AMTD TD Ameritrade Holding Corporation

By Emily Glazer and Lisa Beilfuss 

JPMorgan Chase & Co. is boosting its digital investing service with free trades for customers in a move that sent the world of online brokerages into disarray Tuesday.

The bank is trying to bring in more first-time investors, including millennials, as well as customers of the bank who invest elsewhere. JPMorgan's move could accelerate the pricing war buffeting rivals such as TD Ameritrade Holding Corp. and Charles Schwab Corp., which have been cutting fees in a fierce competition for customers. Fintech startups offering low-fee or discounted trading have accelerated that competition.

Shares of TD Ameritrade, Schwab and E*Trade Financial Corp. tumbled on the news, with TD Ameritrade falling more than 7%.

The JPMorgan service will offer any bank customer at least 100 free stock or exchange-traded-fund trades for a year, with no account minimums, said bank spokesman Darin Oduyoye. That is a sea change in pricing. The bank had charged $24.95 for online trades as recently as last year, according to CNBC, which reported the news earlier. The service, dubbed You Invest Trade, will be embedded in the bank's app and website.

Schwab charges $4.95 a trade, and TD Ameritrade and E*Trade charge $6.95, according to their websites. Bank of America Corp. launched Merrill Edge, its lower-cost online brokerage platform, in 2010. It costs $6.95 a trade, with certain trades free for clients with balances of at least $20,000.

At JPMorgan, many customers will be charged $2.95 per trade if they exceed the 100 trades in the first year. However, certain wealthier bank customers will be eligible for 100 free trades each year or unlimited free trading, Mr. Oduyoye said.

JPMorgan Chief Financial Officer Marianne Lake said in February that the bank had recognized it wasn't competitive in digital investments. It announced a $300 million investment into digital wealth management two years ago to "accelerate our ability to capture more...investments," she said.

Devin Ryan, an analyst at JMP Securities, said the move signals that the brokerage industry is willing to push pricing lower. "Ultimately we will end up at zero," he said.

The question, Mr. Ryan said, is what happens in between. Firms offer trading discounts to bring in customers who sometimes become more lucrative clients if they take advantage of other services, such as investment advice or margin loans. The race to zero is putting pressure on firms to differentiate their businesses and make more money on the clients they woo with low or no trading fees.

At Schwab, which has a more diversified business that includes wealth-management services and a banking arm, trading commissions now make up just 7% of total revenue. Schwab and TD Ameritrade, which once focused mainly on day traders looking to inexpensively manage their own money, now also cater to independent financial advisers who need a place to house client assets. By doing so, the online brokerages have reinvigorated a business that was hit by the tech-stock bust at the beginning of the century and the 2008 financial crisis.

An offer like JPMorgan's is meant to appeal to everyday investors managing their own money, said Denise Valentine, an analyst at research firm Aite Group. "It captures their attention and once you hook them, you have the opportunity to keep them."

After sitting out most of the nine-year bull run, individual investors started pouring in at the end of last year. Schwab, TD Ameritrade and other online brokerages reported surges in trading activity that carried into 2018, and they attributed much of the activity to individual investors who opened brokerage accounts for the first time.

After the JPMorgan announcement, Schwab said in a statement it "will continue to aggressively lead the way in improving how people invest and manage their wealth." A TD Ameritrade spokeswoman said the company "continually evaluates its offerings and pricing" and "will remain nimble."

Schwab, the biggest e-broker, reported 11.2 million active brokerage accounts at the end of the second quarter and said clients executed an average of 704,000 trades a day. That amounts to roughly 45 million trades and an average of about four trades per client account during the quarter.

Schwab and TD Ameritrade have seen lower revenue per trade as pricing pressure heats up. At Schwab, average revenue per revenue trade (which excludes certain transactions) fell to $7.30 in the latest quarter from $7.96 a year earlier. For TD Ameritrade, that metric dropped to $7.40 from $7.83 in last year's quarter. But lower prices have been offset by higher activity, with both firms posting solid increases in overall revenue.

JPMorgan, which has hinted at the new service in prior investor presentations, also plans to launch a type of robo-investing service embedded in its app and website called You Invest Portfolios to assist customers with investing.

Write to Emily Glazer at emily.glazer@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

August 21, 2018 18:36 ET (22:36 GMT)

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