Everyone loves a good price war. And it looks like a new one is breaking out in the exchange-traded fund arena.

In a bold challenge to the industry, Charles Schwab (SCHW) launched four broad-market stock ETFs Tuesday with fees as low or lower than those of the cheapest funds now available in the same asset classes. Investors with Schwab brokerage accounts can trade these funds online for free -- a feature that Schwab says isn't just an introductory teaser. And Schwab plans to launch four more ETFs in December with fees that match or undercut ETFs offered by rivals such as Vanguard, iShares and State Street (STT). Years from now this could be the shot heard around the world, says Scott Burns, the director of ETF analysis for Morningstar.

Low fees have always been a big selling point for ETFs, and Schwab isn t the only one making the low-price pitch. Vanguard has been raking in assets by undercutting competitors -- charging an average of $15 for every $10,000 invested, compared to $54 for the industry. Those rock-bottom expenses have helped Vanguard become one of the fastest-growing ETF players, with assets rising by $17.8 billion this year to $77 billion. Other companies have also lowered expenses or come out with ETFs on the low end of the fee spectrum. State Street s SPDR division shaved two basis points off the annual expenses for its nine sector ETFs in January, reducing fees to 0.21% (and well below the 0.65% expense ratio when they launched a decade ago). And Pimco s new fixed-income ETFs are priced competitively, too.

ETF expenses have been rising over the last few years because many new funds focus on costly, niche areas of the market or use active management, driving up the industry s average fees. But pricing pressure is still intense for the broad-market ETFs, Burns says, and companies risk losing assets if their fees aren t competitive.

The four funds launched Tuesday by Schwab track the Dow Jones U.S. Broad Stock Market Index, the Dow Jones U.S. Large-Cap Total Stock Market Index, the Dow Jones U.S. Small-Cap Total Stock Market Index and the FTSE Developed ex-US Index. (SmartMoney is a joint venture between Dow Jones and Hearst.)

Of course, Schwab may not make a buck on these ETFs for some time. New funds typically lose money until they reach a critical mass of assets. And because Schwab priced these ETFs so low (and waived trading commissions), they aren t yet profitable, says Jon De St. Paer, vice president of investment management services with Schwab. We re trying to make a splash, he says. It s not expected to be a revenue loser.

Schwab has reserved the right to hike fees in the future, and its regulatory filings indicate that it may impose a 0.25% 12b-1 marketing fee on the ETFs after Nov. 14, 2011 (though such fees are rare in the ETF industry).

Still, analysts say Schwab s moves herald an aggressive new front in the ETF price wars. Rival brokerage shops like Fidelity may now have to come out with low-cost ETFs that can be traded commission-free on their platforms, Burns says. (A spokesman for Fidelity says the firm is always looking to enhance it offerings but has no plans to launch more ETFs.) ETF shops may also have to scale back their fees to prevent assets from flowing to rivals with the lowest costs. For example, Vanguard s Emerging Markets ETF costs just 0.35%, versus 0.72% for the iShares MSCI Emerging Market Index ETF, which tracks the same index. And Vanguard s fund is growing at a much faster rate. Vanguard is the great disruptor, Burns says. But Schwab may not be far behind.

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