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Another Step Toward Fee-Free ETFs

Dan Caplinger
March 29, 2011

Price wars often continue until one competitor sets prices so low that there's no way anyone else can undercut it. That trend seems to be exactly what's happening with commission-free exchange-traded funds, and it's a big potential positive for investors.

Tomorrow, Scottrade is set to announce that it will join a large group of other brokers by offering a line of commission-free ETFs to its customers. Although the discount broker missed an opportunity by passing up a prospective partnership with the sole remaining uncommitted major ETF manager, Scottrade did advance the ball against its rivals on the most important factor for many investors: lower fees.

Keeping score
For nearly a year and a half, the discount brokerage industry has gone through major changes with ETFs. To bring you quickly up to speed:

  • Schwab (NYSE: SCHW  ) fired the first volley by introducing its own line of proprietary ETFs. Since their introduction, Schwab has cut fees to match or beat its lowest-cost competitors.
  • Fidelity answered by announcing a partnership with iShares provider BlackRock (NYSE: BLK  ) to offer 25 popular iShares ETFs at no commission. The broker subsequently added five more ETFs last month.
  • Vanguard then opened its entire universe of self-managed ETFs to its customers at no commission. In many cases, those ETFs were among the lowest-cost alternatives available, although Schwab's undercutting moves beat the fund giant in certain categories.
  • TD AMERITRADE (Nasdaq: AMTD  ) was the first to cross party lines by offering ETFs from multiple providers, including Vanguard, iShares, PowerShares, and State Street's (NYSE: STT  ) SPDR line.
  • Most recently, Interactive Brokers (Nasdaq: IBKR  ) announced a line of leveraged ETFs with no commissions.

Scottrade's 15 fund offerings are designed to track indexes provided by Morningstar (Nasdaq: MORN