Dear Mr. Market:
To say that the stock market offers a changing landscape is an understatement. It’s up, it’s down, it’s sideways but regardless there is always something new and now…there is something free; stock trading!
Charles Schwab has truly been a pioneer as being a disruptor and innovator in the financial services world. Once mainly known as a discount brokerage firm for the do-it-yourself and self-directed investor, they created a deep menu of service offerings catering to high net-worth investors but always tried to stick to their roots to still make investing accessible to all. Just last month they shook up the industry once more with a huge announcement…
Schwab has knocked down a final barrier that stood in the way of making investing accessible to all…They eliminated online stock, ETF, and base options commissions for trades placed on a U.S. or Canadian exchange. Literally within hours of this announcement TD Ameritrade followed suit and now offers zero trading commissions on the same instruments. Sure enough Fidelity and E-Trade joined their rivals and now it’s essentially free to trade!
What does this change mean to you as an investor and a financial services consumer?
Simply put… It’s GREAT news! In an increasingly competitive and crowded space, where price is no longer a selling point, it begs the question why anyone would still pay a fee to trade a stock? For those investors who use full-service brokerage firms the quick answer would be for the “advice” they’re getting.
That “full-service” misnomer is now more challenged than ever before since just about every firm we mention above has a full menu of offerings available to you. There is basically no such thing as a “discount brokerage” firm anymore. Registered Investment Advisors that are truly independent (like My Portfolio Guide, LLC) have access to just about anything a high net-worth investor could possibly need. If you still invest at a firm like Merrill Lynch, UBS, or Morgan Stanley Smith Barney, to name a few…you’re simply tied to an increasingly archaic way of receiving investment advice. (In all reality these outfits should be called “full-commission” firms!)
The race to zero is now over so folks can focus on actual advisory, technology, and ancillary offerings. One final note to keep in mind, however, is that price is not always what you see. Believe it or not, the real money being made by many of these custodians is with those of you who are parked in cash. There are internal expenses within money markets as they have expense ratios you cannot easily see. Also know that your cash balance is used by these firms to lend out to margin traders and selling to ticket order information to hyper traders before trades are even executed.
PS- As we write this article change is once again upon us. Earlier today Charles Schwab announced they are in possible talks to buy TD Ameritrade! We’ll stop typing for today but this will be interesting news and we’ll monitor how it all plays out.