Fidelity, Sch­wab cut com­mis­sion costs as on­line stock trad­ing wars heat up

USA TODAY US Edition - - MONEY - Adam Shell @adamshell USA TO­DAY

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 Wal­, 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.


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