First 'Zero Fee' ETF Filed

February 25, 2019

The Difference An ETF Makes

Intriguingly, the service providers listed in the filing include a number of smaller ETF companies, many of which already offer their own ETFs.

The funds' advisor is Toroso Investments, which runs the $7 million ETF Industry Exposure & Financial Services ETF (TETF). Toroso's chief investment officer is Michael Venuto, who also serves as a managing director for Tidal Growth Consultants, the funds' administrator and also owner of the trust through which the funds are being launched. (Venuto is listed as a portfolio manager for the SoFi funds.)

Exponential ETFs, meanwhile, is listed as subadvisor for the SoFi funds; Exponential has three ETFs on the market worth a combined $73 million, the largest of which is the $57 million American Customer Satisfaction ETF (ACSI). Exponential also acts as subadvisor for three ETFs from Amplify ETFs.

As such, SoFi's filing suggests that smaller ETF companies may be coming to the conclusion that the best way to compete with Vanguard, Schwab and BlackRock on fees is by banding together.

SoFi Branches Out

SoFi's zero-fee ETF filing appears to be part of a greater expansion effort by the company to broaden its product lineup and diversify its revenue streams.

Earlier this week, Bloomberg reported that SoFi planned to allow customers to trade stocks and ETFs on its platform later this year. An alpha version of the technology has already gone live for employees and select customers.

Launched in 2011, SoFi began as a student loan refinancing service for college students from high-priced Ivy League schools. While student loans remain the most lucrative segment of its business, the firm has also expanded into a variety of banking and loan services, including personal loans, mortgages and bank accounts. SoFi also has robo advisory and brokerage platforms.

Matter Of Nuance

Investors should keep in mind that, technically, there is a difference between a fee waiver and a zero management fee. Should SoFi's fee waiver expire, investors in its zero-fee funds would be charged a 0.19% management fee. (Some ETFs carry a zero management fee, including the $63 million Cambria Global Asset Allocation ETF (GAA). However, as a fund-of-funds, GAA also charges acquired fund fees, which results in a total expense ratio for the fund of 0.33%.)

Furthermore, it's worth remembering that a zero-fee ETF does not mean its total cost of ownership would be zero. Fund expense ratios are only one part of the equation: There are also trading spread costs and tracking difference to consider (read: "Are Fidelity's Funds Really Free?").

Still, a fund price tag of effectively zero is almost sure to grab attention—and assets—for this ETF industry newcomer.

Contact Lara Crigger at [email protected].

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