Schwab Rolls Out Commission-Free ETF Platform

Clients can buy and sell 105 ETFs with no online trade commissions. The offering spans major asset classes, with funds from providers, including State Street SPDR ETFs, Guggenheim Investments, PowerShares, ETF Securities, United States Commodity Funds, and Charles Schwab Investment Management.

The launch of the platform takes place in the 20^th anniversary year of State Street Global Advisors’  first introduction of SPDR ETF, which Schwab commemorated with a panel discussion in New York.

William Belden, managing director and head of product development at Guggenheim Investments, called ETFs dynamic in terms of their efficiency and affordability.

“You can’t endlessly grow the number of ETFs,” said John Hyland, chief investment officer of United States Commodity Funds, saying that 2013 could be a year that sees more closings than openings of ETFs. “In the first phase, we were trying out the concept,” he said. The second phase, which he describes as taking place around 2004, was a time when asset management firms were broadening their offerings. The third phase will be a time to educate the ultimate end user and provide more access.

“We’ll see fewer new players as we become more mature, and maybe some consolidation,” Hyland said. There will likely be some trimming of products, he theorized.

Ben Fulton, managing director of global ETFs at PowerShares, disavowed the notion that ETFs would crush mutual funds. “There’s no death knell for mutual funds,” he said, “just more diversification for clients.”

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ETFs in Retirement Plans 

Calling the 401(k) market a new frontier for ETFs, Hyland, told PLANADVISER that high expenses for some mutual funds and over-concentration in single stocks—often the stock of the company itself—make ETFs an excellent alternative for the retirement plan participant.

But the use of ETFs within retirement plans still remains low, according to Schwab.

The retirement platforms were built for mutual funds, James D. McCool, executive vice president of client solutions at Schwab, told PLANADVISER. “You don’t have a platform that supports ETFs.”

Plan participants cannot actually put their hands on ETFs unless their plan has a brokerage account feature. Older, more established investors working with advisers tend to use ETFs if they have access to the brokerage account feature, McCool said.

Schwab is in the process of building a structure to support ETFS for retirement accounts, and it will likely launch sometime in the fourth quarter, according to McCool.

Eric Pollackov, managing director of ETFs at Charles Schwab Investment Management, said Schwab’s ETF OneSource platform demystifies the trading process for investors.

Just as Schwab changed the investing landscape with its introduction, 20 years ago, of a platform for mutual funds, according to Walt Bettinger, chief executive of Charles Schwab, Schwab ETF OneSource will deliver enormous benefit and change the way people buy and sell ETFs.

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Cost Top of Mind for Most 

According to the 2012 ETF Investor Study by Charles Schwab, released in October, cost is the number one factor investors look at when selecting ETFs. Nearly 40% rated the ability to trade ETFs commission-free either most important or very important.

The study showed that investor usage of ETFs is going strong, with 41% planning to invest more in ETFs this year. At the same time, there is a distinct need for investor education, with 45% calling themselves novices when it comes to understanding ETFs.

“Our goal is to make ETF investing accessible, affordable and understandable,” said Peter Crawford, senior vice president of Charles Schwab. “So while Schwab ETF OneSource offers a highly compelling pricing story, this is not about cost alone. Side-by-side with affordability, we also provide the guidance and educational resources to help investors and advisers select the right ETFs to meet their needs.”

Crawford called the Schwab ETF Portfolio Builder notable for self-directed clients who want to create all-ETF portfolios that match their chosen risk profiles. Constructed from standard risk profiles and featuring eight commission-free ETFs at launch (from Charles Schwab Investment Management as well as others), this tool makes it simple and affordable to build a well-diversified portfolio. 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 Schwab ETF Portfolio Builder rounds out Schwab’s tools and resources, which includes:

• The ETF Education Exchange, where investors have comprehensive access to the latest insights and intelligence from industry-wide ETF thought leaders;
• The “ETF Research” tab on Schwab.com, where investors can access interactive tutorials and education in the “Understanding ETFs” tab to learn how ETFs work, and search for ETFs based on a range of criteria using the ETF Screener; and
• ETF Select List, where investors can find quality, low-cost ETFs screened by Schwab to help fill a gap or develop diversified portfolios.

Schwab clients who buy ETFs online through Schwab ETF OneSource will pay the same operating expense ratios they would elsewhere, but without paying a commission, Bettinger noted.

“Today’s investors and the advisers who serve them want sophisticated, low-cost strategies and more control over their investment choices and outcomes,” Bettinger said. “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.”

More information on the ETFs available through Schwab ETF OneSource is here.