President Donald Trump vowed to cut red tape around the financial industry, and true to his word, he signed a new bill into law that bodes well for the likes of Charles Schwab (SCHW) and other discount brokers.
Known as the Fair Access to Investment Research Act of 2017, the law, which was introduced by U.S. Senators Dean Heller (R-NV) and Gary Peters (D-MI), enables broker-dealers to provide clients with data and research reports on exchange traded funds, otherwise known as ETFs.
While broker-dealers are legally protected when providing research reports on all sorts of stocks and debts, that protection doesn’t cover ETFs. Heller said when introducing the bill in June of last year that it will bring “parity in the law by allowing broker-dealers to publish public research reports on ETFs, which millions of households invest in.” According to the bill, the aim is to establish a “safe harbor” that would let broker-dealers issue research reports that are not considered “offers” under securities laws. The research reports need to meet certain criteria. “This legislation will help Nevada’s investors better understand the financial products they may choose to put their hard-earned money into,” said Heller. “From workers investing for retirement or young families saving for their future, everyone will benefit by having more information readily available on ETFs."
To say ETFs are popular would be an understatement. According to ETF.com, in June alone $45.5 billion of new money was invested in ETFs. For the first half of the year, inflows stood at $249.4 billion, nearing the $287.5 billion of inflows for all of 2016. Total assets under management for ETFs listed in the U.S. stood at a little less than $3 trillion as of the end of June. While Charles Schwab isn’t a leading player in ETFs, currently in fifth place, it has a desire to become bigger, and the new act can help it with that goal. After all financial advisors have long complained there is a lack of good information on ETFs, partly because of the sheer number to choose from. Without research, it can be hard for financial advisors to determine the good, the bad and the ugly. If Schwab is able to provide research on its ETFs, it could serve as a differentiator and drum up more business for the San Francisco discount broker. Same goes for its peers in the marketplace.
Charles Schwab is drawing a line in the sand when it comes to the ETF market. Schwab's new ETF offering provides investors with a low-cost way to get exposure to the 1,000 largest stocks in the U.S. It has an operating expense ratio of 5 basis points, or 0.05%, and will be made available through the company’s commission-free ETF program. Charles Schwab said in an announcement the expense ratio is one-half to one-third cheaper than other ETFs that track the 1,000 biggest U.S. stocks. According to Barron’s, the expense ratio is lower than the BlackRock Russell 1000 ETF, the Vanguard Russell 1000 ETF and State Street's SPDR Russell 1000.