Fee Waivers Help Newer ETF Players to Undercut the Competition

The largest exchange traded fund providers have enjoyed a first mover advantage that allowed sponsors to attract billions of investment dollars. As a way to entice investors away from the more familiar ETF options, newer funds are showing more competitive fees.

For instance, Goldman Sachs entered the ETF space with smart-beta offerings, including the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (NYSEArca: GSLC), which has a cheap 0.09% expense ratio or equal to that of the SPDR S&P 500 ETF (NYSEArca: SPY).

Other smart beta ETF competitors have taken notice of Goldman Sachs fee approach, which includes fee waivers that would need to be renewed annually, reports Eric Rosenbaum for CNBC.

Looking at GSLC, the ETF originally came out with a 0.24% gross expense ratio, but through fee waivers, Goldman Sachs has cut investment fees down to 0.09% – Goldman spokesman Andrew Williams, though, stated that the company was replacing the fee waivers on its five smart beta ETFs with permanent lower fees set at current rates under the fee waiver.

Goldman’s fee waiver is not anything new in the ETF industry. According to Morningstar data, there are 549 ETFs with a fee waiver that must be renewed annually, or a little over one-fourth of U.S.-listed ETFs.

Niels Holch, a lawyer and head of the Coalition of Mutual Fund Investors, argued that it is logical for companies to come out with ETFs with cheap fees at launch. However, Holch warned that it would be hard to remove the waiver without becoming less competitive.