Pershing playing catch-up with competitors as custodian considers offering commission-free ETFs

Access to commission-free trading of ETFs will expand in the coming months with the arrival of Raymond James Financial Inc. and the possibility that Pershing also might join the increasingly popular movement.
A top Pershing executive said Wednesday the firm is considering a commission-free trading platform for exchange-traded funds, three weeks after Raymond James said it would offer the option to its 111 affiliated registered investment advisory firms.
Raymond James and Pershing are looking to take advantage of opportunity and trim the gap with competitors, according to Matt Hougan, president of ETF.com.
“Every brokerage seems to have a no-commission trading program right now,” Mr. Hougan said. “They’re trying to catch up with their competitors. If you’re a customer at one of those places, you’re asking [for commission-free trading].”
The space has posted tremendous growth for fund managers and the platforms that waive fees for investors. For instance, flows to the iShares funds available through Fidelity grew 134% faster in their first 16 months of being offered without a commission than in the year prior to that, Fidelity spokesman Robert Beauregard said in July.
“We’re actively looking at that as a further potential solution, evaluating many things, including the economics of the program,” Sandy Bolton, managing director of financial solutions at Pershing, told InvestmentNews. “We want to ensure when we launch a program like that, that it is a robust platform.”
The firms’ efforts come as commission-free ETF platforms offered by competitors such as the Charles Schwab Corp., Fidelity Investments and TD Ameritrade have grown exponentially.
Generally, fund providers pay for access to those platforms and gather a large percentage of their assets by participating in the programs.
If Pershing decides to move ahead with a program, it would appear to mark a change of heart. But TD Ameritrade also had also backtracked on the issue. Its chief executive, Fred Tomczyk, said in February 2010 that “we see no reason to make a move at this point” on lowering commissions. The firm launched its commission-free program that October.
In a March 2013 interview, Ms. Bolton explained Pershing’s lack of a commission-free ETF program, saying the firm wanted to offer “flexibility, open architecture and choice rather than a mass-market approach.”
As part of their arrangement, iShares owner BlackRock Inc. pays Fidelity to promote its funds and make them available without transaction commissions to millions of retail investors, as well as about 3,300 firms on its adviser custody platform, representing 1.1 million clients at the end of last year.
Schwab expanded the providers on its ETF OneSource platform in September to 182 funds, making it the largest such program. As of Sept. 30, the program held $34 billion in assets, a 43% increase year to date. Commission-free ETFs account for about half of all ETF flows at Schwab.
Alex Teyf, the senior manager of mutual fund and ETF products at TD Ameritrade, declined to comment on the assets in that brokerage’s program.
Starting Nov. 1, Raymond James will offer RIAs about 120 actively managed ETFs on a commission-free basis from brands including First Trust, AdvisorShares, Alps Advisors and Greenhaven.
“In terms of making the Raymond James RIA offering more competitive, this helps us get there,” said Mike DiGirolamo, senior vice president and managing director of Raymond James’ investment advisers division. If you’re servicing RIAs, I think, in order to be competitive you need to offer this.”
Pershing, meanwhile, offers clearing services to 811 broker-dealers and holds assets in custody for 562 mostly high-end RIA clients.
Still, not every adviser would be won over by a commission-free platform, even among Pershing’s independent advisory clientele.
“I don’t like ETFs at all,” said Jim Pratt-Heaney, a partner at Westport, Conn.-based LLBH Private Wealth Management, which manages $1.2 billion and uses Pershing as a custodian. He primarily uses third-party, separately managed accounts with clients. “Everything works great until it doesn’t at all.”