SAN FRANCISCO (TheStreet) -- As a shot across the bow of online brokerages, and validation of the increasing hunger for exchange traded funds, Charles Schwab (SCHW) - Get Report will cut transaction fees by more than 30% starting next week.
The San Francisco-based company is lowering the cost of online equity and ETF trades to a flat $8.95 fee, regardless of volume or account size. Previously, investors with less than $1 million in household assets, or who traded fewer than 120 times per year, paid $12.95 a trade plus added fees for transactions larger than 1,000 shares.
Schwab also announced new managed portfolios of ETFs that will be "available through a low-cost, fee-based portfolio advisory program." Schwab Managed Portfolios-ETFs invest in stocks, bonds, real estate and commodities, such as energy, food and precious metals. The portfolios, which require a minimum investment of $100,000, will be available to Schwab clients starting Jan. 19, the same day trading fees will decline.
The company has been courting new clients by reducing the amount required to open an account to $1,000. The company also launched Schwab ETFs, which can be traded for free online through Schwab accounts, and cut expense ratios for Schwab equity index funds.
The decision to cut fees presents a challenge to other
and could prompt a price war.
, for example, charges a flat trading fee of $9.99 and
has plans that range from $6.99 to $12.99.
charges from $8 up to $19.95 a trade.
The discount and addition of new portfolios come at a time when investor appetite for ETF products shows no signs of diminishing. At the end of 2009, 800 ETFs held almost $750 billion in assets.
Pacific Investment Management Co.
(PIMCO), a global investment manager with more than 8 million clients, launched its first ETF. On Christmas Eve,
filed documents with the Securities and Exchange Commission, setting the stage for its entry into the marketplace.
T. Rowe Price
has also been readying a strategy of its own.
"We are seeing a great deal of assets flow into ETFs," says Benjamin Brigeman, executive vice president of investor services for Schwab. "We expect that trend to continue in 2010. We expect to see more competitors move into the marketplace, but that's fine. This still is, relative to mutual funds, a smaller universe."
ETF portfolios are an area where customer service can be make or break a firm, he says.
"Given that most ETFs are index-based, the differential in those really comes from the price point," Brigeman says, adding that consumers will be drawn to firms that offer the best customer service, advice and research.
-- Reported by Joe Mont in Boston.