ETF fee war heats up some more as Schwab fires back

ETF fee war heats up some more as Schwab fires back
Brokerage lowers its charges in challenge to Vanguard; BlackRock on the same trail
NOV 06, 2012
It's turning out to be Christmas in September for exchange-traded fund investors. The Charles Schwab Corp. filed with the Securities and Exchange Commission late Thursday night to cut the fees on a number of its ETFs, making it the latest provider of the passively managed vehicles to reduce charges. BlackRock Inc.'s San Francisco-based ETF arm iShares, the largest provider of ETFs with more than $500 billion in assets, announced earlier this month that it would be making strategic fee cuts to its ETF lineup. The impetus for all the fee cuts is the success of Vanguard Group Inc.'s low-cost approach. Thanks in large-part to its focus on low-fees, Vanguard's ETFs have led the industry in inflows for the past three years. All told, Vanguard's exchange trade funds have pulled in $73 billion. The fee cuts Charles Schwab announced aren't nearly as big as the ones expected from BlackRock, but they will make brokerage's already cheap options the cheapest options. The $938 million Schwab U.S. Large-Cap ETF Ticker:(SCHX) will cost four basis points, down from eight, and be a single basis point cheaper than the $5.7 billion Vanguard S&P 500 ETF Ticker:(VOO). Likewise, the $1.13 billion Schwab U.S. Broad Market ETF Ticker:(SCHB) will also see its expense ratio reduced to four basis points, down from six, and two basis points cheaper than the $23 billion Vanguard Total Stock Market ETF Ticker:(VTI). Charles Schwab is no stranger to competing on costs when it comes to ETFs. When it launched ETFs in November of 2009 it became the first brokerage to offer the funds commission-free for its clients. Below are some of the proposed cuts by Schwab.

Schwab U.S. ETFs

Management fee cuts, effective Sept. 20, 2012

Fund New management fees Current management fees
Schwab U.S. Broad Market ETF 0.04% 0.06%
Schwab U.S. Large-Cap ETF 0.04% 0.08%
Schwab U.S. Large-Cap Growth ETF 0.07% 0.13%
Schwab U.S. Large-Cap Value ETF 0.07% 0.13%
Schwab U.S. Mid-Cap ETF 0.07% 0.13%
Schwab U.S. Small-Cap ETF 0.10% 0.13%
Schwab U.S. Dividend Equity ETF 0.07% 0.17%
Source: Securities and Exchange Commission

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