I've been talking for years about the way exchange traded funds (ETFs) are changing the investment landscape. Yet sometimes I'm still startled to see the world change in front of my eyes. That's exactly what happened last week when Charles Schwab launched its first four in-house ETFs.

Are these new funds revolutionary? Not really — all are core holding ETFs in areas already well-covered by other sponsors. What's new and unusual is Schwab's bold move to offer its online brokerage clients commission-free trading in its own ETFs.

Yes, that's right: If you're a Schwab client you can buy and sell any of these ETFs online with no transaction fee:

• Schwab U.S. Broad Market ETF (SCHB)

• Schwab U.S. Large-Cap ETF (SCHX)

• Schwab U.S. Small-Cap ETF (SCHA)

• Schwab International Equity ETF (SCHF)

Regulatory filings show that Schwab has other ETFs on the drawing board, too. So I think they're planning to make a major splash in the world of ETFs over the next couple of years.

Free Trading Is Only
The Tip of the Iceberg

In addition to the ability to trade online for free, the new Schwab ETFs have another interesting feature. Each has the lowest ongoing fees of any fund in its class. Check out these expense ratios:

• SCHB: 0.08 percent

• SCHX: 0.08 percent

• SCHA: 0.15 percent

• SCHF: 0.15 percent

The operating costs of the Schwab ETFs aren't just cheaper than other ETFs. They're also a fraction of what actively-managed mutual funds in the same classes have been charging for years!

Now, I'm usually not an advocate of choosing your investments based on price. I find that you often get what you pay for. Nonetheless, many investors see no reason to pay any more than they have to, and these low fees will be compelling to some of them.

Schwab is upping the ante for the whole investment management industry, just like it did for the brokerage industry back in the 1970s. And competitors will have to respond.

Why Trading Costs Matter

As I said in last week's Money and Markets column about ETF trading, it's not hard to find discount brokerage commissions in the $8-$12 range. So is being able to trade a few selected ETFs for free at Schwab really such a big deal? Yes it is. And here's why:

Pension funds and 401(k) plans are a huge part of the mutual fund business. Maybe you have money in one of these plans right now. If so, you know that your investment choices are usually limited.

Many businesses would like to offer ETFs to employees, but right now they can't.