Charles Schwab Corp. announced Thursday that it plans to reduce its online equity trade commissions and add new products in an effort to gather customers and assets.
Effective Jan. 19, the San Francisco-based investment management company said its retail investors will pay $8.95 per online trade in stocks or non-Schwab exchange traded funds. Schwab’s proprietary ETFs feature commission-free online trading through Schwab accounts. Currently, investors with less than $1 million in household assets at Schwab or those that trade fewer than 120 times annually paid $12.95 per trade plus charges for trades larger than 1,000 shares.
The new simplified pricing is also available to Schwab Advisor Services’ independent investment advisor clients who use Schwab’s E-Delivery services to receive electronic statements and trade confirmations, and to all clients who trade equities in a Personal Choice Retirement Account, Company Retirement Account, or Plan Administrator Services account held at Schwab.
Schwab also introduced new managed portfolios of ETFs available through a fee-based portfolio advisory program. Schwab Managed Portfolios-ETFs are made up of ETFs representing up to 20 asset classes, including equity and fixed income classes, as well as treasury inflation-protected securities (TIPS), real estate and commodities.
The Schwab Managed Portfolios-ETFs, which have investment minimums of $100,000, will be available to Schwab clients beginning Jan. 19.
Analysts said that the new initiatives aren’t about keeping up with competitors on pricing, but rather about doing everything they can to gather customers and market share as customers remain skeptical of the financial environment and advisors shift from one company to another.
“This is all part of a master strategy that Schwab is trying to implement,” said Burton Greenwald of BJ Greenwald Associates in Philadelphia. “They are trying to take advantage of a once in a lifetime opportunity to gather share and customers as the traditional wirehouses face pressure to cut costs.”
In November, Schwab launched its first family of exchange-traded funds and announced a new ad campaign to support the strategy. In December, Schwab added two more ETFs and said it planned to launch two more.
Greenwald said Schwab is trying to take advantage of an opportunity “at a time when the industry is going through a transitional period.” He said he expects the company will be able to attract customers, assets and advisors because of the general dissatisfaction at the large wirehouses. “Schwab sees an opportunity to get out there and be as sexy as they can to attract customers,” Greenwald said.
The company said by reducing these fees, its first quarter revenue could decline by $15 million to $20 million, but the company hopes the pricing changes will enhance its competitive position and help it attract assets in the long run.
Ben Brigeman, an executive vice president of investor services at Schwab, said in an interview Thursday that Schwab expects to attract customers and assets by “making sure our pricing is competitive” and “making sure we deliver a simple and transparent” pricing structure to customers.
“When we have reduced expenses in the past we have been rewarded by clients,” he said. “They reward us by bringing us assets and being more loyal and I expect that both will happen again.”
In the past year, Schwab has also lowered account minimums, waived certain maintenance fees and lowered expenses on its mutual funds, Brigeman said.
“This is all about doing right by our clients,” he said. “When we do the right things for our clients, they reward us in the long run.”
Schwab had $1.4 trillion in assets under management as of Sept. 30.
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