Fidelity, Schwab cut commission costs as online stock trading wars heat up
A full-fledged price war has broken out in the world of online stock investing.
Hours after Boston-based Fidelity Investments said it would slash its standard commission for online stock trades and ETFs by nearly 40% to $4.95, its San Francisco-based rival, Charles Schwab, matched the lower price.
As the bull market pushes stocks higher, placing a trade online is getting cheaper as competitors duke it out on price in an effort to retain market share and recruit new clients and sources of assets in the digital age. The price war is benefiting individual investors and active traders.
Just after midnight, Fidelity announced it would charge online retail investors $4.95, down from $7.95, to place an online trade involving U.S. stocks and exchange traded funds. (ETFs are diversified funds that trade like stocks.) A little more than nine hours later, at 9:26 a.m. ET, Schwab announced that it, too, would reduce its standard online stock and ETF trade commissions to $4.95. (Schwab’s price cut on Tuesday follows an initial commission price reduction to $6.95 on Feb. 3.)
The per-trade price cuts by the well-known industry players put their costs below those of TD Ameritrade and E-Trade, which charge $9.99. Fidelity and Schwab are now competitive with lowcost providers such as TradeKing, which also charges $4.95 per trade. Small, upstart brokerage Robinhood is the lowest of the low when it comes to stock commissions as it offers commission-free investing for all U.S. stocks and ETFs, according to its head of communications, Jack Randall.
The latest batch of commission cuts come amid an industry-wide push to stay competitive by lowering transaction costs and fees, said Arielle O’Shea, investing and retirement specialist at Nerd Wallet.com, a site that tracks and ranks online brokers.
“Online brokers are feeling the competition from robo advisers,” O’Shea said, referring to low-cost digital financial advisers. “There are more places for consumers to invest their money at a lower cost. It’s good for investors.”
Before the news that Schwab was matching Fidelity’s lower commissions, O’Shea had predicted the price wars would continue. “I’d be surprised if we don’t see another fee reduction soon,” she said Monday, adding, “I don’t know how low (online trading commissions) will go.”
The moves Tuesday to lower trading costs came after a decision Friday by low-cost mutual fund provider Vanguard to cut the expense ratios of an additional 68 funds and ETFs. Vanguard’s cut followed a similar move in December involving nearly three dozen funds.
Fidelity was motivated by its commitment to be the “best val- ue provider” in the online trading space, said Ram Subramaniam, president of Fidelity’s retail brokerage business. “We’ve planted the flag more strongly than ever before,” he told USA TODAY. Calling the cut to $4.95 a “big price move,” Subramaniam said active traders at Fidelity that place 500 trades a year could save a tidy $1,500.
“Retail investors are the winners,” he said. “They will keep more money in their pockets.”
Fidelity, home to 17.9 million online brokerage accounts totaling $1.7 trillion in assets, said it was not reacting to Schwab’s price cut this month. It said the decision was made, in part, to retain existing clients and bring in new ones. Increasingly, Subramaniam said, retail investors look at value and price as key factors when choosing an online broker.
Schwab, however, acknowledged Tuesday that its latest fee cut was in response to Fidelity’s move. “We don’t want commission costs to be a barrier for investors deciding which firm to choose,” said Michael Cianfrocca, a spokesman at Schwab.