Schwab Announces Zero Commission Stock Trades--E*Trade and TD Ameritrade Tanking

[gwraigty]

Ally Invest has joined the party:

Ally Invest Cuts Trading Commissions

The last paragraph notes that Fidelity and Vanguard are still holding out.

[NW-Bound]

Quote:

Originally Posted by Car-Guy Now I'm understanding why their customer support has fallen off recently. I have a financial advisor assigned to my account (no fee) but he has become unresponsive. I probably only trade emails or talk to him 2 or 3 times a year but he never even responded to my last "2" emails. I asked for a new FA and got one assigned about a month ago and they apologized for their poor service. Got 500 free trades too. (Ha, that's now worthless)

I never felt the need to talk to anyone at any brokerage, so I never knew about the quality of this service.

I am sure they will soon have a robot advisor running on AI to provide any hand-holding.

It will only cost a bit of electricity (provided free by roof-top solar panels anyway), and no salary.

[OldShooter]

Quote:

Originally Posted by gwraigty ... The last paragraph notes that Fidelity and Vanguard are still holding out.

Actually that kind of makes sense for Vanguard. Since they are owned by their investors, if they start giving some investors below-cost service, it is other investors (like me) who end up paying. It makes sense to drop all fees as close as possible to the cost of providing each service but after that, it is simply robbing Peter to pay Paul. There are bigger considerations, like maintaining share to achieve economies of scale, but at the microeconomic level IMO it is desirable that people pay for the services they get.

[kcowan]

Schwab gets cheap money from cash balances (which should grow). What will Ameritrade and eTrade do to compensate?

[gwraigty]

We have about half of our non-employer assets at Fidelity and half at Schwab. I've been about equally happy with both, in offerings and service. I did give Fidelity a slight edge specifically because of their 2% Visa vs. the 1.5% Schwab Amex, and the higher rates available on cash balances, as mentioned in the linked article:

Online stock trading is free now. What that means for E-Trade and Charles Schwab

However, I do find this Fidelity comment (bolded by me) a bit lame:

Quote:

The one major online broker that has yet to cut commissions to zero is mutual fund giant Fidelity. The company touts how it offers a higher rate of return to customers by automatically putting their excess cash into higher-yielding money market accounts — a service known as a cash sweep. "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.

I keep very little uninvested cash at Fidelity, but I do appreciate the higher rates anyway. I already use their commission-free ETFs, but would appreciate more to choose from there. I've read comments from others at other sites that indicate people are already transferring their accounts from Fidelity to either Schwab or TD Ameritrade mostly. I hope Fidelity takes this a little more seriously than they've been publicly letting on.

[catotx]

Quote:

"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.

Fidelity certainly didn't provide the highest interest rate on their cash sweep. The sweep MMFs available from Fidelity have the highest expense ratios among their MMFs (in the range of 0.42%).

If they claim they are providing the highest interest rate, then they should make the MMFs with ER 0.3% or lower available for sweep.

[gwraigty]

Quote:

Originally Posted by catotx Fidelity certainly didn't provide the highest interest rate on their cash sweep. The sweep MMFs available from Fidelity have the highest expense ratios among their MMFs (in the range of 0.42%). If they claim they are providing the highest interest rate, then they should make the MMFs with ER 0.3% or lower available for sweep.

Why do you say that? Fidelity allows a MMF as a cash sweep vehicle, unlike Schwab and, I suppose, E-Trade. Fidelity also recently increased the interest on their FDIC cash sweep option. This has nothing to do with the ERs.

My last Schwab statement showed that the cash sweep had a rate of .177%. My Fidelity MMFs that I use for the cash sweep had yields of over 1.6%. The FDIC rate was .94%.

[catotx]

Quote:

Originally Posted by gwraigty Why do you say that? Fidelity allows a MMF as a cash sweep vehicle, unlike Schwab and, I suppose, E-Trade. Fidelity also recently increased the interest on their FDIC cash sweep option. This has nothing to do with the ERs. My last Schwab statement showed that the cash sweep had a rate of .177%. My Fidelity MMFs that I use for the cash sweep had yields of over 1.6%. The FDIC rate was .94%.

