Charles Schwab Corp. on Thursday announced a couple of fee-reduction moves that will put it at the leading edge—at least temporarily—of the fund industry’s price-cutting frenzy.
As of Friday, February 3, the company will trim its standard online equity and ETF trade commissions from $8.95 to $6.95. Schwab says that will make it a lower-cost option in this space versus major competitors such as Fidelity, TD Ameritrade, E*Trade and Vanguard.
And as of March 1, Schwab said it will lower expenses for its market cap-weighted index mutual funds to align them with their Schwab ETF equivalents, while also eliminating investment minimums on those mutual funds. The announcement caused Schwab stock to drop 4 percent while shares of TD Ameritrade and E*Trade fell about 9 percent.
The lower fees cover six market cap-weighted mutual funds, though only five have an equivalent ETF. On both the Schwab Total Stock Market Index Fund (SWTSX) and Schwab S&P 500 Index Fund (SWPPX), net expenses will be cut from 0.09 percent to 0.03 percent, putting them on equal footing with their ETF-equivalent Schwab U.S. Broad Market ETF (SCHB) and Schwab U.S. Large-Cap ETF (SCHX) products, respectively, both of which have net expense ratios of 0.03 percent.
Of the six mutual funds, the most expensive—relatively speaking—will be the Schwab International Index Fund (SWISX), which will match the 0.07 percent expense ratio charged by the Schwab International Equity ETF (SCHF). That mutual fund has been charging 0.19 percent.
Schwab says the fee reductions will, in most cases, make its market cap-weighted mutual funds the cheapest options versus comparable offerings from Fidelity and Vanguard.
Executives at TD Ameritrade said they were not surprised by the commission cut, given that Schwab executives had indicated they might make such a move once interest rates began to normalize. For many years, Schwab subsidized money market funds and lost more than $100 million a year doing so.
Also as of March 1, fees will be trimmed on the Schwab U.S. TIPS ETF (SCHP) and the six Schwab Fundamental Index ETFs. The expense ratio on SCHP will go from 0.07 percent to 0.05 percent. Fees on all of the Fundamental Index ETFs will get a haircut of seven basis points, with the new fees ranging from 0.25 percent to 0.40 percent.
Pending shareholder approval, the six Schwab Fundamental Index mutual funds will all get a fee reduction of 10 basis points, effective May 1, 2017. That measure would include eliminating all investment minimums, employing a single share class, and aligning expenses with those in the comparable Schwab ETFs.
In other news from Schwab, the company said it expects to launch two index bond mutual funds on or around February 23—the Schwab US Aggregate Bond Index Fund (SWAGX) and Schwab Short-Term Bond Index Fund (SWSBX). Both funds will sport expense ratios of 0.04 percent, which will match the current fees of their ETF equivalents.