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In an earlier memo I raised the question about what possible motivations
Schwab might have in closing money funds to new investors.
While the most plausible reason didn't come from our group, here's what
I got: 1) They now own a bank. If that were the case every
accountholder, when forced to, would move their cash elsewhere, for the
Schwab Bank current rate is about net one half of one percent. They
couldn't afford to lose the existing management fees they now earn. 2)
They didn't want to give newer investors the advantage of
participating in an investment pool where older existing holdings were
generating rates substantially above current rates. In other words rate
dilution for longer term holders. Very altruistic, but if that was the
real reason they'd create a new one for just for new money and
consolidate later when rates stabilized. 3) And the one I believe is
the most plausible -- They didn't want the exposure to law suits that
they would have if some of their current pricing on existing holdings
were at knowingly optimistic levels, and therefore any new money which
purchased shares at $1.00 per share overpaid.
I've been wrong before, on many occasions, but in my mind that's the
most logical opinion, and that's all it is.
Anybody know if others are closing money funds to new investors?
Hope I'm wrong again.
Richard
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