TD Ameritrade Drops Major No-Fee ETFs

Big shake-up in commission-free lineup leaves advisors reeling as Vanguard and iShares ETFs are ditched.

Starting Nov. 20, advisors who custody assets at TD Ameritrade will no longer be able to trade any Vanguard ETFs—and many iShares ETFs—commission free. Instead, the funds will carry a standard trading cost, starting at $6.95 per trade.

A handful of ETFs by PIMCO, PowerShares, State Street and VanEck will also be removed from commission-free trading.

Largest Commission-Free Platform Yet

The changes come as part of a significant expansion and upgrade to TD Ameritrade's no-trading-fee (NTF) ETF trading platform.

Effective today, TD Ameritrade has increased the number of commission-free ETFs it offers on its platform dramatically: from 100 to 296. The offering spans ETFs from eight issuers: AGFiQ QuantShares, First Trust, iShares, J.P. Morgan, PowerShares, ProShares, State Street and WisdomTree.

TD Ameritrade now offers free trading for the greatest number of ETFs among custodians, as well as the largest lineup of nonproprietary ETFs. Other platforms, such Charles Schwab’s and Fidelity's, include a mix of third-party and brand-name funds.

Furthermore, effective Nov. 20, all TD Ameritrade accounts will be auto-enrolled for free to start trading NTF ETFs.

‘Rug Was Pulled Out From Under Us’

The news comes as cold comfort to many advisors, who rely extensively on low-cost, highly liquid Vanguard and iShares ETFs for core exposures for their clients.

"It's like the rug was pulled out from under us," said Blair duQuesnay, CIO of ThirtyNorth Investments in New Orleans. "Every single Vanguard and iShares ETF we own is on the deletion list."

"We lost 85% of our XYIS Core model portfolio ETFs with this change," said Michael Kitces, founder of Nerd's Eye View and co-founder of the XY Planning Network, in a tweet last night. XY Investment Solutions (XYIS) is a turnkey asset management program offered by XY Planning Network.

Eighty-four ETFs will be removed from the commission-free trading platform, including five of the top 10 largest ETFs: the iShares Core S&P 500 ETF (IVV); the Vanguard Total Stock Market ETF (VTI); the Vanguard FTSE Developed Markets ETF (VEA); the Vanguard FTSE Emerging Markets ETF (VWO); and the iShares Core U.S. Aggregate Bond ETF (AGG).

Other notable removals include iShares's lineup of single-country ETFs, its Treasury lineup, several commodity funds from PowerShares, the SPDR Dow Jones REIT ETF (RWR), and the 32 Vanguard ETFs currently available commission-free on TD Ameritrade's platform.

TD Ameritrade declined to comment for this article on why the Vanguard and iShares ETFs were removed.

‘More Diversification’

TD Ameritrade argues that the NTF shake-up offers "an expanded, more diversified program" for advisors, by increasing its sector and commodity coverage, and adding extremely low-cost core exposure from State Street's new SPDR Portfolio ETF rebrand. (See: "State Street Debuts Low Cost ETFs”)

"We regularly engage with our clients, and they’ve told us they wanted more commission-free ETFs," said Joseph Giannone, senior manager of Institutional Communications for TD Ameritrade.

DuQuesnay agrees, but "the unfortunate thing about this botched announcement is that it overshadows the positive aspect of the new funds that were added," she noted.

"From what I see, the ETFs they're adding are more sector-based or tactical than how we typically run our portfolios," said Clint Thomas, co-founder and principal of Greenwood, Colorado-based Integrity Wealth Solutions. "We're still evaluating right now, but for us, it's not a great change."

Advisors Planning For Switch

Already, advisors are weighing the best approach on how to adapt.

"To make a wholesale change with our portfolios, especially on the taxable side, is pretty much out of the question, because of the tax gains we've seen this year," said Thomas. "But we'll have to evaluate where we go from here for our tax-deferred accounts and our new clients."

For now, however, he's considering sticking with the funds he already has. "Over the long term, a $6.95 [commission fee] is pretty irrelevant," compared to expense ratios, he said.

DuQuesnay, meanwhile, is most concerned with how this will affect her smaller clients.

"When clients have small accounts, we purposely create a portfolio with fewer investments that do not have trading costs. This allows us the flexibility to rebalance more often and keep more cash invested," she said. "We will need to re-evaluate our small account models, as well as the breakeven points for our other models."

Contact Lara Crigger at [email protected]