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Vanguard Wins Over E*Trade With ETFs Despite 'No Payment' Policy

E*Trade agrees to sell 32 Vanguard funds with no commission.

By Rachel Evans

(Bloomberg) --Chalk one up for ETF managers that refuse to “pay-to-play.”

Vanguard Group won a victory of sorts when E*Trade Financial Corp. added 32 of its exchange-traded funds to its commission-free platform. The arrangement allows prospective Vanguard buyers to avoid the $6.95 fee that E*Trade charges to trade funds that don’t make the cut, the online brokerage said in a statement this week.

E*Trade’s decision flies in the face of other brokers that have balked at Vanguard’s stance against paying to appear on their platforms. TD Ameritrade booted the firm from its commission-free platform last year, and Vanguard’s funds are also absent from Charles Schwab Corp.’s OneSource program.

A spokesman for Vanguard confirmed that the firm hasn’t changed its longstanding policy of not paying for distribution.

“The financial considerations, they all vary by providers,” said Rich Messina, E*Trade’s senior vice president of investment product. But “it would be hard not to have at least one -- or all -- of the Big Three” for brokers that want to give their clients a broad array of asset-allocation strategies, he said.

The Big Three -- Vanguard, BlackRock Inc. and State Street Corp. -- run the most popular U.S. ETFs by far, accounting for 83 percent of assets between them, data compiled by Bloomberg show. E*Trade added BlackRock to its commission-free platform earlier this year, Messina said.

“You may overlap in certain asset classes but people sometimes have preference on name,” Messina said. “If you have the ability to open it up and give them that experience, I think it’s a lot better.”

To contact the reporter on this story: Rachel Evans in New York at [email protected] To contact the editors responsible for this story: Jeremy Herron at [email protected] Eric J. Weiner, Randall Jensen

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