When it comes to fees, exchange traded funds provide investors a low-cost alternative to traditional fund products. Additionally, the industry has now partnered up with large brokerages to offer commission-free trades, cutting down the cost of investing in ETFs even further.
Among the largest firms, Fidelity Investments, TD Ameritrade, Charles Schwab, E*Trade, Vanguard and Merrill Lynch provide investors with access to commission-free trades on a number of ETFs, writes Timothy Strauts, ETF analyst at Morningstar. [A Closer Look at Commission-Free ETF Trading]
Fidelity
Fidelity expanded its partnership with BlackRock, increasing its line of commission-free trades to 65 ETFs from 30, including the new iShares “Core” series. Additionally, the brokerage includes the Fidelity Nasdaq Composite Index (NasdaqGM: ONEQ). Overall, the funds have an average asset-weighted expense ratio of 0.25% and only 15% of the ETFs available have assets less than $100 million. [Fidelity, iShares Expand ETF Partnership: What Does it Mean?]
However, if a sale is executed within 30 days of purchase, investors will incur a short-term trading transaction of the regular commission fee of $7.95.
TD Ameritrade
The TD Ameritrade platform offers a broad 101 commission-free ETFs from eight different sponsors, including iShares, Vanguard, State Street, PowerShares, WisdomTree, Market Vectors, PIMCO and iPath exchange traded notes. The average asset-weighted expense ratio is 0.20% and less than 1% of the ETFs have less than $100 million in assets.
Investors can find a number of commission-free trades on commodity-related ETFs. While the brokerage provides access to a number of large and popular ETFs, the SPDR S&P 500 (NYSEArca: SPY) and SPDR Gold Shares (NYSEArca: GLD) are not included. However, the iShares Core S&P 500 (NSYEArca: IVV) is on the list.
If sales are executed within 30 days of purchase, investors will incur a short-term trading transactions of $19.99 – the regular commission on trades is $9.99.
Next page: More commission-free ETF platforms
Charles Schwab
Originally, the commission-free ETF platform was restricted to Charles Schwab ETFs, but the program was expanded to include ETFs from States Street, PowerShares, Guggenheim, ETF Securities and U.S. Commodity Funds. Investors can browse through 105 commission-free options, which have an average asset-weighted expense ratio of 0.37%, and 33% of the ETFs have less than $100 million in assets. [Schwab Unveils Game-Changing Commission-Free ETF Platform]
Since there are no short-term trading restrictions placed on the ETFs, active traders may find the platform appealing as a cost-free way to move in and out of broad market segments. Typical commission fees are $8.95 per trade.
E*Trade
Unlike other platforms, E*Trade does not include products from the four largest ETF providers but provides access to WisdomTree, Deutsche Bank and Global X funds. Consequently, the online brokerage’s commission-free line up of 92 funds includes a lot of smaller ETFs. The average asset-weighted expense ratio of the ETFs is 0.53% and 63% of the ETFs have less than $100 million in assets.
If sales are executed within 30 days of purchase, investors will incur a short-term trading transactions of $19.99 – the regular commission on trades is $9.99.
Vanguard
The Vanguard platform includes access to its proprietary ETFs. It only offers commission-free trades on 67 of its own ETFs, with an average expense ratio of 0.12%, and 11% of the ETFs have less than $100 million in assets.
The firm also allows traders to buy and sell the same ETF 25 times over a 12-month period without restrictions. If a trader goes over its allotted quota, Vanguard will restrict trading on the ETF for 60 days. Regular commissions varies but starts at $7 on accounts with less than $500,000.
Merrill Lynch
The relatively new Merrill Edge self-directed investing account provides investors, who maintain at least $25,000 in cash on the Merrill Lynch brokerage account or in a Bank of America bank account, with 30 commission-free trades per month on all available equities and ETFs.
However, Strauts warns that Wells Fargo offered a similar program but recently stopped providing the service to new customers. Consequently, potential investors should be aware that there is no guarantee that Merrill Edge would not stop its program in the future. The platform comes with regular commission fees of $6.95 per trade.
It is also important to note that along with explicit costs like a fund’s expense ratio and commission fees, trading in ETFs also comes with implicit costs. For instance, traders should consider bid/ask spreads, tracking error and share-lending revenue, among others.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.