Last week, almost every major online brokerage company – including Charles Schwab (SCHW), TD Ameritrade (AMTD) and E-Trade (ETFC) – stopped charging commissions, making it free to trade.
“For every broker out there, trying to sell services with explicit fees is going to be almost impossible. The next frontier will be centered around providing more financial well-being solutions — expanding beyond just brokerage products,” said Bill Capuzzi, CEO of Apex Clearing, a custodian of securities on behalf of brokerage firms.
Alice Milligan, chief customer officer for E-Trade, wrote in an e-mail to CNN Busines that
“price really hasn’t been a competitive differentiator for some time, and we have always believed it’s about the customer experience more than anything else,”
Steve Quirk, TD Ameritade executive vice president of trading and education, told CNN Business that “In a world of equal footing, it’s all about what you are offering,”
According to TD Ameritrade, transaction revenue from its 11 million clients represents 15% of its net revenue. Schwab and E-Trade stocks fell 15% once Schwab made the announcement on October 1. TD Ameritrade shares decreased more than 25%.
Webull, a zero commission online trading platform, profits from lending products, including margin loans to customers who want to borrow money to purchase more stocks, as well as issuing stock loans to short sellers with the idea to buy the stock back at a lower price and fees from routing orders to exchanges.
Fidelity has yet to cut commissions to zero. “It’s interesting that Schwab, TD Ameritrade and E-Trade have deliberately chosen not to help the greatest number of their investors by automatically providing the highest interest rate on their cash sweep like Fidelity does,” the company said in a statement to CNN Business.
Robinhood, was one of the first online brokers with zero commissions upon its 2013 launch. And now its moving from zero fee brokerage to banking.
It failed 10 months ago to create a checking and savings account offering. It had announced cash management account with a 2.05% interest rate, an APY more than twenty times higher than the national average for savings accounts as projected by Bankrate.com.
Robinhood said in December 2018 that it would offer zero-fee checking and savings accounts with a 3% interest rate along with its brokerage accounts.
Robinhood claimed to have partners like Goldman Sachs, HSBC Bank, Wells Fargo Bank, Citibank, Bank of Baroda and U.S. Bank. and also said the 2.05% interest rate could still “fluctuate with market conditions” similar to the Fed funds rate, said Josh Elman, Robinhood’s VP of product.