Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

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Paul Romano
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Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by Paul Romano » Mon Apr 16, 2018 9:55 am

Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

April 15, 2018, 04:15:00 PM EDT By Jordan Wathen, Motley Fool


https://www.nasdaq.com/article/firstrad ... d-cm948090


" Firstrade Securities was one of the earliest online discount broker s, but it's far from a household name because it caters to a small niche as the go-to U.S.-based broker for Chinese-speaking traders. But that could soon change.

The discount broker now has its sights set on a larger demographic of investors who use exchange-traded funds ( ETFs ) to invest. Firstrade rolled out commission-free trades on more than 700 ETFs, including some popular ETFs from issuers like Vanguard, which are hard to find in fee-free form after they were culled from TD Ameritrade 's list of commission-free ETFs last year.

The move makes Firstrade the broker with the most commission-free ETFs by a long shot, more than doubling TD Ameritrade's assortment of 300 such funds.


There are roughly 2,000 exchange-traded funds in existence, but most aren't necessarily designed for the long-term retirement investor. Firstrade narrowed its list to about 700 funds, or roughly one-third of all ETFs on the market today.

Firstrade's commission-free choices include 40 of the 50 largest ETFs by assets, based on my review of its fund lineup. And of the funds it doesn't offer (such as the largest ETF, SPDR S&P 500 ETF ) there are often workable replacements (iShares' and Vanguard's S&P 500 ETFs ) that offer the exact same exposure at a lower expense ratio ."

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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by bloom2708 » Mon Apr 16, 2018 10:09 am

More trades to entice you to "trade more" and generate fees.

I don't pay any trade fees at Vanguard. I buy and hold the mutual fund versions (not ETF). Free trades are not an enticement.
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k66
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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by k66 » Mon Apr 16, 2018 1:54 pm

...
It may not be obvious, but commission-free trades are more than just a marketing tool for discount brokers; they're also a way to make money. Charles Schwab (NYSE: SCHW) charges asset managers a fee to make their ETFs and mutual funds commission free, collecting about $0.19 in annual fees for every $100 its clients invest in other companies' ETFs and mutual funds. Last year, Schwab generated more income ($957 million) from offering such funds to its clients than it earned in commissions ($600 million) on trades its clients actually paid for!

Most brokers monetize their commission-free ETF list this way, which is why finding a simple, cheap index fund can be like finding a diamond in the rough. Ordinary index ETFs favored by long-term investors generally don't need the marketing help, and don't charge fees high enough to pass on a big cut to the brokers, so they are only rarely offered as free to trade.

Firstrade seems to be taking the view that commission-free ETFs can be used as a marketing lever rather than a direct profit driver. It's notable that Vanguard, which has a long-held policy not to pay brokers for distribution , isn't ignored in its list of commission-free ETFs. That suggests to me that Firstrade isn't picking ETFs based solely on how much they'll pay to be included.
...
So they are hoping that the kick-backs from other ETF providers will pay for the commissions of customers who purchase ETFs which do not provide compensatory "incentives" to the broker?
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Earl Lemongrab
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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by Earl Lemongrab » Mon Apr 16, 2018 2:08 pm

FirstTrade does have a bonus program, although the cash offer is set to expire tomorrow:

https://www.firstrade.com/landing/en-us/branding1/
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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by livesoft » Mon Apr 16, 2018 2:51 pm

I'm happy to see another name to add to the list.

OTOH, free trades are the norm, so anybody that has to pay a commission is probably not looking too hard.

In the old days, brokerages touted their long list of No-Transaction-Fee mutual funds, but one doesn't need a list of 5,000 or more mutual funds ... one just needs the dozen or so index funds that one should want to own. The same thing will happen with ETFs. One doesn't need 100 or 300 or 500 no-commission ETFs.

So a brokerage needs to tout free trades, but that's just to play the game instead of go out of business. They need more than free trades to stay in business.
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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by triceratop » Mon Apr 16, 2018 2:58 pm

bloom2708 wrote:
Mon Apr 16, 2018 10:09 am
More trades to entice you to "trade more" and generate fees.

I don't pay any trade fees at Vanguard. I buy and hold the mutual fund versions (not ETF). Free trades are not an enticement.
The "splash" is not about 'more trades' -- it is about trades in more securities including Vanguard ETFs which investors should want to own. What fees?

This appears to be good news for Bogleheads, unless you're saying the only valid place to trade Vanguard ETFs is at Vanguard. And, why?
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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by lack_ey » Mon Apr 16, 2018 3:22 pm

The commission-free ETF list is very wide ranging. They have the big market-cap-weighted index ETFs, style box ETFs, all the big sector ETFs, a number of narrow subsector ETFs, various tilted and smart beta-type strategies like RAFI funds and equal weighted, low vol and a number of single-factor ETFs, dividend-focused products, currency hedged, individual country ETFs, basically every flavor of fixed income including all the most popular ultrashort funds and cash alternatives, muni bonds and TIPS, high yield, international bonds, weird duration-hedged fixed income ETFs, commodity funds, even some other alternatives funds, etc.

