Schwab cuts fees below Vanguard's in bid to grow

Vanguard Group's 500 Index Fund charges a fee of 0.18% a year, frugal by investment industry standards, from small investors with a minimum $3,000. If you're rich, they charge less, the way investment pros do.

In May, Charles Schwab & Co. cut its own Schwab S&P 500 Index fee to just 0.09%, with a minimum $100 investment. "The expense reductions are permanent," says Schwab spokesman Jonathan Pappas. Schwab won't say if that's bringing in a lot of business, so far.

Vanguard's the target because the Malvern-based company has been creaming its competition. Vanguard, the biggest mutual fund firm with $869 billion in client assets after last year's share-price collapse and this spring's partial recovery, attracted a net $21 billion in new stock-fund business last year and $8 billion in the first half of this year, when half the ten largest mutual fund families lost business, according to Morningstar Inc.

More investors are selling their stock mutual funds to buy bond funds or exchange-traded funds, or nothing, according to Morningstar data. That also works to Vanguard's advantage: The company's bond mutual funds are growing a lot faster than stock funds, and its ETFs are now growing faster than its mutual funds, according to company data.

Why does Schwab bother? The company is trying to get beyond its old reputation as a discount broker. Among its targets: trading and data services for investment advisers who've gone independent, leaving the big Wall Street houses like Merrill, Morgan Stanley and Smith Barney to run their own shop, says Tom Intoccia, who heads Schwab's mid-Atlantic region from his Radnor office. Schwab counts small firms like Jay Riley's Barton Investment Management, Peter Havens' Baldwin Investment Manabement and Bill Spiropolis's CoreStates Capital Advisors among its Philadelphia-area clients.