The discount brokerage firm, Charles Schwab, has entered the exchange traded fund (ETF) game. While the Schawb’s new ETFs has turned heads with its novel premise of commission-free trading, the firm’s first move into the 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. (Why Schwab’s move into ETFs could be big).
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. (Schwab launches commission-free ETFs).