Big New ETF Players May Be Ready to Bring Back the Price Wars

Wall Street players that are offering exchange-traded funds for the first time may force a new wave of cost cutting in the industry.

Existing issuers have been slashing expense ratios in recent years, vying for assets among more than 2,200 products available. Yet this summer, signs emerged that the competition could only go so far, with one zero-fee fund shuttering and another product that used to pay investors who held it changing course to charge fees of 29 basis points, or 0.29%.

Now asset managers that had been longtime ETF holdouts -- including Wells Fargo, Federated Investors and Dimensional Fund Advisors -- are finally diving in. They may reignite the price wars.

“You have seen new entrants push the envelope, and they’re able to use their scale to bring product to market at a very low cost,” said Jillian DelSignore, principal at Lakefront Advisory.

Making an Entrance

DFA recently disclosed prices for three upcoming ETFs, with its U.S. domestic-focused product (DFAU) and international developed fund (DFAI), charging only 12 and 18 basis points, respectively.

The average expense ratio for all U.S. ETFs is 52 basis points, while the asset-weighted average -- which takes into account how many assets each fund has and gives higher weight to the larger funds -- is 19, according to data from Bloomberg Intelligence.