Fidelity one-ups Schwab on no-fee ETFs, stock-trading fees

Just weeks after Charles Schwab shook things up in the ETF world by introducing its own brand of commission-free exchange-traded funds, Fidelity has unveiled a commission-free model for 25 ETFs from iShares (managed by BlackRock). Schwab currently has only eight commission-free ETFs.

The no-fee ETFs from Fidelity include some of the most popular ETFs on the market, including the iShares S&P 500 Index, iShares Russell 2000 Index, iShares MSCI Emerging Markets Index, and the iShares Barclays Aggregate Bond fund.

A Reuters report characterized Fidelity's move into commission-free ETFs as a belated recognition that exchange-traded funds have gained a significant presence in the mutual-fund marketplace.

[Fidelity's] new alliance with BlackRock of New York marks a final acknowledgment of the growth of ETFs and their importance to retail investors, said Paul Justice, an analyst who follows the industry for Morningstar in Chicago.

Although the industry has more than doubled since 2005, to $1 trillion globally by BlackRock's count, ETFs will continue picking up market share, Justice said. Following Fidelity and BlackRock's move "you will see a great deal of competitive response," he added.

The rapid growth of ETFs offered by iShares, State Street Corp and others is in stark contrast with the skepticism investors have shown traditional stock mutual funds, which saw high outflows as stock markets sank.

Fidelity introduced a single ETF of its own in 2003, but never followed up with additional products....

Tom Lydon, editor of the ETF Trends newsletter, said he expects ETFs to continue to grow as investors realize their fee benefits. ETFs also have room to gobble more assets in 401(k) retirement-savings plans, where they have been little used to date, Lydon said.

Fidelity also announced it is replacing its current tiered-pricing model for stock trades with a flat $7.95 fee for online trades - $1 less than the stock-trading fee recently implemented by Schwab.

Neither Schwab nor Fidelity has announced any changes in their pricing structure for traditional mutual funds.
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Joseph Slife is a contributing author and editor for SMI. Visit www.soundmindinvesting.com to learn more.