Morgan Stanley’s E-Trade is planning a suite of free funds, with a catch — only customers of the brokerage platform would be able to buy them.
The firm submitted plans on Monday for five mutual funds spanning stocks and bonds, according to a filing with the Securities and Exchange Commission. While all five funds would be zero-cost, buying would be restricted to investors with “a self-directed account” at E-Trade from Morgan Stanley.
E-Trade follows in the footsteps of Fidelity Investments, which launched zero-fee index funds exclusive to their brokerage clients in 2018. The thinking goes that while a firm won’t turn a profit from offering a fund with a zero expense ratio, it may attract investors who then turn into paying clients for other parts of the business. That’s likely the logic that Morgan Stanley’s E-Trade is following with these planned products, according to Bloomberg Intelligence.
“It’s designed to try and get people in the door,” Eric Balchunas, a senior ETF analyst with Bloomberg Intelligence, said. “It speaks to the fact that it’s very competitive to get fingertips and eyeballs onto your exchange.”
