This is an excerpt from a story delivered exclusively to Business Insider Intelligence Fintech Briefing subscribers. To receive the full story plus other insights each morning, click here.
US-based fintech SoFi has completed a regulatory filing for a series of exchange-traded funds (ETFs), some of which will come at no charge for investors, according to Bloomberg.
SoFi launched two index ETFs with no management fees, in addition to two others, which will charge an undisclosed fee; the new ETFs use indexes created by Solactive Insexres and Tidal Growth Consultants. SoFi initially focused on student loan refinancing, but it's been expanding its services: It moved into deposits in 2018 and recently launched SoFi Invest to offer both active and automated investing options at no fees.
Here's what this launch means for SoFi and the ETF industry:
- SoFi will likely be able to lure investors with free ETF offerings. The funds will be free until at least March 2020, after which SoFi may charge a fee of 0.19%; it's not clear if SoFi will actually add charges to its ETFs after this date, per CNBC. Initially offering a free service can help SoFi scale its newly introduced investment business, and could potentially allow it to add more funds with a fee, in addition to its core free ones. Moreover, SoFi targets a younger demographic, many of whom have never invested before and are keen to first try out no-fee products.
- Cheap investment services are in high demand. Fidelity launched a free index mutual funds service in August 2018 and already pulled in $2.1 billion in assets, per CNBC. Additionally, over 97% of cash flowing into ETFs is going to those that charge $2 or less for every $1,000 invested, meaning the race to offering the lowest cost services is tight. BlackRock, State Street Corp., and Charles Schwab, which together control 60% of the $3.7 trillion ETF market in the US, charge customers 30 cents per every $1,000 invested for their cheapest ETFs. We have seen investment companies waive fees for ETFs before, but not for a long period of time, making SoFi's offering an industry first, per ETF.com.
The freemium space is heating up and incumbents should take a close look at the development. We've seen a number of fintechs launching investment services for free for a certain period or until a specific investment threshold. This will be particularly beneficial in helping to lure millennials who often can't afford to spend a lot of money on wealth management, but are expected to control as much as $20 trillion in assets globally by 2030, according to CB Insights.
As such, we expect that initial interest in SoFi's service will be high; however, the fintech might have to lower its price after March 2020 to compete with the lowest fees in the industry. And to prevent losing market share to fintechs like SoFi, incumbents should pay attention to how their freemium models pan out and roll out similar options if they're successful.
Interested in getting the full story? Here are two ways to get access:
1. Sign up for the Fintech Briefing to get it delivered to your inbox 6x a week. >> Get Started
2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Fintech Briefing, plus more than 250 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now
