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Finance Pros Sound Off on E*Trade Ad Controversy

February 20
00:03 2013

The E*Trade baby has been one of the most successful advertising campaigns. Since his first Super Bowl appearance in 2008 (that’s the one where the undefeated New England Patriots were defeated by Eli Manning and the New York 796229_38700663_megaphone_stock_xchng_royalty_free_300Giants), the baby’s popularity has soared. The smart-mouthed infant has ten times the number of Twitter followers than does the average real-life financial adviser. His likability scores attract those far beyond the financial field. Indeed, except for a slight run-in with Lindsay Lohan in 2010, the E*Trade baby has been without controversy, until this year.

Unlike his spat with Hollywood, this time the baby and his employer have sparked the ire of the financial industry. The ad campaign, which started no later than the beginning of the NFL playoffs, suggests E*Trade’s competitors are not objective in selecting mutual funds and charge fees as high as 2%. This has financial service providers on their heels, complaining E*Trade’s commercials are at best unfair and at worst misleading.

A major issue involves E*Trade’s implication that brokers that offer their own mutual funds have a conflict-of-interest while E*Trade doesn’t. Alexey Bulankov, a financial advisor with an independent registered investment advisory firm McCarthy Asset Management Inc. located in Redwood Shores, California says for “E*Trade campaign to hold themselves out as free of conflict of interest is misguided at best. The model of a large brokerage house, discount or not, does not allow for conflict-of-interest-free environment, no matter how creative their ad campaign is.”

It’s the suggestion E*Trade that somehow doesn’t have a fee problem that most irks financial advisers the most. “E*Trade doesn’t disclose any revenue sharing relationships with mutual funds, but many of the “All-Star” funds displayed in their screener charge 12b-1 fees,” says Maxime Rieman, a financial markets analyst for NerdWallet Investing in San Francisco. Rieman adds, “E*Trade’s new ad campaign is not fair to brokers that provide access to their own line of mutual funds (for example, Schwab and Fidelity). E*Trade receives commissions from the mutual funds it offers, but these are simply less apparent to the investor since many people have no idea what 12b-1 fees are. E*Trade proclaims itself to be unbiased while suggesting that providers of proprietary mutual funds will always favor their own products at the expense of the investor. Mutual fund brokers are more likely to push those funds that provide the greatest commission and E*Trade is no exception. However, E*Trade does accept 12b-1 fees and money from revenue sharing arrangements with mutual funds.”

Rieman reminds us that “12b-1 fees and revenue sharing arrangements are hidden fees that every investor should consider. Even funds that are labeled no-load should be approached with caution. A fund can be considered no-load even if it charges 0.25% in 12b-1 fees annually.”

“I think any fees that aren’t listed in the expense ratios are hidden fees,” says David Rae, Vice-President of Investing with Trilogy Financial Services located in the Los Angeles. Rae adds, “People go to places like Morningstar and look at the expense ratios and assume that is all the cost they are paying. When many of us know that this is just the beginning of the cost of owning a fund. I can’t tell you how often someone tells me they aren’t paying any fees just because they don’t see the specifically be taken out.” Echoing Bulankov, Rae concludes, “E*Trade is going to guide you to items they want you to buy. Same with a broker. And don’t think just because E*Trade says their name isn’t on any of the mutual funds that they sell that there are all the same to E*Trade’s bottom line.”

Dean Bahniuk of Coconut Grove, Florida, a financial advisor at Merrill Lynch and the author of The Art of Wealth, provides this blunt assessment: “E*Trade has always run controversial ads aimed at the wirehouses. Their ads are deceptive and misleading.”

Just how deceptive and misleading are these ads? Roger Wohlner, well-known blogger and financial adviser from Chicago looked precisely into this question. He tells, “Watching the E*Trade fee commercials prompted me to research their advice options. What I found were fees that were reasonable to high for services that appear to be nothing special. While I applaud E*Trade and anyone who focuses attention on high fees for financial advice and/or for investment vehicles such as mutual funds, in my opinion the E*Trade Super Bowl commercial was quite vague and a bit misleading.”

Indeed, Wohlner recently published an analysis of E*Trade fees. You can see it here: “E*Trade’s Fee Commercials – Informative or Misleading?” (The Chicago Financial Planner, February 18, 2013) The article offers fee tables for various programs E*Trade offers to investors. Wohlner says, “Investors should also ask if the funds and ETFs used in these programs are restricted to any particular E*Trade program or platform and if the participating funds and ETFs pay E*Trade a fee for inclusion.” contacted the E*Trade Corporate Communications department to answer these allegations, but the company did not respond prior to deadline.

Interested in learning more about this and other important topics confronting 401k fiduciaries? Explore Mr. Carosa’s new book 401(k) Fiduciary Solutions and discover how to solve those hidden traps that often pop up in 401k plans.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Roger @ The Chicago Financial Planner
    Roger @ The Chicago Financial Planner February 20, 08:00

    Chris, great post, the public needs to understand the need to look beyond the hype in these ads. I think this is so important I’m considering this topic for this week’s US News post as well.

  2. David Rae, CFP
    David Rae, CFP April 25, 12:10

    Fees are one thing, but misleading advertising and dishonest or hidden fees are just not good for the industry or clients.

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