Fidelity has announced a game changer in the ETF world: Trade 25 iShares ETF’s with no commission as long as your account balance is over $2500. There is not a comparable deal in the industry than this deal. Charles Schwab Discount Brokerage was the first to make 8 of their ETF’s available to investors to trade commission free.

Charles Schwab’s Offer of 8 Commission Free ETF’s

Charles Schwab was the first mover in making 8 Schwab ETF’s available as commission free trades. The 8 Schwab ETF’s generally have a lower expense ratio than the comparable iShares ETF’s. This makes their ETF’s slightly more appealing than what Fidelity is offering; although, Fidelity has more than 3 times the offerings of iShares ETF’s. Watch for further announcements from Schwab offering more indexed ETF’s in the heated battle of brokers.

Below is Schwab’s List of Commission Free ETF’s available to all account holders:

DOMESTIC EQUITY INDEX FUNDS

  • Schwab U.S. Broad Market ETF™ (SCHB)
  • Schwab U.S. Large-Cap ETF™ (SCHX)
  • Schwab U.S. Large-Cap Growth ETF™ (SCHG)
  • Schwab U.S. Large-Cap Value ETF™ (SCHV)
  • Schwab U.S. Small-Cap ETF™ (SCHA)

INTERNATIONAL EQUITY INDEX FUNDS

  • Schwab International Equity ETF™ (SCHF)
  • Schwab International Small-Cap Equity ETF™ (SCHC)
  • Schwab Emerging Markets Equity ETF™ (SCHE)

Scwab vs. Fidelity Commission Free ETF Trades?

The Fidelity offer of commission free trades began February 3, 2010. Fidelity requires a $2500 account balance minimum to setup an online account. Schwab only requires a $1,000 account balance minimum to setup an account. Mutual Funds have been commission free for years in the No-Load Mutual Fund Industry. However, the difference with the iShares ETF’s is these ETF’s have extremely low expense ratios, tax benefits, and intra-day trading liquidity unlike mutual funds.

Mutual Funds have been reknowned for being extremely expensive, even including substantial lock in periods and front-loaded/back-loaded fees. ETF’s are not like that and they are tradable anytime you want, priced like a stock throughout the day which improves your liquidity. The blow by Fidelity to the entire discount brokerage industry is huge at a time when many discount brokerages are struggling to make a profit! With Fidelity’s counter move to Schwab’s commission free ETF’s, Fidelity would appear to be winning as the number of iShares available to build a portfolio is substantially larger for the time being than Schwab’s. Fidelity’s offering even includes fixed income ETF’s – a perfect complement to all portfolio’s.

Below is Fidelity’s List of Commission Free ETF’s available to all account holders:

U.S. EQUITY INDEX FUNDS

  • Russell 1000 Growth ETF (IWF)
  • Russell 1000 ETF (IWB)
  • Russell 1000 Value ETF (IWD)
  • Russell 2000 Growth ETF (IWO)
  • Russell 2000 ETF (IWM)
  • Russell 2000 Value ETF (IWN)
  • Russell 3000 ETF (IWV)
  • S&P 500 Growth ETF (IVW)
  • S&P 500 ETF (IVV)
  • S&P 500 Value ETF (IVE)
  • S&P Mid Cap 400 Growth ETF (IJK)
  • S&P Mid Cap 400 ETF (IJH)
  • S&P Mid Cap 400 Value ETF (IJJ)
  • S&P Small Cap 600 Growth ETF (IJT)
  • S&P Small Cap 600 ETF (IJR)
  • S&P Small Cap 600 Value ETF (IJS)

INTERNATIONAL EQUITY INDEX FUNDS

  • MSCI ACWI ETF (ACWI)
  • MSCI EAFE ETF (EFA)
  • MSCI EAFE Small Cap ETF (SCZ)
  • MSCI Emerging Markets ETF (EEM)

FIXED INCOME FUNDS

  • Barclays Aggregate ETF (AGG)
  • Barclays TIPS ETF (TIP)
  • iBoxx $ Investment Grade Corporate ETF (LQD)
  • JP Morgan USD Emerging Markets ETF (EMB)
  • S&P National AMT-Free Municipal ETF (MUB)

    •  

How Does Fidelity Make Any Money Then on ETF Trading?

In the fine print at Fidelity’s ETF Center, you can read the following:

“Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with a marketing program that includes promotion of iShares ETFs and certain commission waivers. Additional information about the sources, amounts, and terms of compensation is described in the ETF’s prospectus and related documents.”

How does Schwab Make Any Money on ETF Trading?

There is no fine print eluding to this, but it is easy to understand from their expense ratio. Although the expense ratio with Scwab ETF’s is much lower in some cases than the equivalent iShares, Schwab does not have to share this amount with a third party. In Fidelity’s case, iShares receives the expense ratio and then shares the expense ratios with Fidelity. This probably explains why their expense ratio is higher than Schwabs.