Vanguard said it would offer commission-free online transactions for nearly 1,800 ETFs, up from the current 77.
No other major brokerage does this (except Robinhood, M1Finance)
Vanguard Group plans to eliminate online commissions on its rivals’ exchange-traded funds, a move by the asset management giant to lure new assets and steer more customers to financial advice.
Vanguard became the world’s second-largest money manager by offering some of the lowest-cost products in the industry. Rivals have increasingly tried to match or beat Vanguard on fees, pushing the cost of investing toward zero for some basic portfolios of stocks and bonds as firms duel for customers.
For years customers paid nothing to trade Vanguard’s own funds. In August the manager will extend that same arrangement to customers that want to buy or sell online nearly 1,800 other ETFs offered by such competitors as BlackRock Inc., Charles Schwab Corp. and State Street Global Advisors. It will still charge commissions for phone trades of these rival ETFs.
The plan is the first significant pricing change at Vanguard under new Chief Executive Mortimer J. ‘Tim’ Buckley, who took the helm earlier this year. The larger strategy is to attract new brokerage clients to Vanguard and offer them other services like financial advice where Vanguard can collect additional revenue.
“If we attract new investors, we have an opportunity to offer them advice over time,” said Karin Risi, head of Vanguard’s retail investor group.
Currently the amount Vanguard customers pay to trade other ETFs depends on a client’s account size and, in some cases, trading frequency. For example, investors with $50,000 or less pay $7 per online trade on the first 25 trades, and then $20 thereafter. Those with $500,000 to $1 million pay $2 per online trade.
Vanguard won’t be the only firm allowing investors to trade rival funds without paying a commission. Fidelity Investments’ brokerage unit allows clients to do the same thing with 95 ETFs run either by Fidelity or BlackRock’s iShares commission free, according to its website.
Fidelity last year lowered online trade commissions on U.S. stocks and exchange-traded funds to $4.95 from $7.95, a move that rival Charles Schwab Corp. quickly matched. Earlier this year, Fidelity shook up the way it charges clients for financial advice, making fees more transparent and cutting the cost of its robo adviser Fidelity Go. That service now costs investors 0.35%; they previously paid both management and underlying fund fees.
Vanguard launched its financial advice business, Personal Advisor Services, in 2015. It caters to customers with at least $50,000 and charges 0.3% of assets under management for that advice. That is less than the 1% typically charged by traditional wealth advisers.
Assets in that business have reached $106 billion, and roughly a tenth came from new clients, executives said. Vanguard has $1.5 trillion in its retail investor group, which includes brokerage accounts, and $5.1 trillion in assets across the entire firm.