Since 2010, TD Ameritrade offered commission-free trades on a list of 101 ETFs. Because those ETFs were selected by Morningstar, they had a level of objectivity. The list included over 30 ETFs from Vanguard and over 40 ETFs from iShares, the two leading ETF providers. They covered a good spectrum of asset classes, from broadly diversified to more narrowly focused.
Effective today, TD Ameritrade overhauled its entire list of commission-free ETFs. The number of commission-free ETFs almost tripled to 296. However, the coverage of the new list took a nosedive. All 32 Vanguard ETFs will stop trading commission-free after November 20, 2017. So will 39 iShares ETFs.
The change can be evidenced by not even having an S&P 500 ETF on the new list of nearly 300 ETFs. Most entries on the new list are niche ETFs. A case in point: the new list includes the SPDR® SSGA Gender Diversity Index ETF (ticker: SHE) and SPDR® MSCI Emerging Markets Fossil Fuel Reserves Free ETF (ticker EEMX). I’m all for gender diversity and burning less fossil fuel, but as an investment theme, not so much.
In conjunction with the change at TD Ameritrade, State Street renamed a number of its SPDR® ETFs to SPDR® Portfolio ETFs. The ticker symbols also changed, and their expense ratios are lowered. These SPDR® Portfolio ETFs now trade commission-free at TD Ameritrade. In theory some of the SPDR® Portfolio ETFs would replace the Vanguard and iShares ETFs removed from the TD Ameritrade commission-free list. In practice, those SPDR® Portfolio ETFs have much lower trading volumes.
For example, according to Yahoo! Finance, the predecessor of the SPDR® Portfolio Total Stock Market ETF traded on average about $3 million per day in the last 3 months. By comparison the Vanguard Total Stock Market ETF traded 80 times more per day, and the iShares Total Stock Market ETF traded 14 times more. A lower trading volume means when you buy the ETF, the price you pay beyond the first 100 shares or so can be higher than the true market price.
By this complete overhaul to its commission-free ETFs list, TD Ameritrade positioned itself as a place for niche sector trading, not for plain-vanilla broadly diversified investing. They are saying they want to be more like E*Trade, less like Vanguard, Fidelity, and Schwab. TD Ameritrade is offered as the linked brokerage account by several HSA providers: HSA Bank, Elements Financial, and a startup HSA provider called Lively. This change also made those HSA programs not so great any more.
Not all is lost. If you already have Vanguard and iShares ETFs that will stop trading commission-free in your TD Ameritrade account after November 20, 2017, at least dividend reinvestment will continue to be free. Just new purchases or sales will incur a commission. Customers used to have to enroll in commission-free ETF program before their trades become commission-free. After November 20, 2017, customers won’t have to enroll separately any more. All customers will automatically pay no commission when they trade the ETFs on the new list.
The only thing is the new list doesn’t have any ETFs that I would use. Fortunately I don’t have any account there.
If you have an account with TD Ameritrade you can still make it work by making some adjustments. You can hang on to your existing ETFs and turn on free dividend reinvestment. Limiting the number of trades for your new cash will keep your cost still reasonable. Instead of buying several ETFs every time you have more money to invest, you can add to just one ETF at a time. For a solo 401k, IRA, or HSA, making one contribution per year and doing one trade would cost you only $7 extra.
If limiting the number of trades doesn’t work for you and you’d like to move, Vanguard, Fidelity, and Schwab are the more obvious choices. Among the big three, I’m partial to Fidelity because it manages my accounts well (see Who Manages Your Investments Versus Who Manages Your Accounts). I have a mix of Fidelity index funds and Vanguard ETFs in my Fidelity accounts. I make my more frequent trades in Fidelity index funds there. Once in a while I pay a $5 commission to buy into a Vanguard ETF.