Why Schwab’s Move Into ETFs Could Be Big

Exchange traded funds (ETFs) have been gaining popularity as the market has recovered, but Charles Schwab’s entry into the space could be a sea change for the entire industry.

Schwab, based in San Francisco, announced that not only were they entering into the ETF industry, they are offering their funds commission-free. (All about Schwab’s new ETFs). Brooke Southall of RIA Biz spoke with the broker, us and others to suss out what their entry means for the business. Some of the highlights include:

• Although a late entrant into the ETF game, Schwab is no stranger to them. 11% of ETF assets in the United States are held through Schwab; it holds 22% of the ETF assets held by retail investors.
• Schwab’s ETF move may just be a warm-up act for a much bigger play in the market. The company pioneered the no-transaction-fee mutual fund supermarket, OneSource, and it’s conceivable that it could pull off a similar innovation with ETFs.
• Chuck himself loves ETFs and he owns them. Schwab’s foray into ETFs will benefit from the total buy-in of its chairman and founder, Charles “Chuck” Schwab.
• 43% of RIAs are planning on foraying into ETFs this year. It’s a huge number of relationships still stuck in conventional mutual fund land.
• Advisors still have a lot of cash on the sidelines in the wake of the economic downturn. The ETF program may be Schwab’s way to encourage advisors to bring some of that cash back into the market.

For more stories about new ETFs, visit our new ETFs category.