Schwab Launches Broad Free ETF Trading

February 07, 2013

Schwab raises the bar in the ETF price wars with the launch of a 105-fund free-ETF trading program.

Charles Schwab, the online brokerage firm that also markets a 15-ETF-fund lineup of the lowest-cost ETFs in the United States, today launched a broad free-ETF trading program that involves 90 non-Schwab ETFs as well as its own 15 funds, in what appears to be the most enticing—if not most ambitious—program of its kind to date.

Schwab ETF OneSource is designed around the core investment exposure the 15 Schwab ETFs provide, but makes use of funds from five other providers—including State Street Global Advisors, Guggenheim, PowerShares, ETF Securities and United States Commodity Funds—to fill in any asset allocation gaps, the company said today in a press release. Terms of their participation weren't disclosed.

“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,” Schwab Chief Executive Officer Walt Bettinger said in the press release.

The move to eliminate trading commissions on ETF trading began with Schwab itself in November 2009, when it rolled out the first of its funds, and quickly snowballed across the industry. First Fidelity stepped in, offering a number of iShares ETFs free of charge, andVanguard did the same as Schwab with its own lineup of ETFs.

Schwab’s 105-fund program is similar to one involving more than 100 funds launched by TD Ameritrade in October 2010, with one crucial difference. While investors in both cases pay the same expense ratios as they would elsewhere, and don’t pay commissions, TD Ameritrade investors get hit with a short-term trading fee if they buy and sell a fund within 30 days. Not so at Schwab.

Funds In The Program

Schwab appears to have shrewdly chosen funds, as many are marquee names in the ETF industry that have garnered considerable investor interest in the past few years.

Some of the funds from the different providers and their assets under management are:

  • SPDR Barclays Convertible Securities ETF (NYSEArca: CWB), $1 billion
  • Guggenheim S&P 500 Equal Weight ETF (NYSEArca: RSP), $3.93 billion
  • Guggenheim BulletShares Corporate Bond ETFs (NYSEArca: BSCC)—one fund of two families of fixed-income funds that close when the portfolio holdings mature
  • PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), $3.33 billion
  • ETF Physical Swiss Gold Shares (NYSEArca: SGOL), $1.92 billion
  • United States Commodity Index Fund (NYSEArca: USCI), $522 million


“Because USCI is a retail and RIA product, we think being on the Schwab platform will obviously get it a lot more exposure,” John Hyland, the chief investment officer of United States Commodity Funds said in a telephone interview, making plain what all the involved fund sponsors must be thinking about now given Schwab’s considerable distribution might.

“We are pleased that all four funds are there—we’re extra pleased about USCI,” he said.

Hyland’s company is one of the main purveyors of futures-based ETFs. Apart from USCI, Schwab chose three other funds from Hyland’s firm, the United States 12 Month Oil Fund (NYSEArca: USL), the United States 12 Month Natural Gas Fund (NYSEArca: UNL) and the United States Gasoline Fund (NYSEArca: UGA).

Schwab published a full list of the funds involved in the program on an ETF OneSource sitelet on its website.

San Francisco-based Schwab today also unveiled Schwab ETF Portfolio Builder, a tool for do-it-yourself investors to help them formulate systematic asset-allocation plans.

Clients choose a risk profile and can adjust the number of shares for each ETF while viewing the impact on their portfolio, and purchase the portfolio online.

The portfolio comes with up to eight commission-free ETFs at launch, Schwab said.

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