BlackRock CEO Larry Fink has said in the past that it has no plans for a zero-fee ETF. Vanguard made the decision last summer to make trading of all ETFs on its platform free, rather than focusing on further expense-ratio reductions.
J.P. Morgan did not provide a comment by press time.
There have been some criticisms of the latest moves in the low-fee war as more free advertising for funds than substance, especially the Fidelity move. The truth is somewhere in between. Fee pressure on funds is a good thing for investors, but getting a fund for nothing is not a must.
Fees already are so low that investors have won the war, and with existing ETFs at three to four basis points, other factors apply to investing decisions, from a fund's trading costs and liquidity to the index methodology that underlies it. Additionally, investors need to consider the other charges for trading and brokerage account services that could apply to their investments.
So when the first zero-fee ETF arrives, it will make news for sure, and it will be worth taking a look at, but it won't necessarily make the best investment ever.
Research from Cerulli Associates, a global research and consulting firm, shows that 68 percent of fund issuers see little or no impact on firm margins as a result of fee compression, and those impacted are likely to report that the lower margins will be offset by a fund's use in broader asset allocation models or in conjunction with other products and services.
"Looking at fees alone paints an incomplete picture of ETF success. Increasingly, issuers are likely to have competitive angles for their ETF product lines beyond simple revenue generation," said Daniil Shapiro, associate director in Cerulli's product development practice.
A zero-fee fund also may not be the last shot in the fee war.
Since a firm can leverage its existing distribution channels to attract clients via a zero-cost product and then provide more expensive offerings, going below zero is a possibility. "There has been industry discussion about ETFs going to not only zero but also negative. It wouldn't be shocking for an issuer to provide a negative-cost ETF product as a differentiator and a way to build brand equity which would then help drive sales into other products (whether or not they're ETFs)," Shapiro said.