The company’s extensive fund selection is one of the reasons Charles Schwab & Co. has been a SMI recommended broker for many years. About 7,500 no-load mutual funds are available through Schwab.
Over 4,200 of them are “NTF” funds, which don’t charge a transaction fee. Any no-load fund that isn’t on Schwab’s NTF list costs $49.95 to purchase.
That was the case until today, at least. For most non-NTF funds, the $49.95 purchase-only transaction cost remains in effect. Retail investors who purchase Vanguard, Dodge & Cox, or investor-class Fidelity funds through Schwab, on the other hand, will pay a higher price: $74.95. This is 50% more than what Schwab charges for other transaction-fee funds traded online. (TD Ameritrade, which is owned by Schwab, has adopted the similar two-tier transaction fee structure.)
They won’t pay to play
The price rise, according to Schwab, is due to the refusal of those three fund families — Vanguard, Dodge & Cox, and Fidelity — to pay the premium that Schwab asks to be on its platform.
“The majority of mutual fund families pay Schwab…for required and vital shareholder servicing fees,” a Schwab spokeswoman told Barron’s. “However, some do not” (paywall). “On retail mutual fund purchases, we are using this alternative amount just for funds for which we do not receive shareholder servicing compensation.”
On this page, Schwab goes into great depth about its multiple compensation structures, but here’s all you need to know about today’s increase:
Most TFFunds pay Schwab an annual asset-based fee, which is normally 0.10 percent of the average fund assets housed at Schwab, but can be as high as 0.25 percent…. In lieu of the asset-based charge, certain TF Funds pay Schwab a specific monetary amount per customer account, often $20 per account yearly….
The transaction charge… helps compensate Schwab for the shareholder services it provides to customers who possess TF Fund shares, together with asset-based or per-position fees collected from the funds.
Despite the fact that more than 130 of Vanguard’s classic funds are available through Schwab, the company “has a long-standing policy of not paying distribution fees that incentivise sales of our funds on third-party platforms,” according to a Vanguard spokeswoman. To put it another way, if investors want to buy Vanguard’s classic funds without paying a fee, they should buy straight from Vanguard.
“Individual individuals can invest directly with us without paying a transaction charge,” a Dodge & Cox spokeswoman said. Barron’s request for comment was ignored by Fidelity.
More to come?
For the time being, Schwab’s transaction fee hike only applies to Vanguard, Dodge & Cox, and Fidelity funds. We’ll have to wait and see if this transaction-fee “surcharge” concept spreads to other Schwab funds, or if it’s just a one-time occurrence. (It’s worth noting that Fidelity has charged a higher cost for buying Vanguard and Schwab funds for numerous years than it has for other transaction-fee funds.)
For several years, retail investors have enjoyed a period of dropping fund fees (of various forms). Let’s hope Schwab’s latest action isn’t the beginning of a trend reversal.
Impact on SMI investors
The impact of this recent pricing change on SMI investors who invest through Schwab (or TDA) should be modest. One reason is that ETF trades are unaffected by Schwab’s new pricing policy. The Schwab/TDA platforms will continue to offer free trading of exchange-traded funds, such as Vanguard and Fidelity ETFs. As a result, you might be able to replace traditional mutual funds with comparable ETFs.
It’s also worth mentioning that, according to Schwab’s pricing guide, the $49.95/74.95 price isn’t imposed in all circumstances. For trades of less than $100, Schwab waives all transaction fees. So, if you put $75 into a transaction-fee fund at Schwab on a monthly basis, you wouldn’t have to pay a transaction fee.
Schwab’s transaction fees are also on a sliding basis. According to the company’s website, “ransaction fees do not exceed 8.5 percent of principal.” For example, a $500 transaction-fee fund purchase would cost $42.50, less than the full $49.95 price levied by most funds or the $74.95 fee charged by Vanguard/Fidelity/Dodge & Cox funds.
Also keep in mind that Schwab offers a variety of classic Schwab-brand funds that can be substituted for Vanguard and Fidelity funds. That implies you might be able to locate a comparable Schwab-managed traditional fund with no transaction fee if you’re considering a Vanguard or Fidelity fund with a transaction fee.
Is there a cost for Vanguard ETFs at Schwab?
When you purchase or sell an ETF, your broker may charge you a trade commission. Schwab charges for ETFs. All online-listed ETFs6, including Schwab ETFs, are free.
Are Schwab ETFs superior to Vanguard ETFs?
When it comes to ETFs, Charles Schwab is far superior. With over 2,000 ETFs across different asset classes and mutual fund firms, Schwab ranks first on our ranking of the best brokers for ETF trading. Vanguard, on the other hand, only has about 1,800 ETFs from about 100 businesses.
Is Charles Schwab a reputable ETF provider?
- The broker offers great screeners for stocks, ETFs, and mutual funds, as well as strong trade execution.
- Schwab provides the kind of comprehensive news, research, calculators, and education that large, well-established online brokers are known for.
- Schwab has a wide range of products and tools, but only a few cryptocurrency options and no forex trading.
- With Schwab’s acquisition of TD Ameritrade’s online brokerage, traders will gain access to another robust tool set, as well as the trading engine thinkorswim.
Are Vanguard ETFs available for free at Schwab?
