Exchange traded funds have become a very popular choice among investors in recent years, largely because of their low costs, holdings transparency and broad investment choices. But ETFs aren't traded in thin air, they're bought and sold through brokers. So what are the best online brokers for ETF investors? To find out, IBD asked ETF investors who took our Best Online Brokers survey to rate their broker on key characteristics.
Over 1,500 investors who own ETFs participated in our research. Each ETF investor rated their broker on 14 broker attributes (Low Commission and Fees, Research Tools, etc.). We computed a Customer Experience Index score for each broker, using the ETF investors evaluations. Based on the Customer Experience Index scores developed by IBD's longtime polling partner TechnoMetrica Market Intelligence, we developed the top brokers ranking for the ETF segment.
We spoke with the three brokers rated highest by ETF investors — Charles Schwab, Fidelity Investments and Interactive Brokers — to see what makes their ETF offerings stand out from the pack.
Schwab In The Top Spot
Charles Schwab (SCHW) earned a Customer Experience Index score of 73% — the highest among the six brokers ranked. The company provides a nifty ETF platform where investors can do anything from education to research to portfolio construction to commission-free trading of ETFs. It also organizes live events about ETFs at local Schwab branches.
One of Schwab's key features is its Schwab ETF OneSource lineup of 500 ETFs that investors can trade commission-free. These funds span 79 Morningstar categories and more than five index weightings. They include some of the most popular ETFs from big names such as iShares by BlackRock, SPDRs by State Street Global Advisors, Invesco, J.P. Morgan, OppenheimerFunds, Direxion and Schwab's own ETF lineup.
Another cool feature is their ETF Select List. It features funds in the categories of domestic and international equity, bond, sector, specialty and real assets that the team at Charles Schwab Investment Advisory has selected for consideration.
Out of over 2,000 ETFs, the team selects about 70 funds by eliminating those that have less than $20 million in assets and excluding nonstandard funds such as inverse or leveraged funds. The team also screens out those that have poor index tracking or that are expensive to trade. It further evaluates expense ratios, bid-ask spreads and commissions, before picking those with low total cost of ownership as well as those that are good representations of a category. The list gets updated quarterly.
Schwab's Personalized Portfolio Builder lets you create a diversified portfolio of funds based on various asset allocation models that range from conservative to aggressive. In selecting the right model, an investor's financial goals, risk tolerance and time horizon are taken into consideration.
Schwab's ETF screening is a powerful tool where you can find ETFs based on various criteria such as fund type, market cap/style, assets, yield, trading volume, gross and net expense ratio, commission-free, rating, performance, fundamentals, exposure, risk and sophisticated technical parameters.
Schwab's statistics speak volumes about the popularity of its ETF platform. At the end of 2018, Schwab held $456 billion in ETF assets, a 4% increase from 2017. Those assets have grown at a compounded annual growth rate of 18% since 2014.
Assets in Schwab ETF OneSource reached $115 billion, growing by 10% from 2017. Flows into ETFs in the program for the year totaled $22.8 billion, representing 49% of the total ETF flows at Schwab.
"We know that ETFs are important to our clients and meeting that need will continue to be a priority for us," said Kari Droller, vice president of third-party ETF and mutual funds at Charles Schwab. "Investors want the whole package. Costs matter and commission-free ETFs are an increasingly important consideration for all investors. That said, investors don't believe they should have to compromise to get what they want. They don't want to make any trade-offs between price and quality."
Fidelity Investments also made the list of Best Online Brokers for ETFs, with a 70% Customer Experience Index score. The company had $120 billion in ETF assets at the end of 2018, a 52% increase over three years. Total ETF trades by retail clients grew 36% in 2018, a 45% jump over the last three years.
"Currently Fidelity makes 357 ETFs available commission-free, and we have committed to increasing that number to more than 500 in the coming months," said Greg Friedman, head of ETF management and strategy at Fidelity. Clients have access to over 1,800 ETFs total and those that are not commission-free cost $4.95 per online trade just like stocks.
Fidelity provides a powerful ETF screener where investors can apply over 100 criteria including basic ETF facts, objectives, exposures, trading characteristics, performance, volatility, fundamentals, technical, tax considerations and analyst ratings. Investors can also choose among thematic filters such as market cap, commission-free, socially responsible, fixed income and sector ETFs. They also have access to independent third-party analyst ratings and reports, as well as expert market commentary, such as most shorted ETFs.
"Fidelity's ETF business is a crucial part of our overall business offering as a one-stop shop to meet any and all client needs," said Friedman. "Fidelity was early to the ETF markets with our distribution power, through our partnership with BlackRock's iShares ETFs. We've continued to grow our platform distribution along with our manufacturing capabilities."
Interactive Brokers ETFs
Also ranking in the Best Online Brokers for ETFs is Interactive Brokers (IBKR), with a Customer Experience Index of score 60%. Interactive Brokers does not break out stats for ETFs as they're included in their equity metrics. The company held $148 billion in client equity assets at the end of March, a 14% increase from the prior year.
Andrew Wilkinson, chief market analyst at Interactive Brokers, says that "IBKR's typical client is an active or institutional investor, that typically thrives on active and liquid markets."
The company prides itself on providing an "advanced and robust technology so that clients can trade actively using many different order types or algorithms to trade the markets," he explained. Investors can find a broad research offering, including those provided under licensing agreements and free to clients, as well as others that clients can subscribe to.
Investors can trade stocks and ETFs at some of the lowest commissions in the industry: at $1 per 100 shares. Around 53 funds have no commissions. Wilkinson says that IBKR is investigating the viability of making specific ETF products commission-free in conjunction with fund families.
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