(Adds TD Ameritrade statement)
By Trevor Hunnicutt and Tim McLaughlin
NEW YORK/BOSTON Feb 28 Fidelity Investments Inc
and Charles Schwab Corp made moves in quick succession
on Tuesday to slash trade commissions, accelerating the race to
zero and foreshadowing a more important battle to win clients
for potentially more lucrative services.
Fidelity cut its commissions to trade stocks and
exchange-traded funds to $4.95 from $7.95 a trade, a 38 percent
reduction for its retail brokerage clients.
Rival Schwab swiftly followed by slicing its own fees on
standard online trades to $4.95, from $6.95. Both companies also
reduced pricing on options.
TD Ameritrade also said late Tuesday it would
reduce its online equity and ETF trade commissions to $6.95,
The deep cuts intensified an already fierce competition to
lower fees in the investment industry, and the shares of Schwab
and several other brokerages fell as markets weighed the
potential for profits to be strained by discounts.
But the announcements also indicated the ambitions of
brokers to win over clients to digital investment advice and
other fee-based offerings. Mergers and acquisitions could be the
next frontier for that battle.
"There's this race to zero," said Noah Hamman, chief
executive of AdvisorShares, a provider of ETFs, who earlier in
his career worked in Fidelity's trading business. "To be in that
business you've got to have other services."
The industry's top players are "seemingly locked in a price
war," with the goal of attracting clients to other services,
Citigroup analyst William Katz said in a note.
That pricing pressure raises concerns about the companies'
earnings power, he said, as M&A comes into focus as a potential
strategy to add clients.
Shares of TD Ameritrade fell by nearly 10.5 percent on
Tuesday, its largest one-day percentage drop since the 2008
E*Trade Financial Corp's stock slid by more than 7
percent and Schwab was down by more than 3 percent, their worst
performance since Schwab last lowered its fees on Feb 2.
All three stocks charted deeper losses earlier in
Shares in TD Ameritrade were hit the hardest, as it derives
about 42 percent of revenue from trading fees, the biggest
exposure of the three listed companies.
Boston-based Fidelity's online brokerage business has 17.9
million accounts and $1.7 trillion in total client assets. The
company said its efficient processing of trades and other
services make it the best value.
Fidelity also cut rates for investors who trade on margin,
or with borrowed money from the brokerage.
San Francisco-based Schwab has 10.2 million active brokerage
accounts and $2.83 trillion in client assets.
"Please don't miss the bigger picture here," Schwab's chief
financial officer, Joe Martinetto, said in a statement calling
the fee cuts a "growth strategy."
"This is a company that is performing extraordinarily well."
The fee-cut announcements offered a reminder of how much
trading costs have come down for investors.
Robinhood, a commission-free trading app for retail
investors, said they were "happy" that Fidelity lowered its
"Ideally, they would have eliminated them altogether, along
with the required $2,500 account minimum," it said in a
(Reporting by Trevor Hunnicutt and Tim McLaughlin; Additional
reporting by Dan Burns, Sinead Carew and Sangameswaran S;
Editing by Jennifer Ablan and Jonathan Oatis)