For U.S.-based customers, Charles Schwab and Vanguard offer zero commissions on online equities, options, and ETF trading, with per-contract options fees of $0.65 and $1, respectively. If you buy mutual funds outside of the no-cost list at Schwab ($49.95 versus Vanguard’s sliding charge of $0 to $50, depending on your account balance), you may pay more ($49.95 versus Vanguard’s sliding fee of $0 to $50, depending on your account balance). Schwab charges $25.00 for broker-assisted trades, while Vanguard charges between $0 and $25 (depending on your account amount).
The difference between what you’re paid on your idle cash and what they earn on customer balances is how the two brokers make money. You can put your money in a money market fund with either broker to earn a greater interest rate. Currently, Vanguard offers a significantly higher return: 1.55 percent against 0.30 percent at Schwab. Schwab, on the other hand, offers stock loan programs through which you can share in the profits generated by lending the stocks in your account to other traders or hedge funds (usually for short sales). Vanguard does not distribute its profits.
What makes Charles Schwab superior to Vanguard?
The truth is that, depending on one’s needs, any broker is ideal for a long-term investor. Vanguard has greater access to foreign stocks, while Charles Schwab provides additional options for active investors. In the end, the best brokerage is determined by how you invest.
Is Charles Schwab the same as Vanguard?
In terms of trading platforms, Vanguard and Charles Schwab have a lot in common. Both are full-service brokerages, which means that investors can trade in most common securities and have access to most common types of data. Vanguard and Charles Schwab both provide a comprehensive set of information and technical indicators for investors, ranging from fundamental data like price history to more sophisticated data like company profiles and real-time updates.
However, there are numerous areas where Charles Schwab outperforms Vanguard in terms of services and features.
Schwab allows skilled investors to trade futures contracts as well as foreign currency markets. Neither of these assets are supported by Vanguard. This is not a loss for the normal investor, as these high-risk investments are unlikely to be traded. It may, however, have an influence on more experienced investors who have the skills and financial resources to securely trade in these markets.
Vanguard’s prices tend to favor large investors more aggressively than regular investors. Fees on mutual funds and options contracts are waived for investors who have $1 million or more in the company’s products. Vanguard’s pricing aren’t too high to begin with, so this isn’t necessarily a concern for average investors. (In fact, the only significant difference is that Vanguard charges a few cents more per option contract than Schwab.) The finest discounts on Vanguard’s marketplace, however, are still reserved for the wealthiest traders.
Neither site enabled direct bitcoin investing at the time of writing, and both platforms support fractional share trading, contrary to some reports.
Finally, Schwab provides two branded trading platforms. Most investors will use the firm’s basic platform, which is accessible via a website and an app “The “Charles Schwab” name is more than adequate. The company’s second platform, dubbed “For sophisticated investors, “StreetSmart” provides a more complex trading environment. StreetSmart provides various features for high-volume, semi-professional traders that neither Schwab’s base brand nor Vanguard can match, such as the capacity to react to real-time market fluctuations.
This brand will provide minimal value to normal investors, and it will be prohibitively difficult for them to understand. However, for the more seasoned investor, StreetSmart has a lot to offer.
Finally, Schwab provides a much broader number of order types than Vanguard. Complex interactions, such as conditional orders and triggers, are supported by Schwab’s platform. Vanguard’s platform has a far smaller number of complicated order types, but it does include all of the essentials, such as stop-loss and limit orders.
Is CFP available at Vanguard?
You’re a Vanguard Voyager Select customer, which gives you access to a team of skilled investment advisers as well as significant brokerage transaction reductions.
- A group of seasoned investment specialists that will serve as your tour guide through everything we have to offer. They can assist you learn about all of the products and services available to you, as well as answer your questions and conduct transactions.
- Vanguard Personal Advisor Services provides ongoing guidance and portfolio management from a Certified Financial PlannerTM (CFP) professional (for a low fee).
Is it true that Charles Schwab offers fractional ETFs?
Schwab Stock Slices is a convenient way to purchase fractional shares for a fixed price. You can acquire shares in up to 30 top American firms in a single transaction.
Is there a technological ETF from Schwab?
Schwab U.S. Small-Cap is a market-cap-weighted index of U.S. stocks with market values ranging from $125 million to $6 billion. Tangoe (TNGO), an information-technology services corporation, is one of the more obscure assets. However, compared to funds that track the Russell 2000 index, which is a more frequent small-cap benchmark, the portfolio favors mid-cap equities. According to Morningstar, the Schwab fund has 16 percent of its assets in midsize companies, compared to 3 percent for the iShares Russell 2000 ETF (IWM).
The Schwab fund’s bias toward mid-cap firms may help it weather market downturns a little better. The ETF, for example, lost 3.1 percent in 2011, a middling year for stocks, compared to the iShares fund’s loss of 4.4 percent. The Schwab ETF has outperformed the iShares fund by an average of 0.8 percentage point every year over the last five years.
The ETF’s biggest holdings are companies in the technology, industrial, and financial services sectors, which account for 46 percent of its assets. Computer distributor Ingram Micro (IM), commercial banker PacWest Bancorp (PACW), and ON Semiconductor were among the top holdings at the time of our previous check (ON).