Commission-Free ETFs: Not Always the Best Choice
TD Ameritrade's (NASDAQ: AMTD) change to its list of commission-free exchange-traded funds (ETFs) shows how the brokerage industry, increasingly threatened by passive investing, faces a difficult choice balancing investors' wants with its need to generate a profit.
Trading commissions, once the industry's bread and butter, are trending down as the industry slashes prices and investors eschew stock picking for passive index funds and ETFs. That means brokers have to get creative with how they generate revenue, and commission-free ETFs are increasingly playing a role as a revenue driver for many of the industry's largest companies.
It wasn't all that long ago that brokers preferred stock traders to fund investors. That's because brokers historically earned a small, up-front commission on each trade, and stock investors trade far more often than fund investors. That has changed, however, as brokers pair up with fund companies to offer free trades on certain funds in exchange for their share of the management fees.
Source: Fool.com