Fidelity lowers commission on stock sales
Cut fuels competition in discount brokers’ bid for casual traders
Major stock traders have long paid cut-rate commissions. Now it’s cheaper for small investors and the casual trader to buy and sell stocks.
Boston-based Fidelity Investments will charge a flat rate of $7.95 per trade for its US customers starting today, undercutting rival Charles Schwab & Co., which last month introduced a flat rate of $8.95 per trade.
Previously, Fidelity charged $8 to $19.95 per trade, depending on volume, while most Schwab customers had paid $12.95 per trade.
“It clearly puts us heads and shoulders above our online competitors,’’ said Kathleen Murphy, president of Fidelity Personal Investing, who oversees the company’s retail business.
“In terms of major competitors, we have the most attractive price,’’ she said.
The price cut is the latest in an ongoing battle between discount stock brokers, and analysts don’t expect Fidelity’s move to be the last. Shares in its three big rivals, Schwab, TD Ameritrade, and Etrade, fell yesterday after Fidelity’s announcement.
“Prices have been coming down, and they will keeping ticking down,’’ said Bill Doyle, principal analyst with Forrester Research Inc. in Cambridge.
With 12.4 million retail brokerage accounts at the end of 2009, Fidelity says it is the third-largest online broker, behind TD Ameritrade and Schwab, but ahead of Etrade. Fidelity estimated its share of the market among the four largest brokers had steadily grown to 22.2 percent in the fourth quarter of 2009, up from 20.3 percent at the end of 2005.
Despite the financial crisis, some online brokerage firms said they have seen increased trading over the past few years as they gain market share.
James Burton, president of Fidelity’s Retail Brokerage unit, said that many customers have also been trading more frequently, because of the stock market volatility - as investors dump losing stocks or try to pick up bargains. Burton said trading activity increased in 2007, 2008, and 2009. Etrade said it had 197,000 daily average revenue trades in 2009, up 5 percent from 2008.
Some smaller rivals still charge less for trades.
Scottrade Inc., for instance, charges $7 per trade. Tiny online firms, such as Just2Trade.com, advertise rates as low as $2.50. In addition, some brokers and banks offer customers a limited number of free stock trades in exchange for opening a new account or keeping a certain amount of money with the firm.
Matt Bienfang, an analyst with Tower Group Inc. of Needham who follows the brokerage industry, said Fidelity had to cut prices because it was starting to lose smaller customers to cheaper rivals like Schwab and TD Ameritrade.
“It’s an asset-retention play more than anything else,’’ Bienfang said.
Though Fidelity might not make money on stock trading from those small customers, he said, it can profit in other ways, such as by lending traders money on margin or investing the cash sitting in their accounts.
Etrade currently charges customers between $7.99 and $12.99, depending on their account size and trading volume. Spokeswoman Pam Erickson said Etrade regularly reviews its pricing and “will continue to study the market in light of the recent competitive moves.’’
TD Ameritrade, meanwhile, has offered a flat-rate $9.99 trade since 2006. And it isn’t planning to cut its prices further to match Fidelity’s.
“We have found a small difference of a dollar or two doesn’t matter to retail investors, so much as the tools, service, and other capabilities that a firm offers,’’ said spokeswoman Kim Hillyer.
David Weiskopf, a spokesman for Schwab, said Fidelity was clearly following his company’s lead, but added that Schwab has no plans to counter with another price cut. “We want to be competitive, but [price] is only part of the equation,’’ Weiskopf said.
Burton, who runs Fidelity’s brokerage business, argued Fidelity offers the best value when you factor in its other services, such as analyst reports from independent research firms.
Also yesterday, Fidelity announced a partnership with BlackRock to offer commission-free trades for 25 Exchange Traded Funds in the iShares Fund family. Fidelity has lagged behind some other mutual fund companies in launching its own ETFs.
Todd Wallack can be reached at email@example.com.