Charles Schwab Slashes Fees on Entire ETF Lineup
Charles Schwab has long been a big player in the investment market with its wide variety of investing services and online trading system. In the last few years, the company has taken to expanding its focus on exchange-traded funds, offering a diversified lineup of ETFs to investors.
This lineup of 15 funds not only trades commission-free for Schwab clients, but it also offers up among the lowest expense ratios in the ETF world, often times rivaling or beating out similar funds from Vanguard and State Street (see Guide to the 25 Cheapest ETFs).
Apparently, this strategy has been a winning one for Schwab as the company has seen great success, pulling in just under $8 billion in AUM while also possessing one of the highest average levels of assets for any ETF issuer currently on the market.
In fact, no one product has less than $150 million in assets, while eight have more than half a billion in assets, suggesting that this low cost model has definitely paid off for the company so far.
Yet, if that wasn’t enough, Schwab recently revealed that it was slashing the costs on all of its ETFs, making them the cheapest offerings in each of their respective categories. As a testament to their commitment to the low-cost approach, the company now has two ETFs, the Multi-Cap Core Fund (SCHB) and the Large-Cap Core Fund (SCHX) that have expense ratios of just 0.04% per year, making them the cheapest ETFs in any category (read Ten Biggest U.S. Equity Market ETFs).
With such incredibly low fees, it is questionable if Charles Schwab can actually make a profit on its ETF lineup. Instead, it has been speculated that Schwab is looking to pull in advisors and clients with this low cost ETF lineup and then sell them on other company products that are more expensive, thus expanding the broader Schwab business in that route.
This is a pretty interesting strategy and it has immense ramifications for the broader ETF world as well. After all, it seems unlikely that other issuers, who purely are in the game of ETFs, will be able to compete on price with more diversified companies that are willing to use ETFs as loss-leaders to get more investors into their web (read Five Great Commission-Free ETFs on TD Ameritrade).
Either way, this is a great development for ETF investors as it suggests as though the fight for the title of ‘low cost king’ is heating up meaning that cheaper products could be coming down the pike from a number of issuers. This could be especially true if ETF assets continue to flow into low cost options in a particular category, giving issuers further impetus to reduce costs across the board (read Five Cheaper ETFs You Probably Overlooked).
While it remains to be seen how long it takes or which issuers make their move next in this space, the trend is certainly a positive development after a somewhat rough summer for the ETF industry. A number of ETFs have closed down as of late while trading volumes were pretty low during August.
Still, total assets in the space remain at an elevated level and issuers are putting out new products all the time. Add into this trend the fight for low cost products and investors should overall be quite happy with the current state of the ETF industry, despite some of the growing pains that we have seen as of late.
For investors looking for more information on Schwab’s changes, we have highlighted the company’s products below, by AUM, along with their new expense ratios:
Ticker | ETF | New Expense Ratio |
US Broad Market ETF | 0.04% | |
US Large-Cap ETF | 0.04% | |
International Equity ETF | 0.09% | |
US Small-Cap ETF | 0.10% | |
Emerging Markets Equity ETF | 0.15% | |
US TIPS ETF | 0.07% | |
US Dividend Equity ETF | 0.07% | |
US Large-Cap Growth ETF | 0.07% | |
US Large-Cap Value ETF | 0.07% | |
US REIT ETF | 0.07% | |
US Aggregate Bond ETF | 0.05% | |
US Mid Cap ETF | 0.07% | |
Short-Term Treasury ETF | 0.08% | |
Intermediate-Term Treasury ETF | 0.10% | |
International Small Cap Equity ETF | 0.20% |
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