Charles Schwab to Drop Online Stock, ETF Fees in Price War
(Updates with Bloomberg analyst comment)
(Bloomberg) — Charles Schwab Corp., in an escalating price war with rivals, plans to reduce U.S. stock, exchange traded funds and options online trade commissions. Shares fell the most in three years.Schwab clients using its web and mobile channels qualify for the new pricing from $4.95 to zero, which begins Oct. 7, according to a statement from the company Tuesday. They don’t have to open an account, make a new deposit or maintain a minimum balance. Clients trading options will continue to pay 65 cents per contract.
Schwab’s move is the latest in a price war with competitors as investors flock to the cheapest products. Vanguard Group last year announced it would offer almost 1,800 ETFs commission-free on its platform. Almost every Vanguard ETF can now be traded without cost on the firm’s platform. In June, Fidelity Investments also expanded its lineup of commission-free ETFs.
“The Vanguard effect knows no bounds,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. “If Vanguard didn’t do what they did a year ago, nobody would do any of this. Next, we are looking at Fidelity, E-Trade and TD Ameritrade to follow suit.”
Last week, Interactive Brokers Group Inc. announced it also would offer free trades.
“Since Schwab is the market leader, this is a significant development and will likely force peers to reduce their own commission rates,” Christopher Harris, an analyst with Wells Fargo & Co., said in a note Tuesday.
The price cuts are more likely to hurt revenue at TD Ameritrade Holding Corp. and E*Trade Financial Corp, which depend more heavily than Schwab on brokerage fees, Craig Siegenthaler, an analyst at Credit Suisse Group, said in a note Tuesday.
Shares of Schwab fell about 9% to $38.09 at 9:50 am . Shares of Interactive Brokers Group also slipped on the news.
– With contributions from AdvisorHub