My point was that Fidelity's statement wasn't entirely accurate ("highest interest rate on their cash sweep"). Fidelity has MMFs with higher interest rates (e.g. FZDXX) but they are NOT available as sweep. The reason these have higher interest rates is mainly because of their lower ERs.

But it's true that the other brokers don't easily allow MMF as a sweep vehicle. Nevertheless, I have heard that if you have substantial assets with TDA, you can get a MMF as your sweep vehicle. It could be the same at Etrade -- but I don't know.

[youbet]

You can work around Schwab's low sweep rates by manually buying and selling their MM fund. When they first lowered their sweep rates, I called multiple times and bitched to no avail. So, despite it being a bit of a pita, I simply do two transactions for every trade. If I buy a stock or fund, I sell the MM at the same time. If I sell a stock or fund, I buy the MM when the order clears.

If I was an active trader, I guess this could be a significant inconvenience. But I only do 20 - 30 trades a year, so not too big a deal.

[gwraigty]

Quote:

Originally Posted by catotx My point was that Fidelity's statement wasn't entirely accurate ("highest interest rate on their cash sweep"). Fidelity has MMFs with higher interest rates (e.g. FZDXX) but they are NOT available as sweep. The reason these have higher interest rates is mainly because of their lower ERs. But it's true that the other brokers don't easily allow MMF as a sweep vehicle. Nevertheless, I have heard that if you have substantial assets with TDA, you can get a MMF as your sweep vehicle. It could be the same at Etrade -- but I don't know.

Out of what Fidelity allows as compared to what other firms normally allow, it's a valid claim. Current rates for our cash sweeps are:

Fidelity joint brokerage - FZFXX 1.55%
Fidelity Roth IRAs - SPAXX 1.59%
Fidelity CMA and HSA (mine) opened earlier this year - FDIC .94%
Fidelity HSA (DH's) opened in August - FDRXX - 1.65%

(FDIC was the only option given for my HSA at the time. Later this month, Fidelity is supposed to be opening up MMFs as an option for previously opened HSAs. DH was able to choose one right at the start. I'll be changing mine to a MMF ASAP.)

Charles Schwab joint brokerage - .12%

TD Ameritrade SDBAs - FDIC .10%

E-Trade rates range from .01% to .35%, depending on balance

[catotx]

Quote:

Originally Posted by gwraigty Out of what Fidelity allows as compared to what other firms normally allow, it's a valid claim. Current rates for our cash sweeps are: Fidelity joint brokerage - FZFXX 1.55% Fidelity Roth IRAs - SPAXX 1.59% Fidelity CMA and HSA (mine) opened earlier this year - FDIC .94% Fidelity HSA (DH's) opened in August - FDRXX - 1.65% (FDIC was the only option given for my HSA at the time. Later this month, Fidelity is supposed to be opening up MMFs as an option for previously opened HSAs. DH was able to choose one right at the start. I'll be changing mine to a MMF ASAP.) Charles Schwab joint brokerage - .12% TD Ameritrade SDBAs - FDIC .10% E-Trade rates range from .01% to .35%, depending on balance

Compared against the brokerages mentioned, yes Fidelity's sweep is higher.

Compared among all the MMFs offered by Fidelity, no, the sweep allowed is not the highest.

And Fidelity has also conveniently not mentioned Vanguard, which uses a sweep MMF with a yield that is higher than what Fidelity is offering.

Again, Fidelity's claim was "automatically providing the highest interest rate on their cash sweep".

[gwraigty]

Quote:

Originally Posted by catotx Compared against the brokerages mentioned, yes Fidelity's sweep is higher. Compared among all the MMFs offered by Fidelity, no, the sweep allowed is not the highest. And Fidelity has also conveniently not mentioned Vanguard, which uses a sweep MMF with a yield that is higher than what Fidelity is offering. Again, Fidelity's claim was "automatically providing the highest interest rate on their cash sweep".

Yes, I forgot to list the rate for the half of DH's 401k funds remaining with Vanguard after the VBO switch out: VMFXX 1.91%

The above points are true and show that the quote in the article was worded poorly. Again, the decision to not match the no-commission policy of their major competitors, under the rationale that the higher cash sweep rates make up for that, is a bit thin to me. Whether it will cost them a significant amount of business has yet to be seen.

