Vanguard Cuts Commissions on ETFs and Stock Buys

To keep up with competitors, Vanguard Group announced Tuesday that it has reduced commissions associated with its exchange-traded funds and stock trades.

Valley Forge, Pa.-based Vanguard said it would offer commission-free trading to its brokerage clients that use its lineups of 46 proprietary ETFs. The company will also offer its customers $7 trades on stocks and $2 trades on non-proprietary ETFs.

“For 35 years, Vanguard has been committed to reducing the cost of investing in mutual funds for our clients,” Bill McNabb, the company’s chief executive officer, said in a press release.
“Now, Vanguard is expanding our low-cost commitment to ETFs.”

Vanguard’s move comes just a few months after Charles Schwab [SCHW] reduced commissions on online equity and non-Schwab ETF trades to $8.95. Schwab offered commission-free trading when it launched its proprietary ETF family last year.

However, John Woerth, a spokesman at Vanguard, said that the company’s decision to lower costs was not an effort to chase the competition. He said that growth within its ETF fund families and the ability to self-clear enabled the company to cut commissions.

In its press release, Vanguard said that unlike some competitors, the same commissions apply to both online transactions and those executed with a Vanguard brokerage representative. “To be clear, our commission-free offer is not intended to encourage the active trading of ETFs, which we believe is counterproductive and rarely successful,” McNabb said in the statement. “Rather, it enables investors to construct a balanced, long-term portfolio of low-cost Vanguard ETFs and add to the portfolio regularly.”

Vanguard is one of the three largest ETF managers. BlackRock [BLK], which bought the iShares family of funds from Barclays [BCS], managed 47.8% of assets. State Street Corp. [STT] had 23.3% share, while Vanguard came in third at 12.9%.

Vanguard’s ETF assets have more than doubled to over $100 billion in the past year. The company offers ETFs that track an array of domestic and international benchmarks, including fixed income funds.

But competition is increasing. In March, JPMorgan Chase & Co. [JPM] announced in a pair of filings with the Securities and Exchange Commission that it plans to introduce a pair of exchange-traded funds. The New York-based company wants to introduce both actively managed and index-based ETFs.

Vanguard said it thinks that education becomes more critical as competition increases. As a result, it has developed educational content and interactive tools on its website. Later this month, the company plans to launch a “Compare ETFs” tool to conduct a side-by-side review of the expense ratios, portfolio characteristics, and other data of nearly 100 ETFs.