Charles Schwab Investment Management announced on May 5 that it has made a permanent move to lower expenses, simplify share classes, and lower minimum investment levels to $100 for all of its Schwab equity index funds.
“All investors will now pay the same low price for all Schwab funds,” said Peter Crawford, senior VP, investment management services, at a press event in New York. He added that with expense ratios that now run from nine to 29 basis points, the expense reductions on the six equity index funds average more than 50%.
Crawford said that this move has been in the works for close to a year and that Schwab has invested “tens of millions of dollars,” in the effort with the intention of putting “more money in our clients pockets,” or in their investment portfolios.
Using data from their rivals Web sites, Schwab compared its S&P 500 Index Fund (minimum: $100; expense ratio: 9 b.p.) to Vanguard’s 500 Index Investor Shares (minimum: $3,000; expense ratio: 15 b.p.) and Fidelity’s Spartan 500 Index Fund Investor Class (minimum: $10,000; expense ratio: 10 b.p.) to make the case that this move will help small investors who couldn’t afford the higher minimums.
Crawford compared the new expense ratios to those for ETFs, but since the Schwab funds are all no load, without any commissions.
Schwab is also simplifying the fees on all of its equity and bond funds with one expense ratio at a minimum investment of $100.
When asked if the move signified that mutual funds have become an extremely low-margin business, Randy Merk Schwab’s president and CEO of investment management services responded that low expense ratios do not equal low margins and that Schwab views its ability to keep expenses down as a competitive advantage. He called the move very “client friendly” and said he expected it to bring Schwab new customers. “If we make our clients happy, they’ll tell a friend,” he said.