Charles Schwab seeks a commission-free ETF network


The trend in ETFs has been toward lower commissions and costs in general, to the point that some retail customers can buy ETFs commission free.

The next big step, according to pioneer Charles Schwab, is for brokerage platforms to set up commission-free networks, where brokers could buy and sell ETFs from a wide range of providers without paying commissions. Charles Schwab is setting up the first such exchange and has approached many providers. But there's a big hitch, according to Investment News.

"None of the three biggest providers of exchange-traded funds, BlackRock Inc.'s iShares, The Vanguard Group Inc. and State Street Global Advisors has signed on board yet," it notes, in a recent article.

Those three firms collectively hold about 75 percent of the assets held by in ETFs.

"The sticking point reportedly is a 5- to 10-basis-point distribution and marketing fee Schwab has proposed the ETF providers pay to be on the platform."

If it could get the entire industry on the platform, the fees, which some liken to 12b-1 fees, would provide a nice stream of recurring income for Charles Schwab. Other firms of course are not keen to do the firm any favors. They note that given low commissions for trading ETFs, the costs could actually rise, as the 12b-1 fees will be baked into the ETFs total costs. This is most significant for larger accounts.

Are we moving toward a day when we'll see multiple versions of ETFs, delineated by cost structures, just as we now see multiple versions of mutual funds? That could spell end customer confusion.

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- here's the article

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