The discount brokerage firm, Charles Schwab, has entered the ETF game. While Schawb’s new ETFs have turned heads with their novel premise of commission-free trading, the firm’s first move into ETFs has already generated some controversy.
Charles Schwab Corp. (NASDAQ: SCHW) launched a new, ground-breaking line of ETFs that waive commissions for its clients. As a result, competitors and advisors are taking notice, writes Jed Horowitz for InvestmentNews.
However, Richard Lehmann, investment advisor firm owner, worries that others may jump in after observing Schwab’s success, which would ultimately harm the individual investor. Lehman believes day traders, like retirees and largely unsophisticated investors, would be lured by the prospect of commission-free trades. As competitors move into this ETF space and do similar things, the harm would be multiplied even further, he says.
TD Ameritrade Holding Corp. (NASDAQ: AMTD) chief executive Fred Tomczyk suggests that the zero-commission ploy is not motivated by altruism. Tomcyzk says that “they are trying to create an ETF with a 12(b)-1 on it.” Schawb includes the right to impose trailing commission fees on their ETF products.
With all due respect, when I go to an all-you-can-eat buffet, I can eat 10 plates of food, but I wouldn’t. I trust the majority of people would be similarly level-headed. The positives of what Schwab has done far outweigh the negatives. The fact is that advisors who are in custody at Schwab care about costs and transaction fees, and this is a huge thing that Schwab has done for the industry.
After two bear markets in a 10-year span, there are emotional hurdles and fears that advisors and investors alike have to overcome. Schwab’s commission-free trading helps alleviate those concerns. The next question will be whether Schwab opens no-transaction/no-commission ETFs, the way they did in mutual funds.
The first four of Schwab’s eight ETFs began trading last month:
- Schwab U.S. Broad Stock Market (NYSEArca: SCHB), 0.08% expense ratio
- Schwab U.S. Large-Cap (NYSEArca: SCHX), 0.08% expense ratio
- Schwab U.S. Small-Cap (NYSEArca: SCHA), 0.15% expense ratio
- Schwab International Equity (NYSEArca: SCHF), 0.15% expense ratio
In December, Schwab will launch four more funds, one of which began trading today:
- Schwab U.S. Large-Cap Growth (NYSEArca: SCHG), 0.15% expense ratio; this fund launched today and tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index
- Schwab U.S. Large-Cap Value (NYSEArca: SCHV), 0.15% expense ratio
- Schwab International Small-Cap Equity (NYSEArca: SCHC), 0.35% expense ratio
- Schwab Emerging Markets Equity (NYSEArca: SCHE), 0.35% expense ratio
Max Chen contributed to this article.