Schwab cuts fees on ETFs in latest swipe at Vanguard

Firm ups the ante after offering commission-free trades online seven months ago

Jun 14, 2010 @ 3:19 pm

By Jessica Toonkel Marquez

Charles Schwab & Co. Inc. has reduced the total operating expenses of its exchange-traded funds — undercutting The Vanguard Group Inc. in the process.

The move, which leaves Schwab with the lowest fees in the industry, comes just seven months or so after the firm launched its ETFs and began offering the funds online without commissions.

“What we have seen over the last six months is that clients have been attracted to the low operating expenses and the no-commission structure,” said Peter Crawford, senior vice president of investment management services at Schwab.

Schwab has reduced the expense ratio on six of its eight ETFs.

The company slashed the total operating expenses to 0.13%, from 0.15%, for its U.S. Large-Cap Growth ETF Ticker:(SCHG), U.S. Large-Cap Value ETF Ticker:(SCHV), Small-Cap ETF Ticker:(SCHA) and International Equity ETF Ticker:(SCHF). The firm also reduced the fees for the U.S. Broad Market ETF Ticker:(SCHB) to 0.06%, from 0.08%, while lowering the fees on its Emerging Markets Equity ETF Ticker:(SCHE) to 0.26%, from 0.35%.

Schwab's other two ETFs, the Schwab U.S. Small-Cap ETF Ticker:(SCHA) and the Schwab International Small-Cap Equity ETF Ticker: (SCHC), already had low expense ratios, compared with their peers', Mr. Crawford said.

When Schwab first offered commission-free ETFs online in December, it set off a wave of similar moves by competitors.

In February, Fidelity Investments dropped the commission for online trades for 25 of BlackRock Inc.'s iShares ETFs. In May, Vanguard began offering investors commission-free trades in its ETFs.

“By undercutting Vanguard, the low-priced leader, Schwab now offers the best economic choice for some of the top major asset class choices,” said Tom Lydon, a registered investment adviser and president of Global Trends Investments. “If you custody at Schwab as an adviser, you have little reason not to use Schwab for your ETF choices.”

Total operating expenses of Vanguard's ETFs average 0.18%, according to the firm.

Vanguard isn't worried about losing market share to Schwab as a result of the move, said John Woerth, a spokesman.

“Vanguard leads the ETF industry, with $14.3 billion in net cash inflows — twice the amount of the nearest competitor,” he said.

Assets in Schwab's exchange-traded funds top $1.2 billion.


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