Schwab's offering of nine new ETFs may be 'late to the game'

Charles Schwab Investment Management Inc. has filed papers with the Securities and Exchange Commission to offer nine exchange traded funds. But despite the massive resources the unit of The Charles Schwab Corp. of San Francisco presumably has at its disposal, it will have a hard time convincing financial advisers that its ETFs are better than those currently available, according to some industry experts. “I just think they are late to the game,” said James Pacetti, president of ETF International Associates Inc., an industry consulting firm in New York. “The easy money has been made.” Schwab declined to comment, because the ETFs are still pending and in their quiet period, said David Weiskopf, a spokesman for the firm. Six of the ETFs — Schwab U.S. Broad Markets ETF, Schwab U.S. Large-Cap ETF, Schwab U.S. Large-Cap Value ETF, Schwab U.S. Large-Cap Growth ETF, Schwab U.S. Mid-Cap ETF and Schwab U.S. Small-Cap ETF — will follow Dow Jones stock indexes, according to an initial prospectus. The Schwab International Equity ETF, Schwab International Small-Cap Equity ETF and Schwab Emerging Markets Equity ETF are expected to follow FTSE stock indexes. No expenses were detailed in the prospectus. Schwab's choice to bring out ETFs pegged to broad-based indexes, however, means that expenses will be crucial to its success as an ETF provider, said Richard Romey, president and founder of ETF Portfolio Solutions Inc., a Leawood, Kan., firm with $50 million under management. “They are offering pure beta products, which are a commodity,” he said. The only way Schwab will be able to compete is if its ETFs are cheaper than its competitors' — principally Barclays Global Investors of San Francisco, State Street Global Advisors of Boston and The Vanguard Group Inc. of Malvern, Pa., Mr. Romey said. And even that may not be enough. In addition to producing cheaper ETFs, Schwab will have to go the extra mile in providing support to advisers who already get excellent support from their ETF providers, Mr. Romey said.