How do Brokers make money with DIYers ??

rkser

Full time employment: Posting here.
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I wonder how does Fidelity or any other Broker, make money with a DIYer like me owning all Vanguard ETFs
 
Eventually they hope that you'll either trade, buy their in-house funds, or hire them for advising of some kind. Another way is paying you not much on uninvested cash, but that sort of depends on the brokerage and the default MM option. They probably also make fee income of various types (NSF fees for example). They probably also make money on margin lending.
 
Although I had made it clear to our local Fidelity office Rep. that I am a DIYer, he still presented the Assets under management contract, which I politely declined.

He sure was very eager to see us with answering our questions for transferring in the assets held at Vanguard & Schwab, but now has cooled off some.
 
They might not make money off you, today, but the more people they bring under the tent, the more likely some of them will move from "free to play" to paying customers.
 
Brokers make money by getting interest on funds between trades that don't go to any sweep account. Not all brokers have auto sweep features.
 
The same question was asked on Reddit in the Fidelity forum. The official answer from Fidelity was to read their annual report. Here is the link https://www.fidelity.com/bin-public...y/2023-Fidelity-Investments-Annual-Report.pdf

I think the goal is to place us in their ‘store’ and encourage us to stay with the flashy and helpful support. I think all of us help them make some money by simply keeping cash in spaxx or their mutual funds. Others likely shop all the time using many of their services.

From a Fido perspective, it must be great having people wondering around your store with money in their wallet. And, Fido even knows how much the minimum amount of money each prospect has. You just need to know what they want while they are standing in front of the cash register ready to buy.
 
I can see in our case -
When I am unable to manage our investments which has just few Index ETFs or after I pass away, DW may need a in person Financial Advisor.
 
There is something called "market maker". Every brokerage firm has market makers who make money for the firm with the spread between buy and sell price. When you issue a buy order, what you see as the selling bid is actually from the market maker. Similarly, when you sell, what you see as a buying bid is from the market maker. The market maker makes money on the spread.
 
My money is at Schwab and I think the "advisor" makes money whenever there is new money added to any of the accounts. I also think they get paid on any money that is invested in any of their money market accounts, which I think are technically considered mutual funds so I believe they get a trailer of some sort.
 
Most people likely hold funds offered by the broker, although that's not always the case, as seen above.

I primarily use Fido funds, and even though they are very low expense index funds, I am paying Fidelity north of $500 per year. That's probably more than the cost of the services I ask of them.

Throw in free TurboTax and free trades, and I might come out ahead. :angel:
 
Schwab reps assigned to an account earn a small compensation based on the value of the account - that takes care of the staff assigned to an account and includes up to the branch VP. All of this is clearly stated on their website.

Charles Schwab knew he could be successful as a brokerage by lowering fees and providing service. How they manage the money (overnight funds with the FED as an example), and the services they offer to other brokers and employers also add income. So do the fees some funds give them for offering their products to customers. Sooo, it's long and complex. They are well-positioned to cover their costs and continue acquiring other firms and improving technology.

Same for Fidelity.
 
After reading many wrong answers above (although RetiredHappy had 80% of the answer), the real answer is this: They get a kickback from directing order flow. All brokerages route orders through market making firms such as Citidel. Citidel (and other market making firms) makes money off the difference between the bid (the price at which customers sell) and the ask (the price at which customers buy). For directing order flow to specific market makers, the market maker kicks back a portion of the difference between the bid and ask to the brokerage firm. There is nothing illegal or even nefarious about it. As a retail customer you are still getting the price you were going to get regardless if you put in a limit or market order. These kickbacks are often just pennies per order but given the millions of orders that occur daily at any large brokerage firm, those pennies add up to real money.

Yes, brokerage firms also make money off of selling services, but that isn't why you get $0 commissions on stock and ETF orders. Payment for order flow is why.
 
They also get interest on margin loans, fees for more exotic trades (e.g. puts), have branched into credit cards, home loans etc. They charge active traders additional fees per trade. Many offer services to companies like taking them public and issuing new shares.
 
Payment for Order Flow.

Oops. I forgot about NJHowie. Thanks for the link.

By the way, if you think PFOF is screwing you, then only put in limit orders. That way you are guaranteed your price regardless of PFOF if the order executes.
 
Oops. I forgot about NJHowie. Thanks for the link.

By the way, if you think PFOF is screwing you, then only put in limit orders. That way you are guaranteed your price regardless of PFOF if the order executes.
I laugh at the folks who get all bent out of shape over the whole PFOF thing. For some reason they believe they are getting the shaft, and they couldn't be more wrong. As you say, nothing changes with a limit order - you're guaranteed to pay no more than your limit price on purchases, or sell at no less than your limit price. If someone is making money buying/selling at a better price than your limit, so what? Why should the investor care? On the flip side, when you place a market order, you know that you're taking a risk and that the price can move and you get something worse than the best bid/ask when you click the submit button. However, in general, when placing a market order, you're going to get some price between the best bid and best ask - so again, the investor is making out better than receiving the best bid or ask shown at the time.
 
It's all based on pushing volume and making money on the "skim". This is the difference between the buy (bid) price and the sell (ask) price of an asset. When you buy, you pay a slightly higher price, and when you sell, you get a slightly lower price. The broker pockets the difference.

Additionally, some brokers get paid by third parties (like large financial firms or market makers) to route your buy and sell orders through them. This is called payment for order flow. The third party benefits by handling lots of transactions, and the broker gets a small fee for each order they send.

They also make money on cash balances. If you have uninvested cash in your brokerage account, the broker can use this money to earn interest. They might lend it out or invest it themselves, and they keep the majority of the interest earned. Some brokers offer you a tiny amount of interest on your cash balance, but it's usually much lower than what they earn.

And they can also make money on commissions. While most trades are commission free today, there are still investments that do have a fee.

Also, they can make money on margin interest. If you borrow money from the brokerage to invest (called trading on margin), you pay interest on that loan. This interest can be quite high and is a significant source of income for the brokerage.
 
I wonder how does Fidelity or any other Broker, make money with a DIYer like me owning all Vanguard ETFs
Why use them if you are DIY? It's like letting the vacuum salesman in your house.
 
If you're a DIY then you're hardly costing them anything. You're just a book entry in their database.
 
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