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Charles Schwab To Cut Mutual Fund Expenses, Fuels Discount Brokerage Pricing War
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Charles Schwab (SCHW - Free Report) is slicing prices on their mutual fund expenses. Although great for persons who invest with them, stockholders are wary with the new move on speculation of reduced revenue. The company is trading down 1.34% to $39.62, intraday.
On February 2nd, Charles Schwab announced they will be lowering expenses on their market-cap weighted index mutual funds. This is to equate them with their respective Schwab ETFs, which already offer some of the lowest expenses in the industry. Expenses will be as follows: 0.03% on Schwab S&P 500 Index Fund (SWPPX - Free Report) , 0.06% on Schwab Small-Cap Index Fund (SWSSX - Free Report) , and 0.04% on Schwab U.S. Aggregate Bond Index Fund.
Additionally, the company is taking away investment minimums to be in these funds; a single share class will be utilized to make this move. Their top competitors such as Vanguard and Fidelity charge up to 4 times more in expenses and require a $5,000 minimum to invest in their funds.
In addition to cutting expenses on mutual funds, trading commissions on stock and ETFs will also be reduced. Standard online stock and ETF trade commissions will drop by $2 to $6.95 per trade. This makes them lowest to their competitors TD Ameritrade (AMTD - Free Report) and E-Trade who charge $9.99.
Along with the move, Charles Schwab is adopting a satisfaction guarantee policy. If a client is not satisfied with their services then the company will refund any transaction fees, advisory program fees, and commissions fees that were charged.
The company announced that they estimate a loss of $15 million a month in revenue due to the new fee structure; less than 11% of their revenue comes from trading. It is important to note that Charles Schwab does not rely as heavily on trade commissions and expenses as its competitors.
A Discount Brokerage Price War
Charles Schwab is shaking the discount brokerage industry by cutting their expenses. On the event of the news, TD Ameritrade and E-Trade took a hit of about 10%. Price cutting wars are nothing new in the discount brokerage industry. Brokerages for years now have been slashing prices in hopes of acquiring new investors.
On the other hand, Kim Hillyer of TD Ameritrade seems to think that price points are not the only competitive advantage a brokerage can have. On event of Charles Schwab’s news she wrote, “…what you’re seeing today is one company’s interpretation of what 'value' looks like”. She went on to say TD Ameritrade’s focus is on what their customers want which is, “outstanding trading platforms, innovative tools, a broad product selection, education, 1:1 support and guidance, flexibility and choice at one simple, straightforward price point”.
Charles Schwab is adapting a pricing model which parallels that of Amazon’s (AMZN - Free Report) Amazon Prime. Low prices, low transaction costs, and little reason to switch out. Sound familiar? Look more into this idea here.
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Charles Schwab To Cut Mutual Fund Expenses, Fuels Discount Brokerage Pricing War
Charles Schwab (SCHW - Free Report) is slicing prices on their mutual fund expenses. Although great for persons who invest with them, stockholders are wary with the new move on speculation of reduced revenue. The company is trading down 1.34% to $39.62, intraday.
On February 2nd, Charles Schwab announced they will be lowering expenses on their market-cap weighted index mutual funds. This is to equate them with their respective Schwab ETFs, which already offer some of the lowest expenses in the industry. Expenses will be as follows: 0.03% on Schwab S&P 500 Index Fund (SWPPX - Free Report) , 0.06% on Schwab Small-Cap Index Fund (SWSSX - Free Report) , and 0.04% on Schwab U.S. Aggregate Bond Index Fund.
Additionally, the company is taking away investment minimums to be in these funds; a single share class will be utilized to make this move. Their top competitors such as Vanguard and Fidelity charge up to 4 times more in expenses and require a $5,000 minimum to invest in their funds.
In addition to cutting expenses on mutual funds, trading commissions on stock and ETFs will also be reduced. Standard online stock and ETF trade commissions will drop by $2 to $6.95 per trade. This makes them lowest to their competitors TD Ameritrade (AMTD - Free Report) and E-Trade who charge $9.99.
Along with the move, Charles Schwab is adopting a satisfaction guarantee policy. If a client is not satisfied with their services then the company will refund any transaction fees, advisory program fees, and commissions fees that were charged.
The company announced that they estimate a loss of $15 million a month in revenue due to the new fee structure; less than 11% of their revenue comes from trading. It is important to note that Charles Schwab does not rely as heavily on trade commissions and expenses as its competitors.
A Discount Brokerage Price War
Charles Schwab is shaking the discount brokerage industry by cutting their expenses. On the event of the news, TD Ameritrade and E-Trade took a hit of about 10%. Price cutting wars are nothing new in the discount brokerage industry. Brokerages for years now have been slashing prices in hopes of acquiring new investors.
On the other hand, Kim Hillyer of TD Ameritrade seems to think that price points are not the only competitive advantage a brokerage can have. On event of Charles Schwab’s news she wrote, “…what you’re seeing today is one company’s interpretation of what 'value' looks like”. She went on to say TD Ameritrade’s focus is on what their customers want which is, “outstanding trading platforms, innovative tools, a broad product selection, education, 1:1 support and guidance, flexibility and choice at one simple, straightforward price point”.
Charles Schwab is adapting a pricing model which parallels that of Amazon’s (AMZN - Free Report) Amazon Prime. Low prices, low transaction costs, and little reason to switch out. Sound familiar? Look more into this idea here.
Stocks that Aren't in the News. Yet.
You are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. Many of these companies are almost unheard of by the general public and just starting to get noticed by Wall Street. They have been pinpointed by the Zacks system that nearly tripled the market from 1988 through 2015 with a stellar average gain of +26% per year. See these high-potential stocks free >>