Vanguard, the low-cost mutual fund behemoth, is once again disrupting the financial industry, exploding the number of ETFs that trade for free on its brokerage platform.
Vanguard expects to offer nearly 1,800 ETFs commission-free for all online trades beginning in August, up from the 77 proprietary ETFs that currently trade for free on its platform. The ETFs will include funds from BlackRock, home of iShares; Schwab; and State Street Global Advisors and essentially cover the entire U.S. ETF market except leverage and inverse ETFs. Trades of ETFs by phone will still involve commissions.
“We’ve driven down the cost of funds. We’ve driven down the cost of advice. Now, we’re driving down the cost of investing in ETFs,” said Karin Risi, managing director of Vanguard’s retail investor group, in a statement.
“Vanguard wants to be the premier provider for long-term investors who want the flexibility to hold a wide array of low-cost funds and ETFs, coupled with the convenience of interacting with a single firm,” Risi said.
The firm already offers more 3,500 mutual funds wihtout commissions on its platform, accounting for about one-fifth of all its mutual fund offerings.
“This is a significant move by Vanguard,” says Todd Rosenbluth, director of ETF and mutual fund research at CFRA. “Other brokerage firms such as Schwab or TD Ameritrade provide commission-free trades on a subset of ETFs, with the asset managers supplementing the cost savings. Vanguard is going to be providing investors of all ETFs, including frequently traded SPDR S&P 500 (SPY) and iShares iBoxx High Yield (HYG), a commission-free experience.”
Schwab and TD Ameritrade currently offer a few hundred ETFs for no commission — ETFs of their own and from other companies — but not nearly as many as Vanguard intends to offer.
The move is “good for investors but also benefits Vanguard’s competitors by making it cheaper for Vanguard account holders to invest in non-Vanguard ETFs,” Morningstar analyst Alex Bryan tells ThinkAdvisor.
For Vanguard, the benefits are likely to be more “sticky” assets from an “increasingly cost-conscious investor base,” says Rosenbluth.
In a recent Schwab survey of ETF investors, 45% of millennials and 39% of Gen Xers cited the importance of trading ETFs without commission or other brokerage fees. Almost half (48%) of the ETF investors surveyed cited commission-free trading as a key factor when they evaluate ETFs.
Vanguard, which introduced its first ETF in 2001, has nearly $937 billion in global assets under management.
— Check out ETFs Are Millennials’ Product of Choice: Schwab on ThinkAdvisor.