Race to the Bottom on Brokerage Commissions! - Bloomberg
The trend has now gotten to its full impact as the price war started again and has intensified over the last couple of weeks as now all the major online brokers have started offering free online trades for their clients! That is a large amount considering that most were averaging from $5-$10 USD per trade. A couple of trades a month can absolutely help the cost average of the investments in any person’s portfolio over time. This could help investors improve their returns as competition to achieve returns continues to be challenging with many hedge funds and money managers competing in the challenging market environment.
What is interesting is how this will continue to evolve the players in the markets as a number of these brokerages depend highly on commissions as a portion of their revenues. Some, like Interactive Brokers and TD Ameritrade, record over 30% of their revenues coming from commissions! It will be interesting to see how investors decide to go from here as it will now come down to added services and tools offered to differentiate their capabilities to their clients. It will also probably lead to more consolidation as shareholders look to unlock value in the trading platforms by adding volume over time.
"The fee war has rattled the broader asset management industry as well. Since the middle of last year, firms including Fidelity Investments, Vanguard Group and JPMorgan Chase & Co. have eliminated fees and commissions on a range of offerings.”
Given the trends in more online trading against the traditional brick and mortar investing via brokers, stakes are very high as there seems to be further commoditization of the services happening in the industry. Even larger players are carefully watching the implications for their money management business as wealth management could be impacted over time as it continues to be a fee based business as a percentage of assets is a normal way to contract their revenue streams. At least this will be an example of how competition could be advantageous for customers over time!
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