This Broker Just Eliminated a Major Fee for Investors

Most brokers offer commission-free stock trades, but this goes a step beyond.

Fees in the brokerage business have been trending downward for some time. Online brokers emerged a little over two decades ago and revolutionized the commission structure for stock trading, and more recently, virtually every major online broker has eliminated stock trading commissions entirely. There are even a few brokers that offer options trading with no fees.

However, mutual fund investing typically still has fees associated with it. To be sure, most brokers have a "no transaction fee," or NTF list, that often has a selection of mutual funds available to be traded commission-free, but most still charge fees for mutual funds that aren't on the list. These can be rather expensive -- up to $74.95 in some cases. But one broker has just made a big change.

One broker is getting rid of mutual fund fees entirely

Ally Invest -- the brokerage arm of online-based bank Ally Financial -- recently announced the elimination of mutual fund transaction fees for all self-directed accounts on its platform. This means the approximately 17,000 mutual funds available to invest through Ally's platform are all commission-free.

Even before this, Ally Invest had a somewhat unique mutual fund commission structure. Instead of having a list of funds with no transaction fee and a list of funds with a high transaction fee, Ally simply charged a $9.95 fee for any mutual fund trades. This was already a big differentiator for investors interested in funds that rarely appear on brokers' NTF lists, and was the lowest mutual fund commission of any of our top online brokers.

The elimination of mutual fund fees entirely is an even bigger differentiator. Many of the most discount-focused brokers, such as Robinhood and SoFi, offer unique features like free options trading, but don't offer the ability to invest in mutual funds at all. In an increasingly competitive environment where it is difficult to stand out from other discount-oriented brokers, dropping mutual fund commissions could help Ally's brokerage business stand out from the rest.

To clarify, the elimination of mutual fund fees only applies to self-directed brokerage accounts. Ally also offers robo-advisory products, and the fee elimination won't affect these accounts.

There are still some costs associated with mutual fund investing

To be perfectly clear, Ally Invest is eliminating its own mutual fund fees. Virtually all mutual funds still charge their own management fees (known as expense ratios), which typically vary from 0.03% to about 1%, depending on the provider and the nature of the fund. These fees are automatically paid out of the fund's assets and there's nothing Ally (or any broker) can do about them.

And although it's usually wise to avoid them, there are some mutual funds that charge a commission when they're bought or sold (known as front-end and back-end loads). But these can be eliminated by choosing to only search for "no load" mutual funds.

The bottom line

The elimination of mutual fund transaction fees entirely is a major step. It remains to be seen whether other brokers will follow suit, but for the time being, this is a major differentiator for Ally Invest that could make the platform more appealing to investors who prefer mutual funds over individual stocks and ETFs.