"No Transaction Fee" (NTF) hidden fees; TDAmeritrade

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ruralavalon
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"No Transaction Fee" (NTF) hidden fees; TDAmeritrade

Post by ruralavalon » Tue Nov 14, 2017 5:00 am

Here is an interesting article from Morningstar, "Will the Fund Industry Ever Come Clean?"'.

This is a concise history the different ways over the decades that the fund industry has hidden fees from the investor, now in the form of "No Transaction Fee" (NTF) fund platforms.
The 1990s brought no-transaction-fee fund platforms. By now, you know the refrain. Don’t bill the customer directly; in fact, don’t bill the customer at all. It will only distress him. Instead, have the platform receive its revenue from the participating mutual funds. If you bring them the business, funds will pay an annual 0.25% of their platform assets—a rate that has subsequently been raised to as high as 0.40%.

The most-recent development in hidden fees came last month, and it made a splash. TD Ameritrade created a ruckus among financial advisors by dropping several dozen ETFs, including all its Vanguard offerings, from its commission-free platform. Although Ameritrade didn’t present the issue that way, it made those moves because of revenue-sharing. Ameritrade requested that ETFs pay for the privilege of being on its commission-free platform. Those funds that did not, were made unwelcome.
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digarei
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Re: "No Transaction Fee" (NTF) hidden fees; TDAmeritrade

Post by digarei » Tue Nov 14, 2017 7:05 am

ruralavalon wrote:
Tue Nov 14, 2017 5:00 am

Here is an interesting article from Morningstar, "Will the Fund Industry Ever Come Clean?"'.
This is probably the best article I’ve read on the subject of transparency of fees.

Sometimes our human psychology can work against our best interests—and those of companies, too. It’s why we dislike hearing bad news, even if that bad news is true to the facts and the knowledge proves to be of great usefulness or benefit. We are inclined to kill the messsenger.

"Just don’t tell me if it’s not what I want to hear."

It shouldn’t be surprising that this also extends to explicitly stated fees. Bury those fees (the bad news) and I won’t have to think too much about them. It’s reasonably easy in this light to see why so many mutual fund companies and brokers are reluctant to advertise fee arrangements to their clients—it may be greed but it’s not only greed. It fits with human nature.
John Rekenthaler wrote:
Opacity might not be good for our financial health, but it sure does taste sweet.
Thanks for posting.
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jhfenton
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Re: "No Transaction Fee" (NTF) hidden fees; TDAmeritrade

Post by jhfenton » Tue Nov 14, 2017 7:39 am

I agree completely with the article, of course. There's a reason why you don't see any dirt cheap mutual funds in the now old-fashioned NTF fund platforms. Those funds almost universally have 12b-1 fees that have you paying for the NTF platform.

And I am positive that "platform payments" from fund companies played a large role in the choice of funds for TD Ameritrade's new commission-free ETF lineup. The vast majority of them are high-ER funds.

But not all are. Some are quite cheap. And there really are no hidden fees when you are paying 11 bp for SPEM (SPDR Portfolio Emerging Markets) or 3 bp for SPTM (SPDR Portfolio Total Market). This is a case where cost-conscious investors can take advantage of the platform while less discerning investors pay for it.

(Disclaimer: I recently moved my HSA to TD Ameritrade through Lively, just in time for the changes to the NTF platform.)

SlowMovingInvestor
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Re: "No Transaction Fee" (NTF) hidden fees; TDAmeritrade

Post by SlowMovingInvestor » Tue Nov 14, 2017 7:43 am

The near 0 interest money market account is certainly true for TDAM. It is not true for Fido, whose MM rates are competitive with just about any other firm except VG. Schwab has a good MM rates too (although that cant be your sweep fund)

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ruralavalon
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Re: "No Transaction Fee" (NTF) hidden fees; TDAmeritrade

Post by ruralavalon » Tue Nov 14, 2017 8:02 am

jhfenton wrote:
Tue Nov 14, 2017 7:39 am
I agree completely with the article, of course. There's a reason why you don't see any dirt cheap mutual funds in the now old-fashioned NTF fund platforms. Those funds almost universally have 12b-1 fees that have you paying for the NTF platform.

