One week after announcing a new commission-free ETF trading platform and drawing the ire of industry watcher Michael Kitces and others, TD Ameritrade says it is lengthening the transition time for advisors and clients to the program.
The new commission-free platform includes ETFs from eight fund providers, such as iShares, ProShares, State Street, PowerShares and WisdomTree. However, it excludes many Vanguard ETFs and nine iShares Core ETFs, which most RIAs working with the TD Ameritrade platform use in client portfolios, according to Kitces, partner and director of research at Pinnacle Advisory Group.
The $6.95 fee imposed on these popular products was going to start Nov. 20. However, Kitces, some RIAs and other industry players raised concern about these changes — along with the need for advisors to have enough time to speak with clients and decide how they may want to adjust portfolios in response to TD Ameritrade’s new platform.
In response, TD Ameritrade says advisors and investors can trade commission-free ETFs on the older platform — including the Vanguard and iShares Core ETFs — through Jan. 19, 2018.
“A 30-day transition period is not long enough for the appropriate analysis and changes,” said Tom Nally, president of TD Ameritrade Institutional, in an interview with ThinkAdvisor on Monday.
Before the platform was introduced last week, executives and others at TD Ameritrade spoke “with hundreds, if not thousands” of advisors to get feedback, which it documented. It did the same after publicly launching the new platform.
“It was a miss on our part,” Nally explained about the 30-day timeframe. “Maybe we were not thinking things through around the analysis [done by advisors] … It’s good to have open dialogue with clients, so we can make adjustments as needed.”
The new commission-free platform is now available to TD Ameritrade’s 5,000 RIA clients as well as retail investors.
“We listened [to feedback] over the past week and made the decision to extend the transition period from 30 to 90 days,” Nally explained. “Investors and advisors can trade the new funds on a commission-free basis immediately and can trade the legacy funds commission free through Jan. 19, 2018.”
According to Kitces, “the removal of all Vanguard ETFs and the most popular iShares Core ETFs has put advisors in the lurch, leaving them barely 30 days to make changes for their clients before ticket charges will apply. [This] means what was a convenient solution for financial advisors has just become a big headache, as they must now scramble to investigate and map out replacement funds, contact clients, and update portfolios over the next 30 days.”
Nally says that Kitces is just “one voice” that the firm has heard from about the platform changes. “We were very proactive in making calls and letting advisors know about changes and how it would impact them,” he explained.
While some advisors said the platform was “a great addition,” others told the firm they would “take a deeper dive and probably stick with what [they now] do,” according to the TD Ameritrade executive.
As for the length of the transition period, “Some said they need more time, that 30 days is tough. We heard that more than not,” Nally stated. “And we listened to our clients and wanted to be as accommodating as possible.”
As for why Vanguard isn’t on the commission-free platform, TD Ameritrade “invited them to participate and has lots of respect” for the fund provider, according the executive, but “they do not want to work with us to offset the servicing costs involved in offering [their] funds for free. Getting nothing to offset these costs is not sustainable for the long run.”
Todd Clarke, managing director of NorthStar Financial Services Group in Omaha, Nebraska, says his team “feels there is more good than bad” with the new commission-free ETF platform.
On the plus side, TD Ameritrade “really needed to refresh their list of commission-free ETFs,” Clarke said in an interview. “They added more funds and more choice and have increased significantly the number of asset classes we have access to.”
He’s also upbeat about the partnership with State Street. “They’re known as a low-cost provider and a leading firm in the race to lower investors cost, which are positive,” the advisor explained, adding that his group has some $8.5 billion in client assets and works with multiple custodians.
On the downside, though, “We think they are still a little bit light in some areas, such as active bonds products. That is a big hole there, and we still hope they make improvements and refresh the list over time.”
Clarke explained that new platform is prompting his group to create two sets of asset-allocation models — those rooted in the new platform and using the new ETF lineup and those “for existing clients to stay in with old models and migrate out of over time because of tax implications.”
In some ways, the new platform has “doubled our work,” he added. “But it’s a fresh list with more ETFs and more asset classes … which is positive.”
As for the expanded timeframe for the new platform and the $6.95 charges for Vanguard and some other funds, “This gives us a little more time to make sure we have the right systems and processes in place,” the advisor said.
The issues raised by the new T.D. Ameritrade platform are important to advisors and clients well beyond the organization, some advisors point out.
As Matt Medieros, head of the Institute for Wealth Management in Denver, explained in an interview: “Some clients prefer brand names at a $6.95 transactional cost even with other brands being offered” without that cost. There’s also the issue of which ETFs, among comparable products, have higher management fees.
“For me, what TD has done is to give us more options rather than taking things away,” Medieros said. This allows advisors to make recommendations in which they can compare and contrast products.
He says the need for a longer platform rollout “is not an issue for our business.”
“We need the best options to make the best decisions for our clients,” said the advisor, who had been in the business for roughly 30 years and has $850 million in assets. “We want to help clients understand what’s best for their investment portfolios.”
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