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Marketwatch Senior Columnist Chuck Jaffe on the hidden costs of Charles Scwhab’s “free” ETF trading.
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-- investors there's no such thing as a free lunch and that especially holds true for the too good to be true claims coming out of Charles Schwab.
Our next guest says they're free ETF trading is going to cost you.
Joining me now Chuck Jaffe senior columnist for MarketWatch chuck welcome back to the show okay what's going on here.
I've got everything will.
No extra fees here you're saying it's not true.
Well the answer is it might be if it happens that the mutual fund that you want the EGF that you want is in the program.
And even then we're gonna have to see whether or not they wind up raising expenses -- somebody's gonna wind up paying these fees.
And so if you get into a situation where a company says to Schwab would want to participate.
That's company's gonna be paying Schwab if that company then raises is that it's expense ratio to help make up for the money that is.
Getting from Schwab then you're gonna pay it.
-- higher expenses at -- -- like you have to figure you're gonna pay it.
-- -- the promise of Schwab's plan is that ETF trading it's free.
However they have a small pool of ETFs to choose from a 105.
And in the world they're almost a thousand ETFs so it's highly likely that the ETF you really want to.
-- it isn't even in this group.
What sort of -- -- and 500 can I get that.
You know you can get something close to wit or you could get it in a way that's not the what you think of the S&P 500 instead of getting.
The spdr the yes PY the most popular first -- and I think you could get.
-- you could get the Guggenheim.
S&P 500 people waited find the RL pity that you could get but it's not the same at all.
As a Democrat that is one problem well it's equal weighted so instead of having a company like Exxon to be a big chunk of the these past few why which it is it as a market cap weighted index.
It's -- and then -- -- a quarter of a percent.
So it's a much it's an index fund that covers the same index but has a lot more exposure to small cap and midcap stocks are -- the S&P 500.
-- -- you -- -- same things we're saying -- you know it's it's a little bait and switch.
That's what's going on here the -- -- is it is free right now.
For a limited number of ET apps.
But maybe not for what you want -- and we were looking at to the cost for trade typically with online brokerages.
Six night five to 1495.
To those numbers hold true with mutual funds.
Yeah they do that and that's what -- the other things it's not revolutionary because you can go to any broker and get into any ETF family are all there.
And that wasn't the case in old mutual funds you can do that now and I think the other thing that's gonna happen -- this grows it'll be better for consumers.
But right now it's not very yet and we still don't know where the costs are going to be and it's not necessarily the funds you want.
And I think the other thing is the funds that are in there are very thinly traded and -- an ETF -- thinly traded you may get the free trade.
But you're -- -- should the price you're buying may not be such a great price.
Our execution is bad that's where you have a cost that you can't even figure out.
So that to me is the big issue is that right now -- ETFs that are paying to be in here.
Are mostly with the exception of Schwab's own funds that have a reason to be there.
With the exception of Schwab's own funds -- that are pegged to be there.
Are mostly smaller funds that they need to get money NN com 'cause they're small they're thinly traded.
-- trades means great you -- a couple of bucks but you may give it back on the execution.
-- two -- -- well check makes a lot of sense that we shouldn't say that at the -- folks wanna come on.
Talk about how they think their programs -- world were happy to have do that it's always good to see -- -- -- -- should come back more often and maybe even in New York it.
Would love to Gerri thank you so much have a great night.
-- to an.
