May 26, 2010

Vanguard Introduces Commission-Free ETF Trading

The fund giant now joins a chorus of competing fund companies, like Schwab and Fidelity, that offer this arrangement.

The Vanguard Group has moved to offer commission-free ETF trades for 46 of its exchange-traded funds (ETFs).

The changes became effective in late May and allow Vanguard's brokerage clients to buy and sell Vanguard ETFs without paying any brokerage commissions.

Vanguard's brokerage clients typically pay $2 or $7 to trade individual stocks and non-Vanguard ETFs. The actual trading commission paid depends on the size of a client's brokerage account.

Investors with accounts $1 million or more are allowed 25 commission free trades per calendar year on stocks and non-Vanguard ETFs.

Vanguard now joins a chorus of competing fund companies that offer commission free ETF trading.

Charles Schwab allows commission free trading to its brokerage clients for Schwab ETFs. The San Francisco-based investment firm now manages around $1.19 billion in ETF assets.

In February, Fidelity Investments teamed up with BlackRock to offer commission free trades on 25 iShares ETFs.

ETFs are low cost index funds that trade like stocks. There are also a few active ETFs not benchmarked to indexes, but the bulk of assets are invested in index linked ETFs.

For ETF investors, commission free trades are a huge plus.

Even though ETFs on average have lower annual expenses compared to mutual funds, ETF trading costs reduced those advantages. Now, with three major brokerage platforms offering commission free ETF trades, the trading cost barriers have been all but removed.

Strategies like dollar cost averaging using ETFs will now become a viable option.


It's likely commission free ETF trading will force other ETF providers to partner with brokerage firms to avoid losing ground.

At the end of April, Vanguard managed $108.82 billion in ETF assets making it the third largest U.S. ETF provider in terms of assets under management.

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