TD Ameritrade Slashes Transaction Charges on DFA Funds
(Updates second paragraph to reflect Schwab and Fidelity announcements of online commission cuts.)
TD Ameritrade has slashed transaction charges by at least 50% on products managed by Dimensional Fund Advisors, the rapidly growing index fund company that sells its offerings through registered investment advisors rather than through brokers or directly to the public.
The cuts to $9.99 per transaction went into effect on Monday, February 27, and position TD Ameritrade to build market share among RIAs at a time when rivals have lowered stock commission and, in some cases, margin prices for their direct discount brokerage customers. On Tuesday, Charles Schwab Corp and Fidelity Investments said they are lowering standard online equity and some option and ETF commissions to $4.95 a trade.
On DFA and other mutual fund trades made through RIAs, Schwab charges a $25 service fee while Fidelity Investments assesses $50 on buys and $30 on redemptions.
TD Ameritrade, which has not changed its standard $9.99 commission price for retail online trades, is also waiving transaction charges on DFA’s One-Year Fixed Income Portfolio.
“This should boost TD to the head of the pack in terms of where [RIA] assets ultimately are held,” said Timothy Baker, founder of WealthShape, a Manchester, Conn.- based advisor RIA with $10.3 million of customer assets under management. “Trading fees are real and certainly can erode returns over time. Any reduction is usually a good thing for the end client.”
DFA funds, which are custom-designed by the Austin, Texas-based asset manager and skew toward small-cap investments, are popular among RIAs because of their relatively strong performance, low expense ratios and panache of exclusivity. DFA is the sixth largest U.S. fund family with $460 billion of firmwide assets, according to Morningstar, and claims to be highly selective in vetting its distribution network.
Joseph Giannone, a spokesman for TD Ameritrade’s “institutional” custody channel for RIAs, confirmed the fee cut, which was announced in a “Dear Valued Advisor” email to clients on Monday from product management head Jim Dario. The letter also said that
Giannone declined to discuss whether the firm was concerned about sparking a price war. “Both of our firms [DFA and Ameritrade] are always looking for ways to enhance the advisor experience as well as the experience for their clients,” he said.
Spokespersons at Schwab, Fidelity and Pershing Advisor Services, the three other major RIA custodians, either declined comment on whether they will respond to TD Ameritrade’s DFA cuts or did not respond.
TD Ameritrade appears to have made a strategically smart decision to lead with DFA, which surpasses even Vanguard Investments as the number one fund firm in terms of RIA loyalty, according to a 2016 report from consulting firm Cogent Reports.
“While consistency of fund performance and having a distinctive company investment philosophy remain critical, fees and expenses offer the greatest potential to enhance loyalty among users who are predominantly fee-based,” Cogent wrote in explaining DFA’s edge.