Schwab to waive commissions on its own ETFs

Nov 2, 2009 @ 3:53 pm

By David Hoffman

On the day before it is set to roll out its first set of exchange-traded funds, The Charles Schwab Corp. announced a bold move today: the funds will be made available commission-free for clients with Schwab accounts.

“We think this is a game changer,” Walter W. Bettinger II, president and chief executive of Schwab, said today during a satellite-linked event to kick off the ETF initiative. .

Making its ETFs available without a commission – investors will still have to pay to trade ETFs from other providers – will finally allow for dollar-cost averaging, the lack of which has been a major stumbling block for small investors, he said.

It’s a smart move, said Richard Romey, president and founder of ETF Portfolio Solutions Inc., which manages $52 million.

“For a customer that wants to dollar cost average, I don’t see why you wouldn’t go with Schwab,” he said.

Financial advisers, however, are unlikely to dump their current ETFs in favor of Schwab’s just because they are commission-free, Mr. Romey said.

“I don’t know if I’m going to choose an ETF based on whether I have to pay a $9 commission,” he said. “The question the client will ask is: ‘Are you buying the best thing for me or just trying to save $9?’”

The funds’ expense ratios will be among the lowest available, said Bernard J. Clark, senior vice president of sales and relationship management in Advisors Services at Schwab, said during today’s meeting.

The Schwab U.S. Broad Markets ETF (SCHB) and Schwab U.S. Large-Cap ETF (SCHX) will each have an expense ratio of 0.08%. The Schwab International Equity ETF (SCHF) will have an expense ratio of 0.35%, while the Schwab U.S. Small-Cap ETF (SCHA) will have an expense ratio of 0.15%.

In December, Schwab plans to offer the Schwab U.S. Large-Cap Growth ETF (SCHG) and the Schwab U.S. Large-Cap Value ETF (SCHV) which will each have an expense ratio of 0.15%. The Schwab International Small-Cap Equity ETF (SCHC) and the Schwab Emerging Markets Equity ETF (SCHEX) which will each have an expense ratio of 0.35%.

“This will address the core needs of advisers,” Mr. Clark said of Schwab’s ETF initiative.

Schwab’s domestic equity ETFs will follow Dow Jones stock indexes, while its international equity ETFs will follow FTSE stock indexes.

The ETFs will be advised by Charles Schwab Investment Management Inc., a unit of The Charles Schwab Corp.

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