Charles Schwab (NYSE: SCHW) on Thursday commenced a new platform that will allow investors to trade over 100 ETFs commission-free. The move will transform the dynamics of the $1.4 trillion U.S. ETF business and harkens back to Schwab two decades ago launching the no-transaction-fee mutual fund supermarket, OneSource.
The San Francisco-based financial services firm said starting Thursday, Schwab clients can buy and sell 105 ETFs with zero online trade commissions. The platform, called Schwab ETF OneSource, includes funds managed by State Street (NYSE: STT), Guggenheim, Invesco PowerShares, ETF Securities, U.S. Commodity Funds and Schwab’s own lineup of ETFs.
“Just as Schwab Mutual Fund OneSource changed the landscape for investors and advisors by providing convenient, affordable access to leading mutual funds when Chuck Schwab introduced it twenty years ago, we believe Schwab ETF OneSource will deliver enormous benefit and change the way our clients buy and sell ETFs,” said Walt Bettinger, Schwab’s chief executive.
“It is a seminal moment,” said Peter Crawford, senior vice president of Charles Schwab, in a telephone interview. [What Schwab’s Commission-Free ETF Plan Could Mean for Investors]
Crawford noted that many investors dollar-cost-average, or contribute small amounts to funds over time. The commission-free service will dramatically lower the cost of using ETFs for these investors. The platform will also make ETFs more attractive to financial advisors who are increasingly using the low-cost investment products in place of mutual funds and individual stocks.
‘Growing part of the retail and advisor business’
Schwab is the largest ETF custodian. It oversees its own family of ETFs and also acquired Windhaven Intvestment Management, which develops and creates prepackaged ETF portfolios for advisors and investors. [Windhaven Chief: Why ETFs are the Best Portfolio Building Blocks]
ETFs are “a growing part of the retail and advisor business,” said Beth Flynn, vice president of Schwab ETF Platform Management, adding that they accounted for $18 billion of the firm’s $120 billion of total inflows last year.
Schwab has also developed services to educate investors on how ETFs work.
“We’re not saying ETFs are better than mutual funds,” said Crawford. Rather, Schwab wants to create the experience of buying ETFs similar to what it did with mutual funds with OneSource.
Schwab ETF OneSource includes funds tracking U.S. stocks, international equities, bonds, sectors, currencies, commodities and real estate. For example, domestic equity ETFs included on the platform include Schwab U.S. Broad Market (NYSEArca: SCHB), Guggenheim S&P 500 Equal Weight (NYSEArca: RSP), PowerShares S&P 500 Low Volatility (NYSEArca: SPLV) and SPDR S&P 600 Small Cap Growth (NYSEArca: SLYG).
Some large and popular ETFs not included in Schwab ETF OneSource include SPDR S&P 500 (NYSEArca: SPY), PowerShares QQQ (NasdaqGM: QQQ) and SPDR Gold Shares (NYSEArca: GLD). However, partners may continue to add ETFs over time, said Flynn.
‘Challenging the status quo’