“Today’s investors, and the advisors who serve them, want sophisticated, low-cost strategies and more control over their investment choices and outcomes. By working with these leading ETF managers to offer the largest selection, we’ve created a new home for clients to buy and sell ETFs that is an important complement to the tools and resources we offer to help them achieve their goals,” said Schwab CEO Bettinger.
“Awareness and popularity of ETFs have been growing steadily across the range of investors and advisors. Whether there is interest in broad-based exposure to equity markets, access to a single asset class, or a specific fund that seeks to reduce volatility – Schwab ETF OneSource offers a solution – and we’re helping investors put more of their money to work for them,” he added. “It’s another example of Schwab challenging the status quo to bring greater value to our clients.”
The platform is “straightforward for clients to use,” notes Flynn. “There are no catches like the need to enroll or a short term redemption fee which are found at other firms. All Schwab clients will automatically receive $0 commission online trades for OneSource ETFs. And they can trade them as and when they like with no penalty for holding the position for less than 30 days.”
‘Simple and affordable’
The online broker on Thursday also rolled out the Schwab ETF Portfolio Builder designed for investors who want to construct all-ETF portfolios. The service covers varying risk profiles and currently features eight commission-free ETFs managed by Schwab and other providers. The new tool “makes it simple and affordable to build a well-diversified portfolio,” Schwab said.
The firm had $152 billion of ETF assets custodied on its platform at the end of 2012. Schwab also managed $8.6 billion of assets in its ETFs, which can be traded commission-free by clients.
In December, a report surfaced that Schwab was considering a commission-free ETF service for clients. However, Reuters reported a sticking point was a marketing fee that ETF providers said was too high. [Schwab Mulls Commission-Free ETF Platform]
Schwab declined to share specific percentages and dollar amounts related to the economics of ETF OneSource, but noted ETF providers are compensating Schwab for shareholder services. There is a fixed component based on the number of ETFs that are included from each outside provider on the platform. There is also a variable component based on inflows to particular ETFs. Schwab is also making an investment in building up the platform’s infrastructure, education and marketing support.
Bettinger emphasized that Schwab clients who buy ETFs online through Schwab ETF OneSource will pay exactly the same operating expense ratios they would elsewhere, but without paying a commission.
Schwab executives also stressed that ETF OneSource isn’t a “gimmick” and that the firm is committed to the platform for the long term.
The financial giant already lets its customers trade its own ETFs commission-free, and some ETF providers have similar arrangements with online brokers. But Schwab is the first to create a commission-free ETF supermarket with funds from multiple firms.
Full disclosure: Tom Lydon’s clients own SPY, QQQ and GLD.