As broker/dealer competition for the exchange traded fund market heats up, Charles Schwab Investment Management Inc. on Monday, June 14, announced that it is reducing fees on six of its propriety ETFs.
In lowering the permanent operating expense ratios (OERs) on six of eight ETFs, Schwab claimed to be the market leader in low-cost ETFs. Schwab clients can trade the funds commission-free online at schwab.com.
“Schwab is committed to providing investors with the building blocks for a well-diversified portfolio at an exceptionally low cost,” said Peter Crawford, senior vice president, Investment Management Services at Charles Schwab, in a news release. “Following these most recent reductions, no other ETFs offer lower expense ratios in their categories than Schwab ETFs.”
Crawford later explained by e-mail that Schwab lowered its fees so investors can save money on zero commissions while Schwab builds its pool of ETFs.
“Unlike some other firms who achieve low expense ratios through fee waivers that expire in a few months, these cuts are not temporary,” Crawford said. ETFs are a spectacular modern investing tool, but they’ve been encumbered with some challenges around cost in the past that made the average investor wary. The combination of commission–free trading and lowest available OERs in Schwab’s ETFs takes away many of those problems.”
Competition in the increasingly popular ETF market is growing by the day, and broker/dealers are now fighting over who gets the biggest piece of the investor pie.
For example, a new Vanguard study finds that lower-cost mutual funds and ETFs have attracted the predominant portion of investor dollars over the past decade. Experts caution, though, that poor market timing and other factors can mitigate the benefits of these lower costs.
In “Costs Matter: Are Fund Investors Voting With Their Feet?” Vanguard found that in five fund categories, investors favored funds with lower expenses, directing between 55% and 93% of cumulative net cash flow to the lowest-expense quartile of funds.
The six ETFs reducing OERs are:
Schwab U.S. Broad Market ETFTM to 0.06% from 0.08%
Schwab U.S. Large-Cap Growth ETFTM to 0.13% from 0.15%
Schwab U.S. Large-Cap Value ETFTM to 0.13% from 0.15%
Schwab U.S. Small-Cap ETFTM to 0.13% from 0.15%
Schwab International Equity ETFTM to 0.13% from 0.15%
Schwab Emerging Markets Equity ETFTM to 0.25% from 0.35%
Schwab ETFs can be bought and sold without commissions in Schwab accounts if purchased online, regardless of the number of shares traded. They can be purchased in blocks as small as one share per trade. Schwab ETFs are listed on NYSE Arca, and can also be traded on other exchanges.
While online trades of Schwab ETFs are commission-free at Schwab, trades of third-party ETFs are subject to commissions, and broker-assisted and automated phone trades are subject to service charges.
Read a story about a Vanguard study of low-cost ETFs from the archives of InvestmentAdvisor.com.