Schwab adds 18 more funds to its commission-free ETF platform

Schwab's fund platform is expanding to 198 the number of ETFs that trade without commissions.

The Charles Schwab Corp., which attracted $10 billion to its commission-free trading platform for exchange-traded funds last year, said Monday it would add 18 more funds to the platform.

That means advisers and retail investors who use the One Source platform will generally be able to trade, without commissions, 198 ETFs across 64 Morningstar Inc. category groupings, according to Schwab.

The ETF platform is adding funds from State Street Corp., the ETF manager that builds the SPDR lineup, WisdomTree Investments, Direxion Investments, PowerShares and ProShares.

(More: 5 ETFs to navigate a choppy market)

The latest additions, which will be available starting Feb. 1, branch out into more exotic index offerings. For example, they include Direxion’s iBillionaire Index ETF (IBLN), which attempts to track the investments of prominent billionaires; a lineup of PowerShares “factor” funds, part of a fast-growing ETF investing trend sometimes called smart beta; a multi-alternative strategy called the ProShares Morningstar Alternatives Solution ETF (ALTS); and a “low-carbon” sustainable-investing fund by SPDR.

ETF OneSource, which launched in early 2013, managed $38 billion at the end of last year, according to Schwab. Flows on the platform accounted for about $4 of every $10 that went into ETFs at Schwab.
Thirteen fund managers participate on the platform, including Pacific Investment Management Co. and Guggenheim Investments. Schwab’s in-house brand of funds, which are among the industry’s cheapest by annual management expenses, are also commission-free.

Executives at the firm have said the platform is important to cost-conscious investors who have turned to ETFs — many of which offer exposure to market-tracking indexes, often for a lower cost than competing products.

Commission-free trading has been a marketing coup among advisers, and Schwab claims more depth in its platform than its competitors.

But the program may be even more popular with its partner fund companies, because they can drive assets to their fund lineup and step above the fray of dozens of competitors by being on the platform in exchange for a fee paid to Schwab.

Just one of the three biggest fund companies, State Street, is on the platform. Funds from top providers Vanguard Group Inc. — which generally eschews compensating broker-dealers for distributing its products — and BlackRock Inc. are not.

BlackRock has a partnership that includes commission-free trading with Schwab competitor Fidelity Investments.

Raymond James Financial Inc. said last year it was starting a commission-free trading program of actively managed ETFs last year for its affiliated registered investment advisory firms. Pershing has considered launching such a program, InvestmentNews has reported.