Exchange-traded funds issuers are feeling the heat of last summer when Fidelity fired the last meaningful shot in the ongoing fee wars by introducing zero-fee index mutual funds. With fees literally at or approaching zero on all the biggest exchange-traded funds, two brokerages took the fee war to investor trades:
(ticker: SCHW) and Fidelity just doubled down on zero, expanding the number of commission-free ETFs on their platforms.
Schwab will double the number of its ETFs to more than 500 plus and add 90 of
(BLK) iShares ETFs to its lineup on March 1. Not to be outdone, Fidelity also announced that it would almost double its current lineup of 265 commission-free ETFs on its own platform to more than 500 and more iShares ETFs are part of that package. Fidelity undercut Schwab by a single day saying the additions would hit the platform on Feb. 28.
Distribution is a critical engine of growth for big ETF shops BlackRock, Vanguard,
(STT) State Street Global Advisors,
(IVZ), and Charles Schwab. Low annual expenses means ETFs don’t have the same influence or ability in negotiating with brokerage platforms. (Most mutual funds divert a portion of their annual fees to marketing and sales.) This means distribution is a bigger challenge for ETFs, and can make or break products even from the largest issuers. Case in point: Schwab’s OneSource brokerage platform helped catapult its asset management arm into the Top 5 ETF issuers from the bottom 10 by assets in just five years. Charging next to next to nothing on an ETF, means the endgame becomes about volume.
Investors have increasingly focused on the sticker price on ETFs and the platforms through which they can access them, what’s important to remember is that things that are free usually come with caveats.
The no-fee news was released during this week’s InsideETFs conference in Hollywood, Fla., but it went largely ignored. Instead, the buzz among insiders was focused on the notable absence of BlackRock’s iShares from the industry’s biggest conference. Last year, the firm had a large presence, including its sponsorship of a coffee bar and lounge. This year, barely a table. Some speculate that it had something to do with cost—some vendors pay six figures for booths and other marketing opportunities. Some noted that BlackRock had launched its own advisor conference in New York last year. Others wondered that it was overall belt-tightening; still others speculated that the industry conference had become a job fair of sorts. Regardless, the biggest ETF provider, which has just increased the accessibility of its products on two of the largest online brokerages, was almost nowhere to be found.
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