T Rowe Price eliminates brokerage commissions on third-party ETFs

T Rowe Price will drop commissions on online purchases of third-party ETFs and stocks in its brokerage accounts, joining other trading platforms that have slashed fees for retail customers.

The change will take effect on March 1, a company spokesperson confirmed.

Currently, investors with T Rowe brokerage accounts pay $19.95 for each online trade of a stock or ETF. Investors in the firm’s Select Client Services programme, which is for clients with $250,000 or more in assets, pay $9.95 per trade.

“We are lowering our costs to help investors keep more of what they earn and make progress towards their financial goals,” T Rowe Price said in an email.

Transactions of T Rowe’s proprietary ETFs and mutual funds are already commission-free. The Baltimore-based firm also offers commission-free trading for ETFs on the FundVest no-transaction-fee platform maintained by Pershing, which provides custody for T Rowe’s brokerage accounts.

Investors pay $35 per trade for transactions in stocks and third-party ETFs over the phone, plus two cents per share after the first 1,000 shares. Representative-assisted trades cost $40 each. Select Client Services investors pay $9.95 regardless of how they trade.

T Rowe’s decision to remove trading commissions “reflects the current reality of the brokerage landscape” said Scott Smith, director of advice relationships at Cerulli Associates, a consultancy.

The move will make T Rowe one of the last brokerages to eliminate commissions on stocks and ETFs. Charles Schwab precipitated a rush to kill trading fees when it announced in October 2019 that it would drop commission. Other major brokerages including TD Ameritrade, Fidelity and E*Trade soon followed.

One of the reasons to offer commission-free ETFs would be the hope that some of the brokerage dollars will work their way into an ETF that you manage

Pershing eliminated transaction fees on equities and ETFs in March last year. TIAA, which also runs a brokerage platform with third-party funds, eliminated commissions on equities, ETFs and option trades in January 2020.

American Century remains one of the only asset managers with a brokerage platform to still charge trading fees on equity and ETF trades. Fees for online trades on the platform start at $24.95 per transaction, although commissions are discounted for investors with $100,000 or more in American Century mutual fund assets, the firm’s website shows.

The manager said it did not plan to change its online brokerage commissions, but would “continue to monitor the marketplace to make any appropriate adjustments”.

“We do not strive to be a destination for active traders,” American Century said.

Brokerages continue to charge transaction fees on most purchases of mutual funds. T Rowe, for example, offers a platform with no-transaction-fee funds, and charges $35 in commissions on other mutual funds.

T Rowe is probably less focused on the direct investor market than other major brokerage firms, said Christopher Davis, head of US research at ISS Market Intelligence.

“I don’t think it’s a very significant part of their business,” Davis said. “They’re a pure asset manager with a heavy retirement focus, so commission-free ETF trading probably doesn’t closely align with their business priorities.”

But while the trading revenue was likely low for T Rowe, a $10 commission can serve as a disproportionate deterrent for retail investors, Cerulli’s Smith said.

“Eliminating these charge[s] puts the platform on a level playing field with the largest providers in the space,” he said.

The change may be related to the launch of T Rowe’s active nontransparent ETFs, Davis said.

The firm rolled out its first ETFs in August 2020, and this week filed to launch its fifth, the T Rowe Price US Equity Research ETF.

“One of the reasons to offer commission-free ETFs would be the hope that some of the brokerage dollars will work their way into an ETF that you manage,” Davis said.

Other shops that want to act as a “hub” for their clients’ financial lives will need to take similar steps to make third-party products more accessible, Smith said.

Proprietary products are unlikely to serve all of a client’s needs, so offering access to complementary products is “part of constructing a client-centric platform,” he added.

However, T Rowe’s price cut is not thought likely to pull many investors away from major wealth management platforms like Schwab or Fidelity, Davis said.

Those brokerages have a much wider array of services, like banking and lending products, to attract clients looking for “one-stop personal finance shopping,” he added.

“Firms like Fidelity and Schwab, they really have a very strong impetus to get dollars into their vast ecosystem,” said Davis.

*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at igniteseurope.com.