Your Securities Transactions and Schwab's Compensation
When individual investors purchase products or services from Charles Schwab, Hong Kong, Ltd. ("Schwab Hong Kong") and its affiliates, including Charles Schwab & Co., Inc. (Schwab U.S.) (Schwab Hong Kong together with its affiliates collectively hereinafter referred as "Schwab"), Schwab acts in agency capacity for all trades apart from certain fixed income trades where Schwab acts in principal capacity. Schwab may earn money from third parties or affiliates in addition to the fees paid by our clients. This compensation may apply to products or services that are bought, sold or introduced through Schwab, including offshore mutual funds, certain U.S. mutual funds, fixed income, or Exchange-Traded Funds ("ETFs").
As such, Schwab is NOT an independent intermediary. Any monetary benefits received or receivable from affiliates or third parties which may include product issuers, directly or indirectly, are explicit and quantifiable prior to the point of sales. For details, please refer to the following disclosure on monetary benefits. Schwab does not engage in a back-to-back transaction of the above-mentioned investment products except fixed income. Schwab does not receive from affiliates or third parties non-monetary benefits for distributing investment products.
Schwab Hong Kong may receive monetary compensation from Schwab U.S. in relation to the distribution of investment products to our clients. As such, Schwab Hong Kong is NOT an independent intermediary.
Please note that the information provided throughout this document describes how Schwab earns money from third parties, not how clients pay Schwab for services. Information about what clients pay Schwab can be found in Schwab Hong Kong Pricing Guide for Individual Investors at www.schwab.com.hk or in the disclosure brochures that describe Schwab's fee-based advice programs.
Schwab may discount its fees and charges from time to time at its absolute discretion.
Through Schwab's Offshore Mutual Fund Center, Schwab makes available a selection of load-waived offshore mutual funds. Schwab receives compensation from offshore mutual fund companies when clients invest in an offshore mutual fund. Schwab receives fees and other remuneration from offshore mutual fund companies or their affiliates for the recordkeeping, shareholder services, and other administrative services that Schwab provides to shareholders of the funds. These shareholder services include transaction processing, settlement of trades, dividend distribution, record maintenance, and distribution of statements, confirmations, prospectuses and other regulatory shareholder documents.
To compensate Schwab for these various shareholder services, the funds pay Schwab either an asset-based annual fee, which usually equals 0.60% of the average fund assets held at Schwab, but may be as high as 0.75% annually, or the funds pay Schwab any service fee or commission payable to a broker as disclosed in the fund's offering documents. Schwab may also receive a networking fee for each sub-account, most often equal to $6 annually.
Schwab receives fees and other compensation from certain mutual fund companies or their affiliates for the recordkeeping, shareholder services, and other administrative services that Schwab provides to shareholders of such funds (shareholder services). These services include, among other things, transaction processing, settlement of trades, dividend distribution, record maintenance, and distribution of statements, confirmations, prospectuses and other regulatory shareholder documents. In addition, Schwab currently has two affiliated mutual fund families: the Schwab Funds® and the Laudus Funds®. Schwab and its affiliate, Charles Schwab Investment Management, Inc. ("CSIM"), receive fees from these Schwab-affiliated funds for the services they provide to the funds. These fees are discussed more fully in Schwab's financial and other relationships with ETFs and mutual funds available at www.schwab.com/transparency/limitations-conflicts.
Schwab reserves the right to act as principal on any fixed income transaction. When Schwab acts as principal, the bond price includes our transaction fee and can also include a markup that reflects the bid-ask spread and is not subject to a minimum or maximum. When trading as principal, Schwab may also be holding the security in its own account prior to selling it to you and, therefore, will make (or lose) money depending on whether the price of the security has risen or fallen while Schwab has held it. Schwab does not act as both principal and agent simultaneously in the same transaction.
Please note that Exchange-Traded Funds (ETFs) featured in the ETF Center are U.S.-listed securities and are not funds authorized by the Securities and Futures Commission ("SFC") in Hong Kong.
Some third-party ETF sponsors or their affiliates make payments to Schwab for ETF-related opportunities such as education, events, and reporting. Certain ETF sponsors pay Schwab up to $750,000 annually for access to data and reports. The total amount of the fees paid by each ETF sponsor to Schwab for education and events will vary depending on the type and number of opportunities in which the ETF firm participates. For specific information, clients should review the particular prospectus or offering document for the fund or investment selected, which is available upon request and will be delivered to you at the time of purchase. Prospectuses for Schwab ETFsTM can be found at www.schwabassetmanagement.com/prospectus. Schwab does not receive payment to promote any particular ETF to its customers.
Schwab also receives remuneration from third-party active semi-transparent ETFs or their sponsors for platform support and technology, shareholder communications, reporting, and similar administrative services for third-party active semi-transparent ETFs available at Schwab. This fee will vary, but typically is an asset-based fee of 0.10% per annum of the assets held at Schwab. To the extent that any part of the fees described are paid by ETF sponsors out of fund assets, those amounts are included in the ETF's operating expense ratio ("OER"), which means they are indirectly borne by the fund's shareholders.
Schwab's affiliate, CSIM, serves as investment advisor to Schwab ETFs, which compensate CSIM out of the applicable operating expense ratios. The amounts paid to CSIM for Schwab ETFs will vary depending on the particular fund in which you invest and may range from 0.03% to 0.59% of assets annually. Specific information concerning the advisory fees paid to CSIM by each Schwab ETF is available in the applicable fund prospectus.
Schwab entered into a long-term strategic relationship with T. Rowe Price. Under this arrangement, T. Rowe Price makes payments to Schwab in exchange for Schwab promoting certain actively managed T. Rowe Price mutual funds and ETFs to Schwab's clients, and for providing additional mutual fund and ETF marketing support to T. Rowe Price. This payment is in addition to and separate from payments T. Rowe Price makes to Schwab for shareholder and administrative services.
In addition to the fees described above, Schwab can earn additional compensation from certain mutual funds for the administrative services Schwab provides in connection with various event sponsorship or marketing opportunities. The amount of such fees varies depending on the type and number of opportunities in which the fund participates.
These fees are discussed more fully in Schwab's financial and other relationships with ETFs and mutual funds available at www.schwab.com/transparency/limitations-conflicts.
Disclosure: This note is for your information only and is not intended as an offer, or a solicitation, to buy or sell any investment or specific product. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. This note may not be reproduced and/or circulated without prior authority of Charles Schwab, Hong Kong, Ltd. All information in this note is subject to change without notice.