The Method Behind Schwab's ETF Price-Cutting Madness

Photograph by Daniel Acker/Bloomberg

On Sept. 21, discount brokerage Charles Schwab effectively threw down on Wall Street by slashing expenses on each of its 15 exchange-traded funds, some to as low as 0.04 percent. Investors in Schwab’s U.S. Broad Market and U.S. Large-Cap ETFs will now pay just 40¢ a year for every $1,000 they put into those funds. By specifically comparing these tiny expenses with higher fees docked by Vanguard and State Street ETFs, Schwab has effectively dared them, and by extension BlackRock, the parent of ETF leader iShares, to follow suit. In two cases, for example, State Street’s SPDRs now charge five times as much as Schwab’s corresponding index ETFs. “In this period of uncertainty in the markets,” said Schwab Chief Executive Walt Bettinger in the announcement, “the expenses investors pay are the only sure thing.”

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