Pershing, a subsidiary of The Bank of New York Mellon, is thinking about hopping on the commission-free exchange traded fund train as more financial advisors turn to low-cost ETFs.
Justin Fay, vice-president and solutions manager for alternative funds and ETFs at Pershing, said the broker-dealer is “actively looking at” setting up an ETF version of its FundVest mutual fund no-transaction-fee platform in response to rising demand for ETFs among advisors, reports Jackie Noblett for the Ignites.
“A few years ago [no transaction fee]was a nice-to-have versus a need-to-have,” Fay told Ignites. “But as ETFs have grown in popularity across the industry and on our platform, we are trying to be more responsive to adviser demand.”
As of the end of the first quarter, Pershing held 3.7 million ETF positions with $89 billion in client assets under management. The distributor’s FundVest platform offers over 6,000 mutual funds with no transaction fees.
Fay found that advisors are using ETFs more frequently and trading the investments more tactically within portfolios with relatively frequent adjustments. [Advisors Flock to Commission-Free ETFs]
For example, Charles Schwab’s commission-free OneSource ETF platform grew 9% year-over-year in the third quarter to $15.4 billion, compared to 6% growth in other third-party ETFs. RIAs fueled half of the $33 billion in ETF sales for the 12 month ended September 30 and about 40% of flows went into commission-free ETFs. Schwab found that commissions were the second most important factor in evaluating ETF costs.
If Pershing does decide to offer a commission-free ETF platform, the broker will join other custodians that offer a range of free ETF trades. For instance, some of the more popular commission-free ETF brokers include Charles Schwab, Fidelity, TD Ameritrade, Raymond James’ RIA business, E*Trade, Vanguard and Merrill Lynch. [Six Popular Commission-Free ETF Trading Platforms]
Meanwhile, ETF providers have been open to providing their products on a commission-free platform as a way to attract investors and quickly grow assets under management. However, with more commission-free ETF platforms coming online, ETF sponsors may grow picky over which distributor to choose. Matthew Fronczke, a director at kasina, points out that this is particularly true for smaller, more specialized ETFs that lack the ETF sales volume with advisor platforms to negotiate lower fees than more established firms.
“RIAs in particular are demanding the lowest possible trading cost, and that’s zero right now,” Fronczke told Ignites, adding that advisor demand is likely to drive other broker-dealers to consider adopting commission-free platforms. “If you’re trying to drive [flows]in a channel, you’re going to have to be competitive with trading costs.”
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Max Chen contributed to this article.