As Schwab slashes commissions, can it get any cheaper to invest?

  • Written by MarketWatch
  • Published in Economics
Bloomberg
A man enters a Charles Schwab Corp. office building in New York.

The race to the zero-bound[1] is on. That’s not an interest-rate policy development, but an investing fee trend.

Charles Schwab Corp SCHW, -4.18%[2]   on Tuesday said it would no longer charge a commission[3] on trades of U.S. and Canada-listed stocks, exchange-traded funds, and options, starting October 7.

That’s just the latest volley in the incredible shrinking broker fee war. Behemoth asset managers like Vanguard, Fidelity and Schwab have spent the past few years leapfrogging each other to offer lower and lower commissions[4].

That’s thanks in part to the rise in popularity of ETFs, funds that in most cases passively follow a pre-determined index, and charge much lower fees to do so, while also performing better than pricey active managers.

Related: More evidence that passive fund management beats active[5]

How miserly have investors become?

The largest and most-liquid ETF of all is also the world’s first: the SPDR S&P 500 ETF Trust. Over the past five years, according to data from CFRA Research, SPY SPY, +0.67%[6]   has grown only 4.5% annually, while its rivals, iShares Core S&P 500 ETF IVV, +0.70%[7] and the Vanguard S&P 500 ETF VOO, +0.68%[8]   VOO have galloped ahead, at 23% and 38% annual growth, respectively. All three passively track the S&P 500 Index SPX, +0.70%[9]  , but SPY charges 9.5 basis points, IVV charges 4, and VOO asks only 3.

Meanwhile, back in March, Salt Financial, a newish ETF shop, launched a fund LSLT, +0.52%[10]   that will actually pay investors for their funds[11].

Industry analysts think the race to the bottom is just a matter of course, but stock-market investors seemed taken aback by Schwab’s announcement: the stock dropped 8% Tuesday morning, and rivals TD Ameritrade Holding Corp. ...

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