TD Ameritrade's Re-vamped Commission-Free ETF Lineup

In November, TD Ameritrade announced that they will now offer nearly 300 Exchange-Traded Funds (ETFs) on their commission-free list, up from the approximately 100 introduced more than five years ago. This was thought to be welcome news. 

However, of the 100 existing commission-free ETFs, only 16 are going to remain commission-free. This announcement caused me to research the pros and cons of the 300 ETFs, to determine which we’d like to use for our clients’ portfolios—in addition to determining how we’d proceed with existing holdings that were now going to cost our clients to sell. 

After some bad press about the 30-day window allotted for the change, TD Ameritrade decided to extend the commission-free period for the original 100 ETFs until mid-January. 

You may have noticed that over the past two months we’ve been gradually transitioning your accounts to ETFs on the new list, at no cost. We’ve been hesitant to transition taxable accounts, as the rising market has generated substantial capital gains, but we are planning on completing the transition by mid-January. 

TD Ameritrade decided they’d like to make some revenue off of the ETFs investors hold, and since they weren’t getting commissions from the trades, they strong-armed some ETF sponsors to give them a cut of the funds’ expense ratios. It is well known in our industry that Vanguard will not “pay-to-play,” so unfortunately, Vanguard ETFs are no longer offered commission-free. 

Lucky for us, many funds from iShares, State Street SPDRs, WisdomTree, PowerShares, ProShares, and First Trust can easily replace the Vanguard funds’ performance and risk profile—at similarly low cost. 

After much grumbling, and time spent analyzing, we’ve updated our investment models utilizing all commission-free funds (with the exceptions of our Socially Conscious/Impact and Closed-End Fund strategies).  

I’m particularly excited about the plethora of “smart-beta” - or alternative beta - ETFs that are now available commission-free. These funds are weighted and allocated based on factors such as volatility, value, quality, momentum, and dividends—rather than company size. Over the next few quarters, be sure to check out our ETF EXTRA section for highlights of our new favorite ETFs.