SoFi Files for First Zero-Fee ETFs

Ben Johnson, director of global ETF research for Morningstar, isn’t so sure about the Industry impact of the SoFi news. “While two of the four funds SoFi has filed for will be free at first, they might not always be free (the expense waiver that makes them so may lapse).”

Also, said Johnson, the SoFi zero-fee ETFs “have no direct competition. It’s not as though their undercutting any similar funds offering like exposure in the manner that Fidelity did,” said Johnson, referring to Fidelity’s introduction of no-fee U.S. and international stock index mutual funds last summer. “It’s unlikely that they’ll win any business away from competitors.”

Both Johnson and Rosenbluth are skeptical about SoFi’s chances of success.

It’s hard to keep the lights on for long (even if they’re virtual ones) without charging anyone anything,” Johnson said.

Rosenbluth noted that while SoFi is “more likely to gather assets at zero fees than three basis points,” the money flowing into ETFs generally is “not as sticky” as money going into mutual funds, especially funds like Fidelity’s four zero-fee funds, which are available for free only on its platform.

(Related: Fidelity Unleashes No-Fee Index Funds)

Rosenbluth added that it’s important for advisors and investors to know exactly what they’re paying for, what each ETF holds. The Vanguard FTSE Emerging Markets ETF (VWO), whose expenses were cut from 14 basis points to 12, is now cheaper than the iShares Core MSCI Emerging Markets ETF, but it doesn’t hold South Korean equities, said Rosenbluth.

Vanguard said the fee cuts announced in the latest ETF prospectus filings were driven by the growing popularity of its ETFs, which make up only about 20% of the firm’s assets but account for more than 35% of Vanguard’s net cash flow over the past three years. Vanguard notes that ETF investors on its retail brokerage platform tend to buy and hold shares. Below is a list of the Vanguard ETFs whose fee cuts were just announced.

• VWO – Vanguard FTSE Emerging Markets ETF: from 14 to 12 bps
• VGK – Vanguard FTSE Europe ETF: from 10 to 9 bps
• VPL – Vanguard FTSE Pacific ETF: from 10 to 9 bps
• VEU – Vanguard FTSE All-World ex-US ETF: from 11 to 9 bps
• VSS – Vanguard FTSE All-World ex-US Small-Cap ETF: from 13 to 12 bps
• VYM – Vanguard High Dividend Yield ETF: from 8 to 6 bps
• VT – Vanguard Total World Stock ETF: from 10 to 9 bps
• VTEB – Vanguard Tax-Exempt Bond ETF: from 9 to 8 bps
• BNDX – Vanguard Total International Bond ETF: from 11to 9 bps
• VXUS – Vanguard Total International Stock ETF: from 11 to 9 bps

— Related on ThinkAdvisor:

• 4 ETF Costs That Aren’t So Obvious
• SoFi Now Offering No-Fee Brokerage for Stock and ETF Trades