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Vanguard Is The New Beast In The Commission-Free Space

ETF Professor

Vanguard has long had a well-deserved reputation for offering some of the most inexpensive index funds and exchange traded funds and the firm's 77 ETFs have been available to clients without commissions, but Vanguard is upping its commission-free ETF status in significant fashion.

In a statement Monday, the fund giant said it will offer nearly 1,800 ETFs to its clients on a commission free basis, including funds from major rivals such as iShares, State Street Global Advisors (SSgA) and Charles Schwab. In order, BlackRock's iShares, Vanguard, SSgA and Schwab are four of the five largest U.S. ETF sponsors.

What Happened

The commission-free ETF arena is chock full of competition, including Fidelity, E*TRADE and Chalres Schwab. Earlier this year, First Trade Securities made just over 700 ETFs available to its clients on a commission-free basis. At the time of that announcement, that was by far the largest no commission ETF stable in the brokerage industry.

Vanguard’s move to offer almost 1,800 ETFs without commissions easily tops that. As of the end of May, there were nearly 2,150 exchange traded products, including ETFs, trading in the U.S., according to ETFGI data.

Why It's Important

Vanguard said its commission-free program will “exclude highly speculative and complex ETFs.” The statement did not identify ETFs Vanguard deems as overly speculative or complex.

“We believe giving investors access to a broad choice of low-cost, broadly diversified, commission-free investments is good for investors and good for the asset management industry,” said Vanguard Managing Director Karin Risi in the statement.

The average annual fee on Vanguard funds is just 0.11 percent per year, or $11 on a $10,000 investment. Of the 100 U.S.-listed ETFs as ranked by lowest expense ratios, nearly a third are Vanguard funds. That group includes well-known names such as the Vanguard Total Stock Market ETF (NYSE: VTI), Vanguard S&P 500 ETF (NYSE: VOO) and the Vanguard Total Bond Market ETF (NYSE: BND).

What's Next

“Vanguard expects commission-free online transactions to be available in August and will include the majority of ETFs traded on the major exchanges, which constitutes the largest suite of ETFs available to investors without commissions,” said Vanguard.

Of the 100 largest U.S. ETF by assets, 26 are Vanguard funds.

Disclosure: The author owns shares of VOO.

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