Schwab’s ETF innovation

By Felix Salmon
November 4, 2009
Ron Rowland is enthusiastic:

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

Charles Schwab has an interesting new idea: ETFs which are commission-free for Schwab brokerage clients. Ron Rowland is enthusiastic:

Just as no-load no-transaction fee mutual funds changed the mutual fund landscape, commission-free ETFs will forever alter the way that ETFs are perceived. With this one change, nearly every argument in favor of mutual funds instead of ETFs goes away. Dollar cost averaging? No longer costly with commission-free ETFs. Small account size? Not a problem anymore.

This isn’t entirely true. There are two main costs involved when you buy or sell equities, including ETFs. One, yes, is the commission. But the other is the bid-offer spread. And if the new Schwab funds remain relatively small and illiquid, it’s still going to be a bad idea to buy them, just as it’s a bad idea to buy any ETF with less than a billion dollars or so in assets.

That said, Schwab is big enough that it should be able to get there pretty quickly. And at that point, if you’re a Schwab client, these things will look very attractive indeed.

2 comments

Comments are closed.