Online brokerage TD Ameritrade joins price competition, will offer commission-free ETF trades

Friday, October 8, 2010

TD Ameritrade to offer commission-free ETF trades

OMAHA, Neb. — Online brokerage TD Ameritrade announced Friday it would offer commission-free ETF trades on 101 different funds picked by Morningstar to attract more long-term investors and better compete with other brokers.

TD Ameritrade’s new ETF Market Center follows announcements earlier this year by Vanguard, Fidelity and Charles Schwab about commission-free trading on select groups of Exchange-Traded Funds. But TD Ameritrade says it will offer a more extensive list of ETFs than those competitors have.

Peter Sidebottom, TD Ameritrade’s executive vice president of product and client engagement, said he thinks the Omaha-based company’s offer will be attractive to long-term investors.

“This is very geared toward the long-term investors and helping them build cost-effective, tax-effective portfolios built on a wide range of asset classes,” Sidebottom said.

ETFs are baskets of stocks, bonds or commodities that differ from mutual funds because they can be traded like stocks during daily trading sessions. Mutual funds are only priced once a day.

Credit Suisse analyst Howard Chen said in a research note that he thinks TD Ameritrade’s announcement will have a minimal affect on its earnings, but it should help the company compete with other brokers and asset managers.

“Given the rapid growth in the ETF market and our expectation for continued outsized growth, we see the development of ETF platforms as important in shaping future industry fundamentals,” Chen said.

The fact that ETFs are priced throughout the trading day makes it possible for investors to lock in the price they want without waiting for a closing price, unlike with mutual funds.

Many ETFs are now regularly cheaper than comparable index funds. That’s part of why ETFs have consistently drawn more cash than traditional mutual funds, but mutual funds still hold more than 10 times as much as ETFs.

Sidebottom said Ameritrade officials noticed the growth in ETFs and tried to develop a cost-effective way for investors to use them.

The only condition on TD Ameritrade’s commision-free offer is that investors must hold the ETF for at least 30 days.

The commission-free ETFs TD Ameritrade are offering are geared toward long-term traders and so won’t appeal to short-term active traders. TD Ameritrade also didn’t make any change to its standard $9.99 commission rate for online trades, though competitors have been cutting rates over the past few years.


TD Ameritrade Holding Corp.:

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