Charles Schwab has entered the alternative investment market with a measured approach, launching a platform for retail investors in April.
Unlike its competitors, which have rapidly expanded their offerings, Schwab’s platform currently features only six funds, with plans to grow to about 30 over time. Notably, Schwab is limiting access to clients with household assets exceeding $5 million at Schwab—a threshold far above the accredited investor minimum.
This strategy reflects a deliberate effort to ensure quality over quantity. According to Neesha Hathi, head of Charles Schwab’s Wealth & Advice Solutions, alternative investments often involve complex structures, higher fees, and nontraditional risks. “We wanted to set a bar likely to attract highly educated investors with a genuine need for noncorrelated assets,” she explains. Schwab’s emphasis is on delivering a curated selection of top-tier products to a select group of investors.
Schwab’s platform launch comes amid a broader industry trend of expanding access to alternatives, which include private equity, hedge funds, private credit, and real estate. These investments, traditionally reserved for institutional and ultra-wealthy investors, are now gaining traction among financial advisors and retail investors. The appeal lies in their potential to diversify portfolios and generate income or capital appreciation. However, the illiquidity, high costs, and steep minimums of alternatives remain barriers for many investors. Financial advisors caution that these investments are only worthwhile if clients can access top-tier managers, as high fees can erode returns.
For decades, Schwab has provided alternative investments to registered investment advisors (RIAs) who custody assets with the firm. These RIAs perform their own due diligence and asset allocation, allowing Schwab to offer a broader array of options. However, the company has taken a different approach for self-directed and advised retail clients. Schwab’s vetting process for these clients is more stringent, ensuring products align with their needs and investment goals.
Currently, Schwab offers one to two funds in each category, including private equity, private credit, hedge funds, and private real estate, with plans to expand into other areas such as exchange funds. Hathi emphasizes the importance of quality over quantity, stating, “We could put more products on the shelf, but our focus is on selecting really good ones and providing clients with the education they need.” Schwab’s onboarding process for new funds is rigorous, often taking six months per product, which underscores the firm’s commitment to a curated selection.
Schwab has not disclosed the specific funds, asset managers, or associated fees but highlights its ability to leverage scale to secure lower costs for investors. With approximately $10 trillion in assets under management, Schwab can attract top-tier managers and negotiate favorable terms. “We use our size to deliver value to customers,” Hathi notes. Additionally, the firm has established a team of alternative investment specialists to guide clients, ensuring they understand key aspects like liquidity constraints and private market valuation methods.
While alternative investments hold promise, Schwab acknowledges they are not suitable for all clients, even those meeting its $5 million threshold. Nevertheless, interest in private markets is growing, driven by significant wealth creation and the trend of companies delaying or forgoing public offerings. “Asset managers see retail as their next big opportunity and are working to make alternatives more accessible,” Hathi says. This includes lowering minimum investments and introducing interval funds, which offer limited liquidity compared to traditional funds.
Despite these innovations, Schwab is committed to maintaining high standards. “Easier access doesn’t mean we should lower the bar,” Hathi asserts. “Our measured approach starts with the $5 million threshold, ensuring we deliver quality and value to our clients.” Schwab’s strategy reflects a balance between innovation and caution, positioning the firm to meet growing demand for alternatives while safeguarding investor interests.
