Closing of Schwab ETF OneSource Reflects Market’s Fee Concerns

Launched in 2013, the platform originally allowed clients to buy and sell about 100 exchange-traded funds with no online trade commissions. Since then, investors’ expectations about fees and commissions have shifted dramatically.

Toward the end of last week, the Charles Schwab Corp. published its fourth quarter 2019 earnings and financial reports, listing quarterly earnings per share of 62 cents and a record full-year earnings per share total of $2.67.

The firm also reported record figures for full-year revenues and net income growth, as well as core net new assets totaling $221.7 billion for 2019, representing a 7% organic growth rate.

One notable, but quite brief, item in the earnings report is an inconspicuous-seeming footnote that is actually part of a much bigger story in the investment services industry: “Beginning in the fourth quarter of 2019, Schwab ETF OneSource was discontinued as a result of the elimination of online trading commissions for U.S. and Canadian-listed exchange-traded funds.”

The move to quietly close the OneSource program comes several months after the discount brokerage firm announced it would no longer charge commission fees for all U.S. stocks, exchange-traded funds (ETFs) and options trades. At that time, the firm cut its trading commission costs from the previous $4.95 to zero. The firm’s leadership said it long had been a central goal of Charles Schwab to deliver zero commissions to investors and that the firm could make up any lost revenue through value-added advisory services and on the fixed-income side of the portfolio.

Asked for a comment about the closing, Charles Schwab shared the following summary of its strategy: “Because all ETFs are now commission-free at Schwab, the Schwab ETF OneSource program as it existed was effectively discontinued on 10/7/19. Schwab is no longer marketing or promoting the program to clients, and ETF sponsors no longer compensate Schwab to participate in the commission-free ETF program. There are other attributes to the program however, such as data and reporting, that offer value to participating firms, and the ETF platform team is currently evaluating the overall ETF platform strategy with respect to those components.”

Advisers may recall that it was only back in February 2013 that Charles Schwab launched the ETF OneShare platform. In its first iteration, clients could buy and sell 105 ETFs with no online trade commissions. The offering spanned all major asset classes, with funds from various providers including State Street SPDR ETFs, Guggenheim Investments, PowerShares, ETF Securities, United States Commodity Funds and Charles Schwab Investment Management. By March 2019, Schwab ETF OneSource’s lineup of zero-commission ETFs had been expanded to include more than 500 funds covering 79 Morningstar categories.

Speaking in 2018 with PLANADVISER about the evolution of investment fees and commissions, Jonathan de St. Paer, who is now president of the firm but was then the head of strategy and product development, said clients were reacting extremely positively to lower fees—as one would expect.

“The simplified fee structure meant that all investors—regardless of their size—would get access to the same low prices on these products,” de St. Paer said. “The story of falling fees is really important … [and] firms like ours have been focused on it for some time and we already have our solutions in place to address this new, much more fee-conscious market environment. You may remember, even before we eliminated them, our investment minimums were only $100, compared with the thousands you will see elsewhere. … This is not rocket science and the signs have been clear to us that this is the appropriate route to take.”