Tone Deaf on ETFs

A couple of major announcements in the Exchange Traded Fund (ETF) world last week: State Street announced that they slashed the expense ratios on a ton of their ETFs and TD Ameritrade added a ton of ETFs to their ‘no-commission’ platform.  At first glance, this is great news.  Cheaper beta is available to more investors.  However, this is actually tone-deaf and a transparent money grab.  Hopefully, investors will show that they know better.

Huh?

State Street’s fee reductions are late in arriving.  Vanguard and iShares have been eating State Street’s lunch for years, in large part due to lower expenses.  Will investors flock to State Street now that it is the low-cost provider?  Perhaps the dumb ones will.  Investors who have money with Vanguard or iShares likely have huge gains.  Selling these positions to save a couple of basis points would be penny wise and pound foolish.

While it is positive that TD Ameritrade opened up their ‘no-commission’ platform to additional ETFs (including the new State Street funds, hmmm…), they kicked off Vanguard and iShares.  This puts current investors in a bind.  Investors still in the accumulation phase will need to figure out whether they start buying the newly added ETFs and stop buying Vanguard or do they switch custodians?

Michael Kitces tears TD a new one, saying they sold out.  It’s pretty clear that State Street was willing to pay TD for shelf space in the ‘no-commission’ platform and since iShares and Vanguard weren’t, they were booted.  It’s a puzzling move from a fiduciary perspective as this is clearly not in clients’ best interests.  Wealth managers that custody with TD are upset to say the least.  TD Ameritrade has a great reputation so I wouldn’t be surprised to see them backtrack on this.  What does surprise me is that they would faceplant on the issue in the first place.

Further ETF Hijinks

On an unrelated note, Bernstein is launching a couple of new ETFs.  The kicker is that they had previously compared passive investing with Marxism.  Bernstein PR is now engaged in a campaign of “Yeah, we said that, but…” Bernstein Compared Passive Investing to Marxism; Now it’s Launching Two ETFs

Photo by Virginia L.

Photo by Virginia L.