TD Ameritrade Jumps Into Price War With Fidelity and Schwab

TD Ameritrade Jumps Into Price War With Fidelity and Schwab

A “pricing war” erupted this week between the major discount brokerage (and RIA custodian) platforms. First, on Monday, Fidelity lowered its online trading commissions on stocks and ETFs from $7.95/trade to $4.95/trade (and also reduces its options fee from $0.75/contract to $0.65/contract). Then on Tuesday, Schwab responded by matching the pricing, cutting its own trading fees from $6.95/trade to $4.95/trade as well (and also matching the Fidelity fee cut on options contracts). Margin rates were also cut at both firms. And then on Wednesday, TD Ameritrade responded as well, cutting its transactions fees from $9.99/trade down to $6.95/trade (though it is maintaining a $0.75/contract option trading fee); while notably, TD Ameritrade kept its pricing higher than competitors, CEO Tim Hockey did note to the media that there may be lower pricing in the future once the pending acquisition of Scottrade has closed, and the company did separately announce last week that it is cutting the trading fees on DFA funds down to $9.99/trade(while competitors Schwab and Fidelity still charge $25 and $30 – $50, respectively). Notably, while the price cuts may seem modest on a relative basis, at just a few dollars per trade, the relative impact is substantial – the Schwab charge amounts to a 29% price cut, the Fidelity change is a 38% price cut, and TD Ameritrade’s change is a 30% price cut as well; in fact, the anticipated impact is so severe, TD Ameritrade’s stock crashed almost 10% on Tuesday as the Fidelity and Schwab price cuts were announced, andFidelity and Schwab are each expected to lose out on a whopping $120M of 2017 profits as a result of the cut. In fact, at some point the question arises as to whether or how the major custodians and discount brokerage firms will generate revenue at all, as the race to zero continues; ultimately, it’s likely to come down to the companies’ ability to offer other ancillary (revenue-generating) services instead… which helps to explain the growing push from the companies into everything from proprietary ETFs to “robo” services (as fee-based wrap accounts provide stronger and more steady revenue than increasingly commoditized transaction-based trading fees).


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