- The exchange traded fund fee wars have culminated in a fund that pays investors to hold it, rather than the other way around.
- Salt Financial filed on Tuesday to launch its second ETF. Before it reaches $100 million, the fund will pay investors $0.50 for every $1,000 invested.
- Some financial advisors have criticized the rebate as a simple marketing ploy.
The latest entry in the no-fee exchange traded funds wars will pay investors to hold it.
On Tuesday, Salt Financial filed to an unusual type of ETF — until the fund reaches $100 million in assets, Salt will cover the 0.29% management fee and pay an extra 0.05% of the fund’s money, at least until April 2020.
That means that for every $10,000 an investor puts in, he or she receives $5. After the $100 million mark and/or April 2020, the fee could increase to $29 for every $10,000. The company could also continue the rebate at that time.
ETF managers have been decreasing fees for years to appeal to investors who have been abandoning higher-cost mutual funds for the more tax-efficient and lower-fee products.
Last month, lending startup Social Finance said it would launch two no-fee exchange-traded-funds after months of speculation about the first such products. SoFi’s ETFs would be free for at least a year before the fee could increase.
SoFi’s funds were not technically the first no-fee funds, but others came with conditions. In 2017, Columbia Threadneedle launched an ETF with no fee for three months, and in August, after years of declining fees in the asset management industry, Fidelity became the first company to offer no-fee mutual funds. That suite of products brought in $2.9 billion last year, Fidelity said in its annual report last month.
Investors are choosing low-fee funds in record numbers. 97% of the $400 billion in passive flows this year went to products that charged 0.20% or less, according to Bloomberg data.
Salt Financial co-founder Tony Barchetto told Business Insider that his fund’s fees were different than those of the Fidelity ETFs, which are only free for Fidelity customers.
The rebate "is for any and all investors in the fund," he said, declining to comment further.
Reactions from the investment community were mixed, particularly because the fee rebate could disappear after a year.
Josh Brown, the chief executive of Ritholtz Wealth Management, said on Twitter that the fund "is the biggest crock yet, in an industry famous for them."
Ryan Kirlin, the head of capital markets at investment advisor Alpha Architect, called it "a marketing gimmick." He said that once the fee reverts to 0.29%, there’s significant competition for low-volatility-themed funds at that fee level.
<blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">We already have ETFs that essentially pay you to own them (fee so low that when you add in the sec lending fee you're outearning the index).<br><br>This free ETF won't make it to three years. <br><br>It's a $50k marketing expense (image below). <a href="https://t.co/vYwUsVVrdU">pic.twitter.com/vYwUsVVrdU</a></p>— Ryan Kirlin (@RyanPKirlin) <a href="https://twitter.com/RyanPKirlin/status/1105633719430328321?ref_src=twsrc%5Etfw">March 13, 2019</a></blockquote>
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