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Old 11-24-2011, 12:46 PM   #21
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Originally Posted by haha View Post
What I don't understand is how these high-service discounters can stay in business. You get a very high level service in return for having a larger account. But you don't have to trade that account. You don't have to buy Fidelity funds. You don't have to buy their brokered annuities or CDs. As far as I know you can just let a portfolio of stocks and bonds sit there, and still get a very high level of service.

Do enough people buy management services, or use Fidelity Funds, or trade enough to make them profitable? I imagine Fido and Schwab get some rake off the credit card, and that many account holders use this card.



Ha
I have wondered that myself and it is one of the reason that I've never owned either companies stock. I have done enough option trading this last few years that I suspect my account is modestly profitable. But there have been years where my commission were ~$100 while I'd own some Schwab MM and perhaps a Schwab fund or ETF. I didn't see how it paid for the many hours of knowledgeable Schwab staff time I use a year, and the boat load of free service, seminars etc.

The credit card business a Schwab wasn't profitable (2% rebate) which is why they got out of the business. I doubt it is much better at Fidelity,since I doubt many Fido customers run credit card balances.
The companies do make money from loaning shares. I know that decreasing interest rate have hurts profits since they use to make money from money market funds.
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Old 11-24-2011, 01:16 PM   #22
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One way the brokers make additional funds is by arbitrage, which takes many forms. For example, if you buy 100 shares of XYZ, the broker might actually sell you its own shares (at a profit) rather than find them on the Street.

Someone please correct me if this is wrong but I believe brokers sometimes will execute your trade on paper only, and assume the risk. For example, if the broker is convinced it can buy shares cheaper tomorrow, it may post your stock purchase to your account today but might not actually acquire the shares until later.
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Old 11-24-2011, 02:14 PM   #23
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One way the brokers make additional funds is by arbitrage, which takes many forms. For example, if you buy 100 shares of XYZ, the broker might actually sell you its own shares (at a profit) rather than find them on the Street.
Also they make money by lending out securities to short sellers if you have a "margin" account (which you may have even if you never used margin).
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Old 11-24-2011, 03:09 PM   #24
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Originally Posted by clifp View Post
I have wondered that myself and it is one of the reason that I've never owned either companies stock. I have done enough option trading this last few years that I suspect my account is modestly profitable. But there have been years where my commission were ~$100 while I'd own some Schwab MM and perhaps a Schwab fund or ETF. I didn't see how it paid for the many hours of knowledgeable Schwab staff time I use a year, and the boat load of free service, seminars etc.
The credit card business a Schwab wasn't profitable (2% rebate) which is why they got out of the business. I doubt it is much better at Fidelity,since I doubt many Fido customers run credit card balances.
The companies do make money from loaning shares. I know that decreasing interest rate have hurts profits since they use to make money from money market funds.
Another possibility is that Fidelity isn't doing very well lately:
UPDATE 1-Fidelity seeks liquidity boost for funds | Reuters

INSIGHT-Fidelity's expensive debt raises eyebrows | Reuters

They're seeking additional sources of liquidity and reconsidering one of their internal lending programs.
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Old 11-24-2011, 03:18 PM   #25
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I had an account with Schwab. It was a brokerage account and also used to manage and exercise NQ Options.

One year (recently) I exercised some options -- no problem. Later I used Schwab's internal email (from the account web site) to request some info on my transactions for tax purposes. They sent me, in open email, info on another client, different company. When I called them to find out what the deal was, they said that the email system that you access on your account page just dumps to a general email queue in Schwab. Someone has to go in and read it and manually deal with any info request. Your email is not linked to your account. Apparently someone looked up the info I requested but made a mistake and sent info from the account of another client. The info went out over regular SMTP email.

I will never do business with Schwab again.
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