Fidelity, Charles Schwab Slash Online Trading Commissions
February 28 2017 - 11:14AM
Dow Jones News
By Sarah Krouse
The cost to trade stocks and exchange-traded funds online is
plummeting as two online brokerage giants slashed commissions
Tuesday.
Hours after Fidelity Investments released plans to lower online
trade commissions on U.S. stocks and exchange-traded funds to $4.95
from $7.95, Charles Schwab Corp. volleyed back, matching that
price. Schwab already cut its online trade commissions for U.S.
stocks and ETFs earlier this month to $6.95 from $8.95. The firm
also matched Fidelity's option pricing at 65 cents per
contract.
Shares in Schwab dropped 3% in early trading Tuesday, while TD
Ameritrade Holding Corp. and E*Trade Financial Corp. stock was down
6.5% and 5.4%, respectively.
TD Ameritrade and E*Trade, two other brokerages that stoked a
prior price war as online brokerages boomed in the late 1990s,
charge $9.99 per online stock trade.
Dueling price cuts are a way for brokerages to capture growing
sums of money flowing into ETFs, lower-cost products that track the
performance of a basket of securities but trade on exchanges like
stocks. Assets in U.S. ETFs surged to $2.5 trillion at the end of
last year from $938 billion five years earlier, according to
consulting firm ETFGI LLP. Schwab, Fidelity and other large
brokerage firms also offer commission-free trading for a number of
ETFs.
Asset-management firms that provide the funds brokerages sell
have been equally aggressive about pulling down fees. In some
cases, that means the cost of investing is tumbling toward zero. By
the end of 2015, the most recent year for which data are available,
348 mutual funds and ETFs tracked by Morningstar Inc. charged
investors 0.1% or less, up from 125 such funds five years
earlier.
Fidelity has a large money- management business as well as a
brokerage business.
There have been earlier attempts to bring down trading
commissions across the industry. In 2010, Schwab cut the cost of
trading stocks and some ETFs to $8.95 from $12.95 for many
customers, and E*Trade scrapped a $12.99 per stock commission tier
in favor of a baseline $9.99. Fidelity in 2010 got rid of tiered
pricing for U.S. equity trades, charging all customers $7.95
instead of $8, $10.95 and $19.95.
When Schwab reduced its standard online commissions again
earlier this month, some industry analysts speculated that it could
trigger another round of cuts.
Fidelity's online price cuts weren't in response to any one
competitor, said Ram Subramaniam, president of Fidelity's retail
brokerage business, but was a "big and dramatic" change and a
"long-term move for us."
The firm, with 17.9 million customer accounts, has tried in
recent years to woo millennials through improved mobile
applications and debt-management services, and the cuts are partly
a way to attract more younger investors. Fidelity has also tried to
more aggressively attract fresh cash from investors through fund
fee cuts and other incentives.
The moves will mean less revenue for Fidelity, the retail
brokerage president said. That amount, he added, is "dozens of
millions of dollars."
Schwab Chief Executive Officer Walt Bettinger said that "we
never want commission costs to be a barrier for investors" in
choosing where to put their money.
Write to Sarah Krouse at sarah.krouse@wsj.com
(END) Dow Jones Newswires
February 28, 2017 10:59 ET (15:59 GMT)
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