In relationship to this post about the high cost of No-Transaction-Fee platforms, Investment News reports that Schwab is creating a similar platform for ETF investors.
Schwab is working hard to capitalize on the explosion of popularity ETFs have seen in the past few years. Apparently no longer satisfied with $8.95 trade commissions they are pushing for revenue from a commission-free environment where ETF product providers would pay 5 to 10 basis points (0.05 – 0.10%) to participate.
The reality is that for clients with a long term holding period and relatively infrequent trading, it can be cheaper to pay the transaction cost (let’s say $9) than pay the extra 0.05%. A client with a $10,000 position would make up the $9 in less than two years. This is just another great example of how investors’ massive economies of scale are hijacked by the financial services industry. This additional fee could be a tough sell for huge providers like Vanguard and Blackrock (iShares) as they are already in a race to the bottom for fund expenses.
Of course the real money in NTF platforms is still in the mutual fund space, but as ETFs continue to grow in popularity with advisors and investors, expect the industry to continue to reach for better ways to monetize them.
Bason Asset Management 