E*TRADE Making Big Bet on ETFs as Demand Explodes

Exchange-traded funds (ETFs) are exploding in popularity, particularly among younger investors. E*TRADE, the New York-based online brokerage, wants to capitalize on that growth and is pulling out all the stops to ensure that it is a formidable player in offering low-cost access to ETFs. In June, E*TRADE Financial Corporation (ETFC) expanded the number of commission-free ETFs by 46, including 32 from low-cost investing leader Vanguard, and it recently started enabling customers to access three pre-built portfolios of commission-free ETFs.

“ETFs are becoming more popular as passive investments gain in popularity,” said Rich Messina, senior vice president of investment product at E*TRADE, in an interview. “We are creating a continuum for clients as they start out on the digital side.” According to Messina, research has shown that the millennial population is looking for more help when it comes to investing while at the same time trying to find the lowest-cost way to be in the market. As a result, ETFs resonate well with emerging investors, and thus the focus by E*TRADE. “The more help we provide getting them started out,” the greater the chance they will turn into “long-term clients,” said the E*TRADE executive.

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Younger Investors Prefer ETFs

To say that ETFs are a preferred way of investing for scores of people, particularly millennials, would be an understatement. In June, E*TRADE rival Charles Schwab polled investors and found that 91% of millennials favor ETFs over other investment vehicles. Close to 80% of millennials see ETFs as the main investment vehicle in the future, with 74% of millennials saying that they expect to increase investments in ETFs during the next year. Meanwhile, 54% signaled that they would be open to putting all of their investments in ETFs during the next year.

But it’s not just The Charles Schwab Corporation (SCHW​​​​​​​) that is seeing the demand. Messina noted that E*TRADE investors also want access to ETFs. In expanding its offering of commission-free ETFs, the brokerage said that it is helping investors fill a “tactical void” for several different investment strategies – whether it’s tracking a broad index or a defensive play against changing market conditions. E*TRADE’s commission-free expansion follows on the heels of its move in February to add 80 more commission-free ETFs to its platform.

Messina stated that, when adding to its commission-free ETF offering, E*TRADE isn’t focused on simply increasing the number of funds investors can choose from, but the firm wants to smooth out its strategy of giving clients the ability to create wealth across different investments. In the early days of offering commission-free ETFs, E*TRADE’s focus was on a broad list of funds, but it is now delving deeper to enable ETF investors to diversify by offering ETFs focused on different asset classes and investments such as commodities and large-cap stocks. “There’s a robust list available to them to be able to build a portfolio,” Messina said.

E*TRADE Launches Pre-Built ETF Portfolios

For do-it-yourself investors that don’t have the time to create their own ETF investment portfolio, E*TRADE recently launched its pre-built portfolio service for clients purchasing commission-free ETFs. Currently, E*TRADE offers three different pre-built ETF portfolios, with one focused on conservative investments, the other on moderate investments and one that is aggressive in nature. That enables E*TRADE customers to have a portfolio of ETFs in two clicks, all commission free, said the E*TRADE executive.

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