[zippy2020]

Here's the explanation:
Your Stock Trades Go Free but Your Cash Is in Chains
Schwab made a big splash this past week by eliminating commissions. It’s still making money off you elsewhere.
WS Journal by Jason Zweig, Oct. 4, 2019

....You no longer will pay a few bucks in commissions to buy or sell a security at these firms. But Schwab and other brokerage firms are in business to make money, and one way they often do that is by milking clients’ cash. When you trade for free, you still pay—at a different tollbooth.

....Schwab can offer such cheap options partly because of how it handles investors’ cash. The firm automatically sweeps idle cash not into money-market mutual funds or other assets that could yield about 2% at today’s rates, but into its own bank, which pays peanuts.

....This week, clients were earning between 0.12% and 0.55% on those balances.

...When clients invest in Schwab Intelligent Portfolios, its roboadvisory service that offers preselected baskets of ETFs, between 6% and 30% of the money goes into [required] cash. ....With $41 billion in assets, those portfolios hold about $4 billion in cash. Conservatively assuming Schwab nets about 1.5% by lending out that money through its bank, the firm is making roughly $60 million a year on it. The clients, meanwhile, are earning less than $25 million.

Schwab discloses all this. The rate it pays on clients’ cash “may be higher or lower than...on comparable deposit accounts at other banks,” warns a disclosure from Schwab Intelligent Portfolios. “Schwab does not intend to negotiate for rates that seek to compete with” other cash options, adds the disclosure.

Furthermore, the document states, if you need to withdraw money from your Schwab Intelligent Portfolios account, the firm may sell some of your ETFs—potentially triggering a taxable capital gain—to restore your cash balance to its required level.

.... according to David Goldstone of Backend Benchmarking, a research firm in Martinsville, N.J., that tracks automated online investing services, no other roboadvisor requires clients to hold even as much as 10% in low-yielding cash.

+++++

So even if you are not using the roboadvisor services; others are and that's who the brokerage is making money from. A LOT of money.

[Steeler75]

Spoke with my account VP at Fidelity this week to get some free trades and he allocated a few hundred for me. During the conversation he intimated that this should hold me over until Fidelity eliminates commissions on trades.

Seems like it’s now only a matter of time until it’s implemented.

[jetpack]

Ally site doesn't seem to be updated yet on the news. https://www.ally.com/invest/self-directed-trading/ or, did I read that wrong?

I have accounts at fido and vanguard.. hoping one goes zero soon!

[gwraigty]

Quote:

Originally Posted by Steeler75 Spoke with my account VP at Fidelity this week to get some free trades and he allocated a few hundred for me. During the conversation he intimated that this should hold me over until Fidelity eliminates commissions on trades. Seems like it’s now only a matter of time until it’s implemented.

That would be nice.

Quote:

Originally Posted by jetpack Ally site doesn't seem to be updated yet on the news. https://www.ally.com/invest/self-directed-trading/ or, did I read that wrong? I have accounts at fido and vanguard.. hoping one goes zero soon!

When I clicked through your link, it said $0. Maybe it was updated after you looked.

[rathail]

E*Trade has a "Bank" savings, not a sweeps, at 1.75% and also now has free trades.
The stock price swing is a silly day trading knee-jerk reaction.
Schwab somehow just went first and got all the press.
I'm an investor not a day trader. Although it does make for a buying opportunity.

[meierlde]

Quote:

Originally Posted by gwraigty Ally Invest has joined the party: Ally Invest Cuts Trading Commissions The last paragraph notes that Fidelity and Vanguard are still holding out.

At vanguard if you have a Flagship account its 25 free trades a year. and others are $2. If this is enough depends on how much you trade. unlimited free trading is good only if you trade a lot.

[gwraigty]

Quote:

Originally Posted by rathail I'm an investor not a day trader. Although it does make for a buying opportunity.

As am I. Some press put a spin on this as though it's only good news for day traders/short term traders. It's also good news for people who regularly have new money to invest in ETFs.

[foxfirev5]

Fidelity has joined the club. The bad news is that I only have $9.00 cash available to trade.