BOSTON (TheStreet) -- The war for customers of exchange traded funds, whose assets jumped 54% totaling more than $1 trillion last year, got kicked up a notch. Fidelity, the third-largest mutual-fund company, has agreed to market BlackRock's (BLK) iShares ETFs, which account for half the market.The deal enables closely held Fidelity's customers to trade 25 of the most broad-based and popular ETFs for free. It's a response to Charles Schwab's ( SCHW) announcement two months ago that its clients could trade eight ETFs, created and managed by Schwab, without charge. But the Fidelity move allows for wider diversification among popular ETFs, including four international and five fixed-income funds. Besides BlackRock, the biggest ETF providers are State Street ( STT), Vanguard and PowerShares. At the same time, Fidelity cut commissions at its online brokerage division. There will now be a flat rate of $7.95 per transaction instead of the three tiers that had resulted in fees as high as $19.95 for customers who trade infrequently or have smaller accounts. Fidelity doesn't disclose its account structure, but points out that some retail investors will find their trading costs cut by 60%. This one-two punch is designed to bring Fidelity, a mutual-fund giant, new attention in the most popular areas of trading. While $7.95 doesn't match discount brokers' fees, it combines the resources and research provided by Fidelity with a competitive pricing structure. The "free" ETFs will be highlighted on its brokerage Web site and combined with tools for structuring a portfolio of ETFs, along with an educational component. Fidelity apparently decided it was easier to partner with BlackRock and offer its existing iShares ETFs without commissions than to create its own portfolio. The 25 funds chosen for the free offer have more than $200 billion in assets and are among the most popular on Fidelity's brokerage platform. Investors can trade more than 800 ETFs and 10,000 mutual funds.
Most ETFs carry a fixed basket of securities and are typically created to match an index, or particular category of stocks, allowing investors to access a portfolio of equities focused on a broad or narrow cross-section of stocks. Some investors may be asking how low commissions can go. Free is about as low as it gets. Maybe big financial-services companies will ultimately do away with commissions and charge only a small annual fee, recognizing the value of assets held in their accounts. Or maybe this price war will result in a draw -- much as airlines realize they can only cut fares so much without becoming unprofitable. For retail traders, this promises to be an interesting opportunity to either day trade or build a balanced portfolio at a low cost.