a fee structure that’s simple to understand, among the lowest in the industry, and provided immediately with quoted prices.

Bond Investors Want to Know More about Bonds

Schwab study respondents have a strong appetite for being more knowledgeable about their bond investments – whether it’s by relying on advice from financial professionals for bond buying decisions, doing their own research and analysis, or some combination of both of these. Two thirds (66 percent) say it is extremely important to know about issues or risks associated with specific bonds. Seventy-five percent use online resources when making bond investment decisions, using online research and ratings on specific bonds most frequently, followed by search and filter tools.

The Bond Investor Study also found that:

  • Forty-six percent say access to a knowledgeable bond specialist is extremely important.
  • Forty-six percent also say it is extremely important to know that their brokerage has no conflicts of interest because it does not underwrite any bonds.

“Is there any other marketplace where a consumer would purchase something without being clear on the costs or understanding what they are buying?” said Crawford. “We are committed to shining a bright light on the bond market so that individual investors can know more about what they are buying.”

About Schwab BondSource®

Schwab’s BondSource offers access to over 36,000 new issue and secondary bond offerings from more than 200 dealers1, connecting investors to multiple major bond trading platforms, not just one. Schwab’s online platform offers clients access to professional research and user-friendly bond search and filter functionality. Bond investors are automatically presented with the lowest prices available through Schwab, although prices can be compared easily as well. In addition, all clients have access to Schwab’s tenured, dedicated team of 100 fixed income specialists2 who can provide further guidance.

About The Bond Investor Study by Charles Schwab

The Bond Investor Study by Charles Schwab was an online survey of U.S. investors conducted by Koski Research in September 2011, and has a 4.4 percent margin of error. A total of 510 respondents completed interviews. Survey respondents had a minimum of $250,000 in total investable assets, ranged in age between 25 and 75, had $25,000 invested in bonds directly, and had purchased individual bonds within the past two years. Survey respondents were not asked to indicate whether they had accounts with Charles Schwab. All data is self-reported by study participants and is not verified or validated. Investors participated in the study between September 6 and September 16, 2011. Detailed findings can be found at www.aboutschwab.com/press/research/bond_investor_study.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 300 offices and 8.5 million active brokerage accounts, 1.46 million corporate retirement plan participants, 769,000 banking accounts, and $1.58 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and mortgage services and products. More information is available at www.schwab.com and www.aboutschwab.com. (1011-6960)

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Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.

Schwab reserves the right to act as principal on any Bond transaction. In secondary market principal transactions the price will be subject to our standard mark up in the case of purchases and a mark down in the case of sales, and also may include a profit or loss to Schwab. When trading as principal, Schwab may hold the security in its own account prior to selling it to you, or may resell it after buying from you and, therefore, may make (or lose) money separately from the markup on the transaction.

1As of September 29, 2011

2As of September 6, 2011

Contact:

Charles Schwab
Alyson Nikulicz, 212-403-9240
alyson.nikulicz@schwab.com
or
The Neibart Group
David Neibart, 718-875-4198
dneibart@neibartgroup.com

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