Charles Schwab announced Friday that it had cut operating expense ratios on all of its proprietary ETFs, and also said that testing was underway on an ETF-only 401(k) option that might be available in late 2013 or some time in 2014.
Marie Chandoha, president, Charles Schwab Investment Management, was joined on the “Every Third Friday” conference call by Walt Bettinger, president and CEO of Charles Schwab. The call was opened with the announcement that, according to Chandoha, the firm was “making dramatic reductions to expense ratios for all Schwab ETFs.”
The 15 proprietary ETFs already have, she added, the lowest prices in their respective Lipper categories. However, the firm had cut prices further on all of them, by 25% to 59%. The price on the Schwab U.S. Broad Market ETF (SCHB), she added, has been dropped from 6 basis points to “an industry low of 4 bp.” The weighted price for the entire line, she said, is now below 8 bp. In response to a later question, she said that the exact figure is 7.7 bp.
Bettinger referred to the price cut as taking “the next step on behalf of the average investor,” and continued, “One certainty with investing is expenses, which detract from returns. We don’t think it should cost clients a lot to do the right things with their money.” He added that the price cuts were not a “temporary response” or a “marketing strategy.”
Asked if Schwab was making money on its ETFs, Bettinger replied, “That’s a little like asking Apple if they make money on the glass screen of the iPhone. If they make money on the phone, it’s okay. At Schwab it’s no different.”
The new lower fees went into effect late Thursday afternoon. Schwab ETFs can also be traded online without commissions, which Bettinger said made it much easier on the individual investor with a modest amount of money to set aside in dollar cost averaging. If such an investor, he said, had $400–$500 per month to average out over 8–10 ETFs and had to pay fees, that would have a significant impact on what was left to invest. “We make it easier by eliminating the commission barrier,” he said.
Bettinger also said that the ETF-only 401(k) was in the testing phase and cited the “technical aspects of patented processes” as taking time to execute. However, he said it was expected that it would be available on a broad basis “in 2013, possibly toward 2014” and that “the list of people who want it is long.”
Chandoha also said that Schwab has filed for an active ETF exemption, but that she couldn’t speak about plans for it—but added, “We will be launching additional products.”