And I am positive that "platform payments" from fund companies played a large role in the choice of funds for TD Ameritrade's new commission-free ETF lineup. The vast majority of them are high-ER funds.

But not all are. Some are quite cheap. And there really are no hidden fees when you are paying 11 bp for SPEM (SPDR Portfolio Emerging Markets) or 3 bp for SPTM (SPDR Portfolio Total Market). This is a case where cost-conscious investors can take advantage of the platform while less discerning investors pay for it.
. . . . .
I still hate to see less well informed investors getting taken in by the NTF marketing gimmicks. I seems to me that many investors, especially young or new investors, really do believe they are getting a free service because the advertisers are trying to make them believe that.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

SlowMovingInvestor
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Re: "No Transaction Fee" (NTF) hidden fees; TDAmeritrade

Post by SlowMovingInvestor » Tue Nov 14, 2017 8:15 am

jhfenton wrote:
Tue Nov 14, 2017 7:39 am
I agree completely with the article, of course. There's a reason why you don't see any dirt cheap mutual funds in the now old-fashioned NTF fund platforms. Those funds almost universally have 12b-1 fees that have you paying for the NTF platform.

And I am positive that "platform payments" from fund companies played a large role in the choice of funds for TD Ameritrade's new commission-free ETF lineup. The vast majority of them are high-ER funds.

But not all are. Some are quite cheap. And there really are no hidden fees when you are paying 11 bp for SPEM (SPDR Portfolio Emerging Markets) or 3 bp for SPTM (SPDR Portfolio Total Market). This is a case where cost-conscious investors can take advantage of the platform while less discerning investors pay for it.
I always assumed that brokerages acted as market makets in their commission free ETFs (and maybe even supported creation/redemption of ETFs from their constituents). So that is another source of income, but it's not like the retail investor could have captured that income.
Last edited by SlowMovingInvestor on Tue Nov 14, 2017 8:24 am, edited 1 time in total.

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jhfenton
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Re: "No Transaction Fee" (NTF) hidden fees; TDAmeritrade

Post by jhfenton » Tue Nov 14, 2017 8:17 am

ruralavalon wrote:
Tue Nov 14, 2017 8:02 am
I still hate to see less well informed investors getting taken in by the NTF marketing gimmicks. I seems to me that many investors, especially young or new investors, really do believe they are getting a free service because the advertisers are trying to make them believe that.
Agreed. It's a great article performing an important public service. :beer

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alec
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Re: "No Transaction Fee" (NTF) hidden fees; TDAmeritrade

Post by alec » Tue Nov 14, 2017 9:17 am

SlowMovingInvestor wrote:
Tue Nov 14, 2017 8:15 am
jhfenton wrote:
Tue Nov 14, 2017 7:39 am
I agree completely with the article, of course. There's a reason why you don't see any dirt cheap mutual funds in the now old-fashioned NTF fund platforms. Those funds almost universally have 12b-1 fees that have you paying for the NTF platform.

And I am positive that "platform payments" from fund companies played a large role in the choice of funds for TD Ameritrade's new commission-free ETF lineup. The vast majority of them are high-ER funds.

But not all are. Some are quite cheap. And there really are no hidden fees when you are paying 11 bp for SPEM (SPDR Portfolio Emerging Markets) or 3 bp for SPTM (SPDR Portfolio Total Market). This is a case where cost-conscious investors can take advantage of the platform while less discerning investors pay for it.
I always assumed that brokerages acted as market makets in their commission free ETFs (and maybe even supported creation/redemption of ETFs from their constituents). So that is another source of income, but it's not like the retail investor could have captured that income.
I don’t think that a lot of the big online retail brokers (e.g. Schwab, TDAM) have market making units. They probably get payment for order flow from the big market makers (citadel, Knight, virtu, two sigma) and rebates from exchanges.
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Re: "No Transaction Fee" (NTF) hidden fees; TDAmeritrade

Post by hushpuppy » Wed Nov 15, 2017 3:57 pm

delete
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