On Tuesday Vanguard became the third deep-discount online broker to offer its account holders select commission-free ETF trading, in this case on its own U.S.-based ETFs, of which there are currently 45.
As a holder of two Vanguard ETFs (VWO, BND) which I hold for myself and my two kids (in separate custodial accounts) in a TD Ameritrade (AMTD) brokerage account, I decided to let AMTD know that I was considering switching my business over to Vanguard unless they had plans to launch similar commission-free ETF trading for their brokerage clients. After all, Fidelity is allowing its brokerage customers to trade iShares ETFs commission-free now so why shouldn't AMTD be able to work out a similar deal with a major ETF issuer with a diverse line of basic index funds like iShares or State Street?
While friendly, the representative I spoke with informed me (after a querry with the 'back office') that AMTD had no plans to offer commission-free ETF trading in the near future. He knew I would be disappointed with that news but couldn't really find anything else of value to say to offset my concerns.
Next, I decided to give E*TRADE Financial (ETFC) a call to see if maybe TD Ameritrade's lack of pursuit of commission-free ETF trading was somehow an outlier. The response I got was nearly identical - beyond the 60-day free trading period when you first open an account, there were no plans for E*TRADE to offer commission-free ETF trading in the near future.
As a result, I will in all likelihood leave TD Ameritrade as my brokerage account in the near future and switch over to one of the brokers currently offering free ETF trading. Even though we're not talking heavy trading (I make between 5 and 10 trades a year total between my own and my two kids' accounts), the $100 to $200 I spend a year on trading (each trade generally involves a sale and a purchase meaning $20 in commission) will add up over time, especially when you consider the effects of compounding interest.
Additionally, commission costs have stopped me from making moves on several occassions: better not to spend $20 (or what works out to 1% on a $2,000 position), my thinking went, unless I'm fairly certain I'm making the right move. Having free trading would allow me to chase alpha far more actively, something that has been difficult until now with the relatively prohibitive cost of trading commissions, even at deep-discount brokers.
Disclosure: Long VWO and BND