In the latest salvo in the battle for the lowest fees, Charles Schwab has slashed trading costs and expenses on certain index funds and ETFs, eliminated minimums, and instituted a single share class for these funds. The brokerage also announced a new Satisfaction Guarantee, in which the firm will refund fees to any client who’s not satisfied.
“Clients have entrusted us with tremendous amounts of incremental assets in recent years,” said Walt Bettinger, president and CEO of Schwab, during a business update on Thursday. Last year marked the fifth consecutive year where the firm took in more than $100 billion in net new assets.
“You combine the scale benefits that they have created via their trust in us, with the discipline that we’ve exhibited around our operating efficiency, and it makes sense for us to share some of those benefits with our clients,” he said.
Online equity and ETF trade commissions will be reduced from $8.95 to $6.95—lower than Fidelity, Vanguard, TD Ameritrade and E*Trade, Schwab says. Vanguard charges $7 to $20, depending on the number of trades. The online commission does not apply to foreign stock transactions, large block transactions, restricted stock transactions and employer negotiated commission schedules applicable to equity compensation transactions.
“Our intent is to ensure that commission pricing is never a barrier to any individual trying to determine whether to come to Schwab for the investing needs as opposed to any other competitor,” Bettinger said.
As of March 1, the firm will lower expenses on Schwab market cap-weighted index mutual funds so that they’re the same as their ETF equivalents. Schwab will also eliminate minimums and switch to a single share class for these funds. The firm will do the same for its Fundamental Index funds starting May 1.
The expense ratio for the Schwab S&P 500 Index Fund will be lowered to 3 basis points for all account sizes. The Schwab Small-Cap Index Fund fee will be reduced to 6 basis points, and the Schwab U.S. Aggregate Bond Index Fund will now cost 4 basis points.
The firm is also lowering expenses on the Schwab U.S. TIPS ETF and Schwab Fundamental Index ETFs, effective March 1.
Schwab also unveiled a new Satisfaction Guarantee, which says that if a client is not satisfied for any reason, they are entitled to a refund on any related commission, transaction fee or advisory program fee.
In late 2013, Schwab launched its Accountability Guarantee program, which offers customers their money back on certain fee-based accounts from the previous quarter if they’re not happy with the service.
“We’ve decided it’s appropriate to broaden this out and just make it across the board,” Bettinger said.
“In any other part of our consumer lives, if we buy a product that isn’t to our satisfaction or a service that isn’t effective, we reasonable expect to get our money back; not in our industry,” which, he says, leads to a lower level of trust.
“There’s the perception of the consumer loses and the financial services firm wins either way. So, the idea behind our satisfaction guarantee is to make inroads against that perception.”