Fidelity Strikes Back! Reduces Commisions to $7.95 and Offering Free Trading on 25 iShares ETFs

Well, that didn't take long. Fidelity Investments slashed its commissions for trading to $7.95 for all customers and is now offering 25 extremely popular iShares ETFs without trading fees. This is clearly in response to Schwab's similar announcements in December. The increased competition and offerings are really a positive occurrence for investors and I certainly welcome the changes.

The free ETF portfolio spans all the necessary asset classes to create a low-cost diversified portfolio - from small-cap value in US equities to international emerging markets to many fixed income such as the aggregate bond index, TIPS, muni bonds, and investment grade bonds. The ETFs are much more extensive than the commission-free ones from Schwab. Not only that, but since they are the BlackRock iShares products instead of the brokerage's own product (as Schwab did), they have very high volumes and a much larger pool of assets, which typically leads to smaller bid-ask spreads. On the other hand, many of the iShares ETFs' expense ratios are higher than the Vanguard and Schwab equivalents. For example, the Emerging Markets ETF clocks in at 0.72%, while VWO is 0.27% for essentially the same product. In the end, though, the difference is fairly negligible for most of the ETFs so shouldn't be a grave concern.

Here's a screenshot from Fidelity's website of the various ETFs offered sorted by category:

It doesn't say how long the offer is going to last, but I'd expect the reduced commissions will be for quite some time or else there would be some serious backlash. Another website is reporting the free trading for the iShares ETFs will be for "at least three years."

This is great news for the owners of more than 12 million Fidelity brokerage accounts. Kathleen A. Murphy, president of Personal Investing at Fidelity, released a statement:
Fidelity has partnered with the leading ETF provider in the market to bring investors the best brokerage offering in the industry today. Simply put, we’re offering the broadest selection of commission-free ETFs from the undisputed ETF leader, and it’s only available through Fidelity. When you combine this new initiative with the fact that Fidelity offers the largest funds supermarket in the industry, sophisticated online investment planning tools and extensive, institutional-grade stock research, you can see our relentless focus on providing every advantage to Fidelity customers so they can be more successful investors in today’s fast-paced and fluid market environment.

Michael Latham, Head of US iShares, BlackRock, expressed his excitement about the agreement:
We’re very excited that Fidelity, a proven leader in the retail brokerage industry, is promoting ETFs and furthering iShares availability to investors. The 25 iShares Funds that Fidelity chose to include in this offering represent leading indices in each asset class and can be used as the foundation for building an investor’s portfolio. Fidelity is strongly committed to investors, and their decision to offer iShares is a great validation of ETFs as a mainstream investment.

In any event, now it's even easier to create a great portfolio with Fidelity and these ETFs are great indexed, low-cost, high-volume ones to choose. My post that I wrote 10 days ago, "Comparison of Vanguard, Schwab, and Fidelity Fund and ETF Offerings," needs an update already! I used many iShares ETFs for the "alternate" column, though, so clearly you can tell I hold them in high esteem. In the end, there is really no excuse to pay exorbitant fees with any broker. They all have ample offerings with low-costs such that investors can easily create a complete portfolio with an appropriate asset allocation for their age, risk, and objectives. The increased competitive, low-cost, diversified offers from various brokerage houses is certainly a welcome development in the brokerage landscape.
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