Charles Schwab beats Vanguard and Fidelity on pricing war

Technology Computer BinaryCharles Schwab, the US-based broker and wealth manager, has become the cheapest trading platform in the market beating Vanguard and Fidelity on price as it cuts its trading fees by 22 per cent.

Starting from today, the $2.8trn giant broker has lowered its standard online equity and ETF trade commissions to $6.95 (£5.5) from $8.95, making the fees the lowest among competitors, including Fidelity, Vanguard, TD Ameritrade and E*Trade.  

Changes will also affect UK-based investors (domiciled and non-domiciled) who use Charles Schwab’s international account, the firm confirmed.

From 1 March 2017, expenses for the its market cap-weighted index mutual funds will be also lowered to align with their Schwab ETFs equivalents, the firm says.

In addition, all investment minimums are being eliminated for these mutual funds, and will only use a single share class to encourage “the smallest investor” to trade.

For example, the Schwab S&P 500 Index fund will cost 0.03 per cent equally on every $5,000, $100,000 and $5m amount invested. This compares to the Fidelity 500 Index and Vanguard 500 Index funds which currently charge 0.04 per cent and 0.05 per cent for $100,000 respectively.

  Schwab   

Fidelity  

TD Ameritrade

  E*Trade   

Vanguard
$6.95 $7.95 $9.99 $9.99

$7 – $20

depending on number of trades

Competitor commissions as of 1/31/17 Source: Charles Schwab

Pending shareholder approval, the Schwab Fundamental Index mutual funds will also scrap the minimum investment and align with its ETFs comparable range.

Schwab president and chief executive Walt Bettinger says “costs matter and complexity can negatively affect returns”.

He says:“For more than 40 years, Charles Schwab has put the power of investing into the hands of American investors both large and small. And clients have entrusted us with almost $3 trillion in assets. Today, we are thanking them by sharing the benefits of our scale with them through dramatic reductions in trading and investing costs.

“Reducing online trade commissions as scale and technology lower our operating costs is a way to ensure our clients benefit from their commitment to us. I am especially proud of our decision to eliminate investment minimums and employ a single share class in our market cap-weighted and Fundamental Index® mutual funds – ensuring that every investor pays the lowest possible fees.”

Investment Amount

$5K

$100K

$5m

Schwab S&P 500 Index Fund

0.03%

0.03%

0.03%

Fidelity 500 Index Fund

0.09%

0.045%

0.035%

Vanguard 500 Index Fund

0.16%

0.05%

– – –

Schwab Small-Cap Index Fund

0.06%

0.06%

0.06%

Fidelity Small Cap Index Fund

0.19%

0.07%

0.06%

Vanguard Small Cap Index Fund

0.20%

0.08%

0.07%

Schwab U.S. Aggregate Bond Index Fund

0.04%

0.04%

0.04%

Fidelity U.S. Bond Index Fund

0.15%

0.05%

0.04%

Vanguard Total Bond Market Index Fund

0.16%

0.06%

0.05%

 Source: Charles Schwab

Charles Schwab’s UK managing director Kully Samra told Fund Strategy:”We are leveraging the scale in the US for the UK and it is something most of our competitors can’t do.”

E*Trade and TD Ameritrade shares were down 7 per cent yesterday when Charles Schwab announced the move. However, Charles Schwab shares were down 3 per cent.

Liberum research analyst Justin Bates says:”Rightly or wrongly this is more evidence of the pressure on pricing and margins and this is probably going to have an impact on Hargreaves Lansdown eventually, and have an overall structure pressure on the industry.

“There’s fear HL will have to reduce their dealing commissions again”.

HL trade commissions go from £5.95 to £11.95 for a single trade.

HL declined to comment.