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Schwab Expands Commission-Free ETF Program

Eric Dutram

Over the past few years, brokerage firms have greatly expanded their lineups of commission-free ETFs. These programs allow investors to easily dollar-cost average in to a product, much like they have done for quite some time in the mutual fund world.

In the beginning this lineup was dominated by big names like TD Ameritrade, Fidelity and Vanguard, but others joined the fight too. These firms included Firstrade, Interactive Brokers, and E*Trade, while Charles Schwab also threw its hat into the ring as well.

While Charles Schwab was a little late to the party, the company has made a splash with its ETF lineup. Not only do the funds trade for free on its platform, but there are among the cheapest ETFs currently on the market, making an enticing one-two punch for low-cost focused investors (read Who Says iShares ETFs Aren’t Cheap?).

In fact, despite having just 15 funds, the firm has close to $10 billion in AUM with a minimum of $200 million in all of the funds. This clearly shows that investors have embraced this approach, seeking low cost, commission-free funds in droves.

The lineup, however, is obviously quite small, leaving a number of key portfolio holes for those looking to only utilize ETFs for their investment building blocks. After all, the company doesn’t have any sector-specific funds, and only two international products—SCHF and SCHE—so it clearly doesn’t have the most robust commission-free lineup out there (see Five Cheaper ETFs You Probably Overlooked).

Game Changing Move

Recognizing this problem and the company’s fund lineup weaknesses, Charles Schwab has now partnered with a variety of ETF issuers to offer up their products commission-free as well. The move represents well over 100 ETFs, suggesting that investors will now have a much easier time building a portfolio with commission-free products on their platform.

While the shift includes a number of products built for domestic focused investors, it also has a focus on lower risk ETFs as well. Some of the included funds are the Guggenheim Defensive Equity ETF (DEF), PowerShares S&P 500 Low Volatility ETF (SPLV), and the Guggenheim Multi-Asset Income ETF (CVY), although there were some high beta products included on the list as well (see Four Easy Ways to Play Beta and Volatility with ETFs).

Moving internationally, Schwab investors also saw a huge expansion of their options, although few in terms of individual country ETFs. Instead, the focus seems to be on Guggenheim and SPDR funds which have a broad market focus, such as EDIV or FEU.

Bond ETFs also saw a huge burst in this program, largely thanks to Guggenheim BulletShares and SPDR’s products, but the biggest changes were in other ETF corners. These came in the sector space, largely thanks to the Guggenheim equal weight products, while CurrencyShares ETFs like FXA, FXB, and FXY were also included in the program.

If that wasn’t enough, Schwab’s new program also saw a move into ‘hard asset’ ETFs targeting commodities. These came to us from United States Commodity Funds and their energy products, while ETF Securities also appeared on the list, offering up its precious metal ETFs commission-free to Schwab customers (the full list can be viewed here).

What Does This Mean?

Obviously, this is great news for investors who are focused on ETFs and currently have a Schwab trading account. With this move, the firm has probably jumped into first place in terms of the depth and quality of its current offering (read Schwab Slashes Fees on Entire ETF Lineup).

However, the shift could be good news for investors who have programs at other brokerage houses as well. The scope of this move by Schwab could force others out there to expand their programs as well or risk being left behind, suggesting that the long-term implications from this could be very positive to all investors, no matter where they have their accounts now.

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Follow @Eric Dutram on Twitter

Author is long CVY.

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