Exchange Traded Funds or ETFs, those index funds that mimics those of the mutual fund world that trade openly on the stock exchange throughout the day have made investors who don’t use them wonder if they are missing something and those that do, want the F in ETF to stand for free. But they only come close.
There are definitely advantages to owning these types of securities. Among those reasons are the ease of buying and selling, the ability for the investor to focus on a specific sector and of course the fees. The leader in this space is still Vanguard, the Malvern, PA mutual fund giant. Their offerings cover the gamut of investment opportunities and make their money on volume.
But that hasn’t stopped others from entering the fray. And this has the financial rep world just a little concerned. It is widely acknowledged that folks who use Vanguard are a specific group of investors. And based on sheer volume, it can offer lower fees and commission free trades for all of its 46 ETFs. But that is where it ends and Vanguard investors seem to be cool with that idea.
Schwab is also trying it hands at that sort of approach for its 8 ETFs. But the hope is that there will be more to the relationship that just. For instance, you can use the trading platform at Schwab do buy any ETF but the cost of that trade is $8.95 plus a five dollar service charge. If you need a broker to do the deed for you, $25 will be charged for the service.
Fidelity, which offer 26 program funds charges slightly less than Schwab for trading in ETFs not part of their fund family. According to a recent article in Registered Reps “The Fidelity program offers a diverse mix of 25 iShares products: 16 domestic equity funds, four international equity portfolios, four ETFs tracking U.S. debt benchmarks as a well as an international debt fund. The Nasdaq Composite Index Tracking Stock — Fidelity’s lone proprietary ETF — is also included. Fidelity is not doing the iShares deal out of pure altrusim. The firm receives a fee-split from iShares’ sponsor for marketing the funds.”
So should the average investor interested in these products be concerned about what amounts to near-freebies? There has to be a catch, right? There is but based on what Fidelity, Schwab and the other discount brokers (who have yet entered into the deep discounting of ETFs – yet) and aside from simply gathering assets, these firms have a management side of their operations that they hope will be attractive.
Because you can only build the most basic of portfolios using the program funds that Schwab offers, the investor is likely to buy – or ask for help to advise – on how to build a better portfolio. It becomes a “get what you pay for” scenario that these full service brokers hope to capitalize on in the future. If you want a call center, then you will look to the cheapest available option. But is you want someone to help you, someone with at least some alphabet letters behind their name (CRD/ADV and educational distinctions such as CFP, CFA, ChFC, CRPC or RFC), then you will also be willing to pay a little more.
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