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New Ways to Buy ETFs Online

New apps and robo-advisors want your investment dollars

Exchange-traded funds (ETFs) have become wildly popular in their relatively short history because they offer investors large and small the chance to own a diversified portfolio while keeping fees low and trading opportunities flexible.

As the exchange-traded fund market continues to scale, multiple financial technology (fintech) companies and online discount brokers and trading platforms such as Robinhood, E-trade, WeBull, M1 Finance, have also begun offering rock-bottom (i.e., zero) fees and greater trading flexibility. As a result, they have taken away market share from traditional trading firms and financial advisory services. The choices available today include some apps, AI-powered solutions, and roboadvisors such as Acorns, Ellevest, Betterment, Sofi, and Weathfront.

Some Popular Stock-Trading Apps

Robinhood, Motif, and Ally Invest (formerly TradeKing) are among the most popular stock-trading apps.

  • Robinhood, which launched in 2014, charges zero commission fees on stock and ETF trades. The investor pays the usual management fee to the ETF provider, typically an expense ratio under 0.5%. Robinhood makes money in two ways: by charging interest for margin accounts and by investing clients' cash holdings in interest-bearing accounts. Robinhood also offers a monthly premium subscription plan for members to receive special services and market intelligence. The company enjoys the backing of venture capitalists and angel investors as diverse as Google Ventures, Jared Leto, and Snoop Dogg.
  • Motif Explorer, a mobile trading app from online brokerage Motif Investing, launched in 2012 and allows individual investors to invest in curated, thematic portfolios such as Online Gaming World and Cleantech Everywhere. A unique feature even allows users to construct a basket of up to 30 stocks, essentially custom-creating a homemade ETF. Trades are free for next-day transactions or $4.95 for real-time trades. Motif also now offers Impact Portfolios, a fully-automated service that allows investors to put their money behind their values.
  • Ally Invest, which acquired TradeKing in 2016, offers commission-free trades for stocks, options, and ETFs for investors who know their way around a portfolio. Meanwhile, those looking for a managed portfolio can choose from portfolios chosen by social responsibility, tax optimization, or more.

Roboadvisors

Services that feature roboadvisors are designed for investors focused on the long term rather than trading on a day-to-day basis. Investors are offered a selection of ETF portfolios that are monitored and adjusted automatically over time. They are another low-fee alternative.

Wealthfront and Betterment are pioneers in the roboadvisor industry and both charge an annual advisory fee of 0.25% and zero trading or account transfer fees.

Betterment charges management fees that range from 0.25% to 0.40%, compared with 1% to 1.5% for an average financial advisor. Both apps walk users through the process of setting up a portfolio of ETFs based on their answers to a series of questions regarding risk tolerance and investing preferences.

Wealthfront and Betterment offer diverse ETFs, from simple ones that track broad U.S. stock indices such as the S&P 500 to specialized instruments like emerging market and real estate investment trust (REIT) funds. Both platforms also allow for an easy setup of tax-sheltered retirement accounts, such as IRAs.

About ETF Fees

Low fees are a big deal for investors in ETFs, and for good reason. The vast majority of ETFs track an index. If several competitors offer an ETF based on the same index, the returns should not differ significantly. That makes fees and commissions a deciding factor in choosing one over another.

In any case, while deciding on an online broker, look at the range of ETFs offered. Each has a different mix. Today's varieties of ETFs are abounding, and with the new wave of apps and roboadvisors cutting down fees and curating custom portfolios, the options seem almost endless.

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