Updated. As of October 2017, TD Ameritrade notified their clients of the following changes to their commission-free ETF trading program. Here are the highlights from the e-mail:
- Here is the old ETF list [pdf]. Through 11/20/17, they trade commission-free. Starting 11/21/2017, they will trade at standard commission rates ($6.95 online trades).
- Here is the new ETF list [pdf]. These 296 ETFs can be traded commission-free immediately (as of 10/17/17).
- ETFs held less than 30 days will be charged a short-term trading fee of $13.90, down from $19.99. This new fee will go into effect on November 21, 2017.
- All new ETFs on the commission-free list cannot be used as collateral for a margin loan, nor can they be included in margin equity for 30 days after purchase.
What ETFs are being removed? Initially started in 2010, the “old” list of 100 ETFs was based on advice from Morningstar as to which 100 ETFs that would be most useful for long-term investors to build a ETF portfolio. In other words, these were popular buy-and-old ETFs for “Average Joe/Jane” customers. These ETFs were from the biggest providers (Vanguard and iShares) and had the highest assets, highest trading volume, and lowest expense ratios.
There are now zero ETFs from Vanguard. The most widely-held iShares ETF are also missing. Here are some notable removals:
- Vanguard Total Stock Market ETF (VTI)
- Vanguard FTSE All-World ex-US ETF (VEU)
- Vanguard MSCI Emerging Markets ETF (VWO)
- Vanguard REIT Index ETF (VNQ)
- Vanguard Total Bond Market ETF (BND)
- iShares Core S&P 500 (IVV)
- iShares Core US Aggregate Bond (AGG)
- iShares TIPS Bond (TIP)
- iShares 1-3 Year Treasury Bond (SHY)
- iShares 20+ Year Treasury Bond Fund (TLT)
Note: TD Ameritrade will still provide free dividend reinvestment on your existing ETF positions.
What ETFs are being added? The “new” list of 296 ETFs are mostly niche ETFs. Providers include AGFiQ QuantShares, First Trust Portfolios, iShares ETFs, J.P. Morgan Asset Management, PowerShares by Invesco, ProShares, State Street Global Advisors’ SPDR, and WisdomTree Investments. They cover a wide range of specific investment themes.
Unfortunately, this move also puts TD Ameritrade more firmly into the pack of brokerage with ETF/mutual fund “supermarkets” based on who will pay them for shelf placement:
TD Ameritrade receives remuneration from certain ETFs (exchange-traded funds) that participate in the commission-free ETF program for shareholder, administrative and/or other services, generally ranging from the equivalent of approximately 15% to 30% of the ETFs’ annual net operating expense ratio.
This is a common arrangement and you’ll see the same thing at Schwab and Fidelity, but in my opinion you end up a bigger list of less-attractive products. They also tend to have higher expense ratios. I’ve never even heard of these before:
- First Trust Alternative Absolute Return Strategy ETF
- iShares Fallen Angels USD Bond ETF
- PowerShares Optimum Yield Diversified Commodity Strategy No K-1 Portfolio
- QuantShares US Market Neutral Anti-Beta Fund
To be fair, there are still some iShares Core ETFs (though not the broadest ones) and some SPDR ETFs that cover broad indexes (though with lower asset size and trading volume). There are maybe 15-20 ETFs that I could see as part of a low-cost, long-term portfolio. A few examples:
- SPDR Dow Jones Total Market (SPTM)
- SPDR S&P World ex-US (SPDW)
- SPDR Lehman Aggregate Bond (SPAB)
- iShares 0-5 Year TIPS Bond ETF (STIP)
- iShares Core International Aggregate Bond ETF (IAGG)
- iShares Core U.S. REIT ETF (USRT)
- iShares Global REIT ETF (REET)
Here are two ETFs on the list that I have bought myself in the past:
- WisdomTree Emerging Markets SmallCap Dividend Fund (DGS)
- WisdomTree U.S. SmallCap Dividend Fund (DES)
Mostly, I just don’t like the fact that they changed it after many years. You might have built up a position with $0 trades, and now it costs $6.95 to buy more. You can try and switch to the closest approximate ETF, but what about next time they shake up the list? TD Ameritrade won “#1 for Long-Term Investing” in the Barron’s magazine 2017 rankings. I don’t know if long-term investors like to switch holdings every 7 years. Maybe the niche ETFs are a better draw for TDA’s target audience.
If you want to construct a low-cost, broadly-indexed ETF portfolio, I would compare with the offerings from Schwab, Vanguard, and Fidelity. None of those are an independent brokerage like TD Ameritrade, but they do offer commission-free trades on low-cost, broad ETFs. You could also look into the free trade offers from Bank of America ($50k+ in relationship assets) and Robinhood (trades done via app only).
Current New Account Promotions. TD Ameritrade will let you trade commission-free for 60 days + get up to $600 if you open a new individual, joint, or IRA account. The specific bonus depends on how much money you move over. Note that unlike some other offers, this one includes IRAs and thus rollover IRAs from 401k plans.
Bottom line. TD Ameritrade has shifted the nature of their commission-free ETF program. Overall, the widely-held, broad ETFs from Vanguard and iShares have been removed. In their place, many niche/sector ETFs and smaller, newer ETFs have been added. If you like specialized ETFs, check to see if it is on their newly-expanded list of 296 ETFs.