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ETF Fee Cuts: Almost a ‘Free Lunch’


Charles Schwab (SCHW) has lowered the expense ratios on 15 of its ETFs even closer to zero and is planning to follow up with more fee reductions.

There is a fee war raging in ETFs even if some executives dismiss the idea. Vanguard slashed expense ratios on several ETFs earlier this year, and BlackRock has announced plans to shrink fees on some of its iShares ETFs.

Schwab’s move this week makes it ridiculously cheap to invest in its ETFs. For example, the new expense ratio for Schwab U.S. Large Cap (SCHX) is just 0.04%. Additionally, Schwab waives trading commissions for clients that invest in its ETFs online. [Schwab Cuts Fees on 15 ETFs]

Schwab entered the ETF business in 2009 and the business has grown to $7.2 billion in assets under management.

“In this period of uncertainty in the markets, the expenses investors pay are the only sure thing,” said Schwab CEO Walt Bettinger, adding the firm wants to offer its clients a truly low-cost way to build a diversified portfolio. “It shouldn’t cost a lot for investors to do the right things with their money.”

“We believe Schwab ETFs are a great tool for this because they provide our clients with exposure to core asset categories, and have a history of being tax efficient and performing in line with their indexes,” added Marie Chandoha, president of Charles Schwab Investment Management, in a press release. “Today’s announcement lowers one more barrier for investors who use our ETFs as the building blocks of their portfolios.”

Investors’ ability to build diversified, low-cost portfolios with ETFs is “astounding,” says Tadas Viskanta at the Abnormal Returns blog.

“Not all that long ago these types of expenses were reserved for the largest institutional investor. Now they are available to the smallest investor,” he wrote.

“There ain’t no such thing as a free lunch in this world, but at least when it comes to a certain class of ETFs there are some very cheap lunches,” Viskanta said.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.