Schwab opens platform to more than 100 ETFs commission-free

Move is welcomed but iShares, Vanguard missing from new lineup

Feb 7, 2013 @ 4:48 pm

By Andrew Osterland

Charles Schwab & Co. Inc. is launching an expanded platform to give investors and financial advisers the ability to trade more than 100 exchange-traded funds commission-free.

Schwab ETF OneSource, which went live today, allows Schwab customers to trade a roster of 105 ETFs across major asset classes from providers including State Street SPDR ETFs, Guggenheim Investments, PowerShares, ETF Securities, United States Commodity Funds, as well as Schwab's own stable of 15 ETFs.

For financial advisers who hold clients assets in custody with Schwab and use ETFs in their investment strategies, the move is a welcome development.

“This is a win-win for advisers and their clients,” said Thomas Meyer, president of Meyer Capital Group, who holds assets in custody with Schwab. “We use Guggenheim funds, so we're pleased. I think this is going to very good for the industry.”

Whether Schwab's move changes the landscape for investors, however, remains to be seen. Notably absent from the product provider list are the two industry heavyweights — BlackRock Inc's iShares and The Vanguard Group Inc. Together, the two companies account for nearly 60% of all assets in ETFs.

“We spoke to a number of providers,” said Beth Flynn, vice president of the ETF platform at Schwab. “The arrangement isn't for everyone.”

The arrangement is that providers pay a two-part fee for access to Schwab's platform. First is a flat annual fee and second is an asset-based fee on new purchases of the funds to help Schwab cover shareholder servicing and marketing costs, according to Ms. Flynn.

The opening fund lineup covers 54 of the 89 investment categories identified by Morningstar Inc., and Schwab plans to add to the offerings going forward.

“This a great value proposition for our clients, and this is just the start,” said Ms. Flynn. “MutualFund OneSource started with eight providers and 80 funds. Now it has hundreds of providers and about 4,000 mutual funds on the platform.”

Schwab isn't exactly a trailblazer on this front. In fact, it's catching up to TD Ameritrade Inc., which already offers commission-free trading on more than 100 ETFs.

The fund lineup, while covering a wide range of investment categories, still is a little thin, suggested Michael Rawson, a fund analyst for Morningstar. “Schwab itself has a pretty broad lineup of ETFs, and it looks like they didn't put many funds on the list that compete directly with their own funds,” he said.

The list also doesn't include some of the participating providers' most popular funds, such as the SPDR S&P 500 ETF or the SPDR Gold Shares ETF — both of which trade actively and generate significant commissions.

“This is good for investors and advisers, but I probably wouldn't call it a game-changer for the industry,” said Mr. Rawson.

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