One of the many benefits of using Exchange Traded Funds (ETFs) is cost. An investor today can build a complete portfolio using all ETFs for less than 25bps (0.25%). The low cost leaders in ETFs have been Vanguard, State Street and Blackrock’s iShares.
Recently Charles Schwab entered the ETF business offering Schwab branded ETFs with low pricing. On September 21, 2012 the company announced that they are lowering prices even further.
What does this mean for investors? For Schwab investors, this is great news as they now have access to low cost ETFs that also trade at no commission on the Schwab trading platform. For investors holding accounts with other brokers like TD Ameritrade, E-Trade or Fidelity, this drop in pricing does not necessarily matter as they would have to pay a trading commission to purchase the Schwab ETFs, negating the cost benefit unless the ETF is held for a long period of time.
I believe that Charles Schwab understands that assets invested in ETFs are on the rise versus assets invested with active mutual fund managers who, as a whole, have been underperforming their benchmarks for decades. By lowering the price of their commission free ETFs and launching an all ETF 401k plan, Schwab is embracing the future of investing. Through this process Schwab is looking to remain king of the hill in terms of assets under management. Perhaps their ETF offerings will also convince independent advisors to move their investors to the Schwab Institutional platform.
TD Ameritrade currently offers 100 transaction fee free ETFs chosen by Morningstar. The list includes ETF offerings from various providers such as Vanguard, State Street, iShares and Powershares. Fidelity also offers some iShares ETFs for no trading commission as well.
One thing is clear, the cost of investing is going down, which is a great benefit to long term investors. Investor education on understanding how to trade ETFs seems to be the next frontier in truly lowering ETF investors total cost.
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