Should advisors bite?

While low-cost, no-commission trading is a big plus, as are Schwab's name and indexed mutual fund experience, the challenge for the firm will be to differentiate the 13 ETFs and the indexes they follow from similar ones launched years ago by more established players such as BlackRock, State Street and Vanguard. The asset classes covered by the ETFs include already-saturated market segments such as broad market, large cap, small cap, REITs and emerging markets.

Yet for some, even minor differences in indexes offer sufficient reason to make the switch. David Cowles, the director of investments at Mosaic Financial Partners in San Francisco, began investing in Schwab International Equity (SCHF) soon after it came out. The ETF, which covers large-cap stocks outside the U.S., uses the FTSE Developed ex-U.S. Index of 1,400 international stocks. About 9% of its assets are in Canadian stocks, which aren't included in the MSCI EAFE Index that many other ETFs follow.

"Before the Schwab ETF came out, we were using a Vanguard ETF and also buying a Canada-only ETF to gain exposure to that country," he says. "Now, we can just buy the one investment instead of two."

The commission-free trades weren't a huge draw for Cowles, whose firm practices long-term strategic allocation and doesn't do a lot of trading.

The funds' lower expenses didn't sway his decision much either, since they only beat the competition's by a slim margin.

With an expense ratio of just 0.06%, the $740 million Schwab U.S. Broad Market has the distinction of being the lowest-cost ETF in the world. But it's just a tad cheaper than Vanguard Total Market, which clocks in at 0.07%, and it's still within shouting distance of the expenses for the iShares Russell 3000 (IWV) and the SPDR Total Market (TMW) funds, which charge 21 basis points and 20 basis points, respectively. At 35 basis points, the most expensive Schwab fund, International Small Cap Equity, undercuts the equivalent Vanguard and iShares funds by only about 5 basis points.

Cowles and others worry that the advantage of lower expenses may be offset by lower trading volume among some of the ETFs. In eight of them, the average daily trading volume falls under 100,000 shares. In four, it's less than 50,000 shares.

Among the more thinly traded funds, Schwab International Small Cap Equity (SCHC), for example, has $176 million in assets under management and average daily trading volume of 49,000 shares. A similar fund, iShares MSCI EAFE Small Cap (SCZ), has a $1.6 billion asset base and average daily trading volume of 279,000. Schwab U.S. Mid-Cap (SCHM) trades 56,000 shares a day compared to over 2 million shares for the SPDR S&P Mid-Cap 400 (MDY). The most thinly traded offering, Intermediate U.S. Treasury, has daily trading volume of just 17,000 shares.