As part of its 2017 Winter Business Update, Charles Schwab announced that effective immediately, regular equity trades would be reduced from $8.95 to $6.95. Options trades were also reduced from $8.95 + $.75 per contract to $6.95 + $.70 per contract. Less mutual funds trades, Charles Schwab is now less expensive than all three of its core competitors.
Alongside a reduction in commission fees, Charles Schwab also announced reductions in expense ratios for a variety of its funds alongside the removal of investment minimums, which goes into effect March 1st.
Starting March 1, 2017, expenses for the Schwab market cap-weighted index mutual funds will be lowered to align with their Schwab ETFs equivalents, which already have among the lowest expenses in the industry. Importantly, all investment minimums are being eliminated for these mutual funds, and the use of a single share class ensures that even the smallest investor can invest at low costs historically available only to large institutions.
Here’s a sampling of the revised index fund expense ratios. Highlights include the S&P 500 index fund and Total Stock Market index fund. Both now boast an expense ratio of 0.03%, which is lower than Vanguard.
Schwab President and CEO Walt Bettinger commented,
Two of the irrefutable truths when it comes to investing are that costs matter and complexity can negatively affect returns. For more than 40 years, Charles Schwab has put the power of investing into the hands of American investors both large and small. And clients have entrusted us with almost $3 trillion in assets. Today, we are thanking them by sharing the benefits of our scale with them through dramatic reductions in trading and investing costs.
Reducing online trade commissions as scale and technology lower our operating costs is a way to ensure our clients benefit from their commitment to us. I am especially proud of our decision to eliminate investment minimums and employ a single share class in our market cap-weighted and Fundamental Index mutual funds – ensuring that every investor pays the lowest possible fees.
Without a doubt, this move puts substantial pressure on TD Ameritrade and ETRADE to reduce their trade commissions structures. All three brokers, alongside Interactive Brokers, saw their shares sold off throughout the day. Since TD Ameritrade and ETRADE rely more heavily on DART revenue than Schwab, the two stocks were hit much harder. Interactive Brokers is more or less unaffected by this move as its clientele is primarily professional traders.
For another clean walk through of the announcement, see the WSJ, Schwab Cuts Trading Commission On ETFs, Fees on Mutual Funds.
Underscoring Main Street Heritage, Schwab Reduces Trade Commissions and Index Mutual Fund Expenses, Launches Unique Satisfaction Guarantee
February 2nd, 2017