Notable omissions I've found include SPY (yeah, really) and GLD. But there are other, cheaper S&P 500 and gold ETPs available anyway (e.g. IVV, VOO, IAU). It does not have some single-commodity ETPs. Somehow it has one VIX-related product but not any others. There aren't any of the ultra-long Treasury zeroes ETFs either (EDV or ZROZ).

In some categories it is a bit sparse. It for some reason has the SPDR multifactor funds but not the ones from iShares, the new funds from Vanguard, the very cheap Goldman Sachs option, or the DFA-run John Hancock ETFs, among others.

I wonder how the list came to be.

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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by bloom2708 » Mon Apr 16, 2018 3:32 pm

triceratop wrote:
Mon Apr 16, 2018 2:58 pm
bloom2708 wrote:
Mon Apr 16, 2018 10:09 am
More trades to entice you to "trade more" and generate fees.

I don't pay any trade fees at Vanguard. I buy and hold the mutual fund versions (not ETF). Free trades are not an enticement.
The "splash" is not about 'more trades' -- it is about trades in more securities including Vanguard ETFs which investors should want to own. What fees?

This appears to be good news for Bogleheads, unless you're saying the only valid place to trade Vanguard ETFs is at Vanguard. And, why?
Yes. The story says it is "marketing". Come over here and get your Vanguard ETFs "free" and commission free.

What does marketing mean? They will look for other ways to part you from your money (other fees). I guess my point was, if you want Vanguard funds, use Vanguard. Fidelity funds? Use fidelity.

Meh. Maybe I read the story wrong. I'm not going to start recommending new Bogleheads head over to Firstrade for the "cheap" Vanguard fund trades. :wink:
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by stinkycat » Mon Apr 16, 2018 5:49 pm

Interesting list. I find it interesting that VNQ is not on the list, although the schwab reit etf is on the list. I would be tempted but if I open one more account I am going to have to start attending brokerage account anonymous meetings.

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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by stlutz » Mon Apr 16, 2018 10:57 pm

They need more than free trades to stay in business.
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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by Earl Lemongrab » Mon Apr 16, 2018 11:49 pm

bloom2708 wrote:
Mon Apr 16, 2018 3:32 pm
What does marketing mean? They will look for other ways to part you from your money (other fees). I guess my point was, if you want Vanguard funds, use Vanguard.
Because I want to use some other brokerage besides Vanguard. FirstTrade will pay me money to move assets there.

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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by Whakamole » Tue Apr 17, 2018 1:39 am

livesoft wrote:
Mon Apr 16, 2018 2:51 pm
I'm happy to see another name to add to the list.

OTOH, free trades are the norm, so anybody that has to pay a commission is probably not looking too hard.

In the old days, brokerages touted their long list of No-Transaction-Fee mutual funds, but one doesn't need a list of 5,000 or more mutual funds ... one just needs the dozen or so index funds that one should want to own. The same thing will happen with ETFs. One doesn't need 100 or 300 or 500 no-commission ETFs.

So a brokerage needs to tout free trades, but that's just to play the game instead of go out of business. They need more than free trades to stay in business.
I can see one advantage to having that many free ETFs - you have even more TLH pairs. Take your S&P 500 fund, VOO. Similar funds include VV (Vanguard Large Cap), SCHX (Schwab Large-Cap), and SPLG (SPDR Large Cap) to start. They have both VXUS and IXUS (the total international market ETFs) available, which I don't think is common, so you won't have to settle for something like VEA that excludes emerging markets.

But as lack_ey says, it's an odd mix. I see one frontier fund (which is a tiny market but still.) I at least suspect that some of the companies offering ETFs are paying to be listed here, there are too many oddities in the long tail (Chile capped?) Of course, if customers start picking-and-choosing among fund families, and why not because "they are all free", they are all but tied to Firstrade since transferring out to Vanguard/Fidelity/TDA/whatever will result in a portfolio where some of the holdings are no longer free to trade.

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Re: Firstrade Makes a Splash With 700 Commission-Free ETFs (Including Vanguard!)

Post by MrPotatoHead » Tue Apr 17, 2018 8:54 pm

I have had an account at First Trade for over 10 years now I suspect.

I consider Schwab and Fidelity to have first tier customer service, ScottTrade (now TDAmerica) second tier, and Vanguard to have 4th tier. In that range I would place FirstTrade as strong third tier customer service. They are very good at supporting their platform and the issues that come up with it.

They lowered their trade fees to 2.95 vs 4.95 some time ago. They will slap a fee on you if you want paper now (vs 10 years ago) so be careful if your e-mail bounces. They have a rather unique security system that is interesting and due to coming May 25th EU privacy considerations are more private and secure than your average bear.

In over 10 years, I have never been solicited by them.

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