TD Ameritrade has stepped in with the biggest move yet in the exchange traded fund (ETF) price wars. Not since Charles Schwab pioneered the idea of a mutual fund supermarket has something been so appealing, especially for the retail investor.
Beginning today, 101 ETFs traded on TD Ameritrade’s platform will be commission-free. This is the largest offering of commission-free ETFs the industry has seen to date, though it’s not the first. This year, Vanguard made its 47 ETFs commission-free on its platform, Schwab charges no commission on its 11 ETFs when traded on their platform and Fidelity offers free trades on 25 iShares ETFs. [5 Ways to Cut the Cost of ETF Investing.]
There’s a small catch with the free trades offered at TD Ameritrade: to take advantage, you have to hold the ETF for 30 calendar days. If it’s sold before then, TD Ameritrade’s standard $9.99 fee will be levied. [Where You Can Go for Cheap ETF Trades.]
But there’s no doubt that this market is a game-changer for the ETF industry in several ways:
1. TD Ameritrade’s move means that Fidelity, Schwab and E-trade will be encouraged to react in some way and come out with a competing offer that’s just as attractive. Assets in the ETF industry are approaching $1 trillion, and TD Ameritrade has come out strong saying, “We’re worthy of grabbing your business.”
2. Retail investors and advisors now have no reason to not use ETFs in both large and small portfolios to achieve diversification and to do dollar-cost averaging. Smaller investors may finally be encouraged to use ETFs now as a result; Matt Krantz for USA Today points out that most large online brokers that offer free ETF trades require a $1,000 minimum to open an account. Other brokerages, such as Zecco, Wells Fargo and Bank of America, require a $25,000 minimum to open an account and qualify for a limited number of free trades. [How to Start Buying and Trading ETFs.]
3. It’s one more shot across the bow for poor-performing mutual funds. With TD Ameritrade’s new offerings, there’s even less reason to remain invested in mutual funds.
The ETFs offered on TD Ameritrade’s platform run the gamut, from core, plain-vanilla offerings like iShares S&P500 Index Fund (NYSEArca: IVV) and Vanguard Mid Cap (NYSEArca: VO) to commodities, with the PowerShares DB Oil (NYSEArca: DBO), and global funds, such as WisdomTree India Earnings (NYSEArca: EPI). You can find a complete list of all ETFs offered commission-free here.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.