ETrade clients already enjoy access to thousands of mutual funds, but soon they may have the opportunity to invest in proprietary ETrade funds with zero management fees.
Morgan Stanley’s online brokerage unit plans to introduce five no-fee index mutual funds next year, according to a recent filing with the Securities and Exchange Commission (SEC). These funds will span broad equity and bond categories, including large-cap, total market, international equities, municipal bonds, and U.S. bonds. Each fund will be managed by Morgan Stanley Investment Management.
The company has not shared additional details beyond the SEC filing.
While exchange-traded funds (ETFs) continue to dominate with growing popularity and asset flows, there is still significant demand for mutual funds. According to Todd Rosenbluth, head of research at fund analytics firm VettaFi, “Many investors still prefer and are more comfortable with mutual funds.”
Index mutual funds are known for low management fees, often just a few basis points. E*Trade’s decision to launch no-fee funds positions it to attract cost-conscious investors. The company’s filing notes that the funds will also have no minimum investment requirements, which could appeal to a broader audience.
However, the new funds will face stiff competition in an already saturated market. ETrade currently offers its customers access to over 6,000 mutual funds, in addition to numerous ETFs. To enhance its offerings, ETrade eliminated trading commissions and early redemption fees for mutual fund online trades in 2022, further solidifying its customer-friendly reputation.
Shares of the upcoming funds will only be available through self-directed E*Trade accounts, according to the SEC filing. Investors can transfer shares to a Morgan Stanley Wealth Management account, but transfers to other financial institutions will not be permitted. This exclusivity may deter clients who are considering moving their accounts elsewhere.
ETrade is one of the largest online brokerages in the U.S., serving millions of investors. Morgan Stanley’s acquisition of ETrade in 2020 expanded the company’s capabilities across brokerage and wealth management services. Today, Morgan Stanley’s wealth management division, including E*Trade, manages $4.6 trillion in assets and serves 8.2 million self-directed households.
Morgan Stanley has been actively working to integrate its businesses, connecting its full-service wealth management clients, self-directed investors, and workplace benefits plans. This strategy aims to generate more referrals for Morgan Stanley’s network of approximately 15,000 financial advisors.
For RIAs and wealth advisors, the move underscores Morgan Stanley’s efforts to offer a seamless ecosystem for various investor profiles. By tying proprietary funds to the E*Trade platform, Morgan Stanley aims to strengthen client retention and build loyalty while encouraging transitions to its full-service wealth management offerings. Advisors should keep an eye on how these funds perform and the potential impact on client asset flows.
