Race To The Bottom For Brokerage Fees

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What's going on?

When you trade stocks, you usually have to a pay a commission to a broker. On Tuesday, Fidelity, the financial services corporation, announced that its slashing its commission for online trading, signalling that the pressure is on for other investment providers to also lower your fees!

What does this mean?

Fidelitys announcement that it was cutting the commission on stock trades from $7.95 to $4.95 per trade represents a huge reduction (almost 40%). Other fees are also coming down across the investment industry as a whole, for example on funds that simply seek to track the market (tracker funds). Its a race to the bottom for investment fees (globally)!

Why should I care?

For markets: Lower fees mean less profit, sending stock prices of brokers down.

The stock prices of Fidelitys major competitors, like Schwab and TD Ameritrade, fell 5-10% on the news, as lower fees mean less revenue. Its not necessarily game over though: these companies can make money by doing things earning interest on the cash that their customers hold with them but lower fees definitely do hurt!


For you personally: Thanks for the lower fees, but guidance/advice is important too.

Fees going down is a good thing, as they can really add up and hurt the performance of investments over the long-term. However, low-cost online brokerages and tracker funds typically offer investors little in the way of guidance, e.g. what proportion of my portfolio should I invest in stocks? In the past, such advice was often included by a brokerage firm as part of their total fee. So, although lower fees are probably a good thing, investors should be aware that they may have to be more proactive about seeking out advice (which may incur additional fees).

Originally posted as part of the Finimize daily email.

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