If you buy ETFs, you need a brokerage account. In the old days, one way discount brokers made money was by paying you less on your idle cash in the sweep account. Vanguard paid the highest rate on its money market funds. Others paid less. In the low interest rate world, this difference went away. Money market funds and bank sweep accounts everywhere pay practically zero.
Commissions on ETF trades aren’t that much different either. Vanguard ETFs trade commission-free at Vanguard. Schwab ETFs trade commission-free at Schwab. Fidelity has 65 iShares ETFs commission-free. TD Ameritrade offers 101 ETFs commission-free. Even when you must pay commission for a trade, the commission cost is really low. Vanguard charges $7 a trade, Fidelity $8, Schwab $9, TD Ameritrade and E*Trade $10. Unless you trade a lot, $7 a trade versus $10 a trade makes very little difference.
What matters is what brokers pay you to hold your money. Vanguard doesn’t pay to attract your money except it lowers the commission to $2 a trade when you have $500k. Fidelity, Schwab, TD Ameritrade, E*Trade, and Merrill Edge all pay a big signup bonus up to $2,500 to have you as a customer.
When I moved some money to TD Ameritrade last year, I received a bonus. I tried different tools offered by TD Ameritrade. They are very nice. Year-end summary and tax reports are also great. I got a few calls at home from the local branch asking if I needed any help. I said no, but it’s good to know if I have any problem with my account I could go there and talk to someone. I had no problem with my account whatsoever. If someone wants a broker for investing in ETFs, I would recommend TD Ameritrade.
I would be very comfortable with staying at TD Ameritrade except the competition wants to lure me away. E*Trade offers to pay me up to $1,000 if I give them a chance. It’s too good to resist. First I opened an account with E*Trade. Then I registered for this offer (IRA, regular account):
|$100,000 – $249,999||$500|
|$50,000 – $99,999||$200|
|$25,000 – $49,999||$100|
Obviously for the same amount of trouble it makes more sense if you are transferring a larger amount. E*Trade will charge $60 when you transfer out. Fellow blogger indexfundfan gave me this tip: before you mail in the asset transfer form, send a secure message to customer service to confirm that the account is tagged with the promotion. That way if for some reason the bonus doesn’t come as expected I will have something on the record. Good point. I don’t expect any problem but a system glitch can happen.
The money must stay at E*Trade for six months. I’m sure E*Trade will do a good job holding the assets and processing dividend distributions. When I transferred to TD Ameritrade last time, the cost basis information also transferred with the assets. I expect the same to happen this time. It’s the law now.
The broker you use to hold your money does not have to be the broker you use for new purchases. It’s OK to have two brokerage accounts or two IRAs at two different places. If you like open-end mutual funds, keep buying them at the place you prefer but hold your static pile in ETFs. An ETF is the same ETF at any broker. You have to hold it somewhere anyway. Rebalancing touches maximum 10% of your money because it takes a 20% swing in the market to trigger a 5% rebalance. Let the broker that pays you hold the other 90%.
Our hypothetical couple in the "double the bond yield" movement decided to do this. They transferred assets in their IRAs to a new broker. Each of them will receive a $1,000 bonus (remember they have $1 million in assets). After this move, they are just a hair shy of the original goal of doubling their bond yield without more risk.
I’m confident they will be able to achieve their goal shortly.
[Photo credit: Flickr user Jeremy Brooks]