The Latest Brokerage Price War is Good News for Newbie Investors
How quickly things can change. In just the past two weeks or so, there’s been a sea change in the brokerage business. It started when Charles Schwab announced that it would be dropping its trade commission fee to $0. Almost immediately, TD Ameritrade and E*Trade followed suit, with Fidelity also coming around to this new-normal earlier this week. So what does this mean for new investors?
There’s no doubt that this string of commission changes is good news for those who currently invest with those companies or are looking to get started trading stocks and ETFs. Despite the fact trade fees have already been on the decline for several years, they still served as a roadblock for many would-be investors. While they might not have been the only thing intimidating newbies, removing them certianly can’t hurt in attracting new customers.
Of course this latest development is partially thanks to Robinhood, which has boasted fee-free trades since its inception. While other FinTechs have come to the table as of late (such as SoFi Invest and perhaps Square Cash), it’s Robinhood that’s helped push this price war all along. Whether they saw this coming or the timing is a coincidence, the company recently made some news of its own by reintroducing plans for their Cash Management account this week. Sadly this updated (and regulator-approved) version isn’t quite as attractive as the original but it’s still nothing to sneeze at. But I digress…
If there’s any downside to this new commission-free brokerage landscape its that it also makes it easier for investors to make bad trades. That is to say that, although access to investment options is a positive thing on the whole, there are some people who shouldn’t be investing — at least not yet. Instead, before buying and trading stocks just because it’s “free,” make sure you 1) can afford to lose the money you invest and 2) do your research.
Ultimately, I’m personally excited to see how these “traditional” brokerages have followed FinTech’s lead on this one and look forward to future developments. As for whether the news of the past couple of weeks will get me to move my portfolio, I honestly think I’ll stay where I’m at for the time being. That said, if something should ever happen to Robinhood or I just tire of them, it is nice to know that there are now other options available. More choices, less money — sounds like a win to me!