Special Release - Race to the Bottom

March 14, 2017

Earlier this year, Charles Schwab announced they were lowering commissions on stock and exchange traded fund (ETF) trades from $8.95 to $6.951 making them the cheapest brokerage firm for purchasing and selling stocks and ETFs. Not to be outdone, Fidelity shortly thereafter announced they too were lowering their fees, from $7.95 to $4.952. Fidelity’s time at the top (or bottom) didn’t last more than a few hours, as Schwab lowered their trading commission to match Fidelity later the same day. The new commission rates for both Schwab and Fidelity are now in effect and will likely benefit the vast majority of our clients. For those clients not currently eligible, we will be contacting you in the near future to discuss how you can benefit from reduced trading commissions as well.

This is a truly noteworthy set of events in the brokerage industry. Twenty years ago when Schwab was pioneering the now ubiquitous online brokerage industry, they were charging a flat rate of $29.953 per trade that was heavily discounted from the traditional wire houses like Merrill Lynch and Morgan Stanley. The over 80% reduction in trading commissions twenty years later has literally put billions of dollars back into investors’ pockets. We applaud the recognition of both Schwab and Fidelity that to achieve your financial goals, every dollar counts. For many years West Financial has partnered with both Schwab and Fidelity for custody of your assets and we are thrilled to see our clients save money.

Are we going to see zero cost commissions at some point in the future? At this rate it’s certainly possible, but you might be surprised to learn that some investments on Schwab and Fidelity’s platform already are free of transaction charges. Schwab offers proprietary index funds that provide inexpensive market exposure for no trading costs, and Fidelity allows for the purchase of some of the iShares ETFs at zero commission.

Twenty years ago, Schwab and their discount brokerage brethren democratized access to investments by coupling low commissions with the advent of the internet. They were also early supporters of the nascent independent registered investment advisor (RIA) business model. West Financial has always been a fiduciary, fee-only, and cost conscience RIA since its founding over 30 years ago. During that time, Schwab and Fidelity have supported our mission of providing conflict-free advice while letting our clients keep more of their hard earned money.


Disclosures:

This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. West Financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.

 

1 Schwab.com

2 Fidelity.com

3 Schonfeld, Eric. “Schwab Puts It All Online: Schwab bet the farm on low-cost Web trading and in the process invented a new kind of brokerage.” Fortune, December 1998

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