by InteractiveAdvisors
by InteractiveAdvisors
Outlook Retirement Strategies

All investors do is win with commission-free trading

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Matthew J. Bartolini, CFA, Head of SPDR Americas Research, State Street Global Advisors

Well, I guess someone reads our stuff after all. Recently, we have written a lot about the importance of analyzing trading costs as a part of an ETF’s total cost of ownership (TCO).  And how commissions are a big part of that side of the TCO equation. Or at least they were.

During the first week of October, a number of RIA custodian platforms and online brokerage firms cut commissions to zero for ETFs, options and single stocks. And while I take our thought leadership victory lap a bit in jest, the victory lap for investors is real.

Investors for the win

Commission-free trading is nothing new. At State Street SPDR ETFs, we have steadfastly promoted it for years by partnering with multiple platforms to offer a wide selection of our ETFs commission-free. However, the change from just a select list of commission-free ETFs from certain issuers to ALL ETFs industry-wide is a big win for every investor.  It’s simple. Choice has expanded, further democratizing investing.

In the past, investors may have shied away from using ETFs that were not part of a commission-free arrangement, even though they felt the ETF’s strategy was superior or the liquidity profile was better than the commission-free option. The latter reason is more likely, as some of the more heavily traded ETFs were excluded from prior commission-free arrangement because the platforms’ commission give-up was previously just too great.  

Now, by offering commission-free trading for all ETFs, these platforms are sacrificing revenue to expand the investors’ toolkit. That’s fantastic for portfolio construction and liquidity management. The figure below compares the total average daily trading volume over the past 30 days for SPDR ETFs that traded commission-free at both Schwab and TD Ameritrade (two of the larger firms now offering all ETFs commission-free) with our ETFs that did not trade commission free on either platform.  The first list contains 84 ETFs while the second has just 26 funds.1

It is significant that the total average daily trading volume for our funds that previously did not trade commission-free is $35.4 billion versus less than $1 billion for the commission free-style funds. As far as SPDR is concerned, turn on the spigots and let liquidity run like the Mississippi River through your portfolio!

Still need to know TCO

Just because commissions have dropped across major platforms this doesn’t mean you should throw trading cost considerations or liquidity due diligence by the wayside. You still need to evaluate bid-ask spreads and depth of market. Depending on your rebalancing size and frequency, these trading costs can accumulate significantly and have a larger impact on the TCO than any expense ratio difference between two ETFs.  

Click here to read this entire article, first published on the SPDR Blog  on October 7.


Photo Credit: Pictures of Money via Flickr Creative Commons


This material is from State Street Global Advisors and is being posted with State Street Global Advisors’ permission. The views expressed in this material are solely those of the author and/or State Street Global Advisors and Interactive Advisors is not endorsing or recommending any investment or trading discussed in the material. The opinions expressed may differ from those with different investment philosophies. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed or relied on as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, strategies, tax status, investment horizon, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

AUTHOR

State Street Global Advisors
State Street Global Advisors
For four decades, State Street Global Advisors has served the world’s governments, institutions and financial advisors. With a rigorous, risk-aware approach built on research, analysis and market-tested experience, we build from a breadth of active and index strategies to create cost-effective solutions. As stewards, we help portfolio companies see that what is fair for people and sustainable for the planet can deliver long-term performance. And, as pioneers in index, ETF, and ESG investing, we are always inventing new ways to invest. As a result, we have become the world’s third largest asset manager with US $2.72 trillion* under our care. While State Street licenses model portfolio data enabling Interactive Advisors to build and periodically rebalance these portfolios, State Street does not have trading discretion, and it is not an adviser or fiduciary to Interactive Advisors clients investing in these portfolios. *AUM reflects approximately $32.9 billion (as of June 30, 2018), with respect to which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.

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