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By Scott Burns | 09-21-2010 10:29 AM

Due Diligence on Model Portfolios

Schwab's Michael Iachini offers tips on assessing and benchmarking model portfolio strategies.

Scott Burns: Talking ETF model portfolios. Hi there, I'm Scott Burns, Morningstar's director of ETF research.

Joining me today is Michael Iachini, who is a director in Charles Schwab Investment Advisory Group. There Michael oversees a team of analysts who are looking at not only mutual funds but also ETFs for things like Schwab's Select List and also for Schwab's in-house model portfolio or wrap portfolio programs.

Michael, thanks for joining me.

Michael Iachini: Thanks Scott.

Burns: Michael, maybe you can talk a little bit about your role inside of Schwab, because I think, for the general public out there, you have a very large team. You play a very important role, a very important broker/dealer out there, but you're very much in the background a little bit.

Iachini: Yeah. Our group in the Charles Schwab Investment Advisory, we are in the background. We are not out there in the branches. But what we do is a lot of things that people in the Schwab branches are using with clients. So we put together Schwab's recommendable mutual fund list, like the Select List, very well known by our clients.

We are also in charge of Schwab Managed Portfolios, one is a mutual fund version, we also have an ETF version, and these are portfolios that a client can basically say, I want to hire Schwab to manage money for me. So you buy mutual funds or ETFs that are appropriate for me whether I'm aggressive or conservative or somewhere in between.

Burns: An area that's really come on to our radar at Morningstar lately has been this model portfolio or the wrap portfolio, as it's known. Is that an area that Schwab is really looking to grow business in right now?

Iachini: Yes. Schwab is definitely interested in these model portfolios, these wraps. We started our first one a little over four years ago. That was a mutual fund version, and then an exchange rated fund version at the beginning of 2010, and Charles Schwab Investment Advisory has been hired to run those and actually pick the funds. And it's something that a lot of clients want. It's really for the do-it-for-me client, who doesn't want to have to pick their own funds, rebalance their own account. That's really who Schwab was aiming for when they brought out this wraps. They've asked to manage those by picking good managers from mutual funds and by doing good management of the ETFs in the portfolio over the ETF version.

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