TD Ameritrade expands lineup of commission-free ETFs

In the latest example of how fee compression is rippling through the financial industry, TD Ameritrade is offering free trades on more index funds. The brokerage’s newly expanded line of commission-free ETFs illustrates how quickly firms are competing to offer investment products at the lowest possible price.

The firm has boosted its commission-free ETF offerings to 569 funds spanning approximately 90 Morningstar fund categories. The brokerage is one of the industry’s top providers of passive funds with more than $380 billion in ETF assets under administration.

“We’re committed to providing our clients access to a robust suite of commission-free products,” said Keith Denerstein, director of investment products at TD Ameritrade in a statement.

More than 7,000 RIAs and 11 million retail accounts trade through the brokerage, according to the firm.

The funds include municipals, commodities, index-tracking, countries, single currency, sector, asset allocation and low-cost core offerings. Advisors can also access actively managed ETFs with long-short smart beta and ESG strategies.

The selected funds will become commission free in June, the company said.

ETF inflows surged to $3.4 trillion in the U.S. at the end of 2018, a more than tenfold increase from $237 billion in 2004, according to research firm ETFGI. However, fee compression on index funds has proliferated throughout the brokerage industry. For example, competitor Schwab has more than 500 commission-free ETFs. And in February, Fidelity Investments announced a similar expansion of its commission-free ETF lineup with the introduction of three multi-factor ETFs.

The low-cost brokerage are chasing Vanguard which made waves in July by cutting commissions on all of its ETFs, upping the number of free funds to 1,800.

Overall, both mutual fund and ETFs total net expense ratios declined consistently during the past five years, from 62 basis points in 2014 to only 46 basis points in 2018, according to research from Cerulli. However, transparency around pricing will become more important as fees become increasingly complex and difficult for investors to understand, according to the report.

“Particularly within index funds, product manufacturers see cost as a competitive edge and increasingly use fees as a marketing tool,” said Cerulli associate director Brendan Powers in an earlier statement about the research. “As ETF issuers aggressively jockey to offer the lowest fees, we begin to see them filing for — and now launching — zero- or negative-fee ETFs.”

Last month, Social Finance, the online lender specializing in student loan refinancing, began trading two index funds with no-fee waivers, making them essentially free to investors. In March, the ETF upstart Salt Financial created a minor splash by offering to pay investors to buy into its ETF. Other providers including JPMorgan Chase, Vanguard and BlackRock have all slashed fees in recent months.

Eileen Norton, director of investment solutions at TD Ameritrade, said the brokerage plans to continue updating its commission-free offerings. “It doesn’t end here,” she said in a statement.