– Fidelity charges a $7.95 early redemption fee (online).

TD Ameritrade

– TD Ameritrade has a slightly stronger showing with 101 NTF ETFs currently.

– The firm is more diversified; it has nine providers utilizing Morningstar as an advisor for the selection and evaluation of the lineup.

– TD Ameritrade charges a $19.99 early redemption fee.

Charles Schwab

– Charles Schwab has the strongest lineup currently of 228 NTF ETFs, and the strongest growth in offering over time.

– It is well diversified; it has 16 different ETF issuers, which also utilize its Schwab ETF lineup.

– Schwab has no early redemption fee.

Fully evaluating the lineups of these firms goes well beyond the count. At CLS, we evaluated the quality of the products available in terms of liquidity and expense. Unfortunately, there has not been a tremendous amount of change in recent years. TD Ameritrade has not adjusted its lineup of NTF ETFs in several years, but it does have the most liquid offering and lists lower expense funds. Fidelity expanded its offering by including its own ETFs after they launched, but there has not been much change since then. It is second in terms of liquidity and matches TD with the attractive median expense of 20 basis points. Schwab has recently removed about a dozen ETFs, but has shown the most growth over time and is quite dominant in the total number. But, in terms of liquidity, cost, and asset size, Schwab is far less liquid and twice as expensive as the competition.

One interesting note is, liquidity and size have improved on the platforms over time. The lineups haven’t changed much, but the ETFs have grown and become more liquid. This is partly due to the general growth in ETFs, but studies have shown that listing ETFs as NTF on these platforms has improved liquidity and size. Thus, potentially tighter trading spreads on NTF ETFs is an additional cost savings for utilizing them.

Looking to the Future

One thing that all-inclusive vacation resorts have taught us is people love getting things for free. Why pay money for something when you can get something similar for free? This is the leading driver of NTF ETFs, but the limited lineups do create some issues. Investors may be buying certain funds simply because they are NTF with less regard to the specifics of the underlying exposures (arguably a lot more important). Thus, brokerages have an important duty to offer a well-diversified (many choices) and cost-conscious (liquid) lineup that stays on top of new options as they come to market.

Instead of focusing on how much revenue an issuer can generate and avoiding the inclusion of competitor products, brokerage firms should shift their focus to investment advisors and what exposures, liquidity and size they may be looking for. Finding these answers will help develop and evolve a lineup that helps all investors achieve their long-term investment goals.

In summary, NTF ETFs are an important addition to brokerage platforms as they reduce the costs associated with investing in ETFs, and thus, result in higher expected returns. While NTF ETF lineups got off to a great start, their growth has slowed in recent years. The increase in NTF options on various platforms will continue to promote ETFs in the industry, which will be mutually beneficial for all brokerages, issuers, and investors.

Rusty Vanneman is the Chief Investment Officer at CLS Investments, a participant in the ETF Strategist Channel.

Disclosure Information

This information is prepared for general information only.  Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such.  All opinions expressed herein are subject to change without notice. 2197-CLS-2/3/2017