Another day, another shot across the bow. Fidelity Investments Inc is lowering online commissions for trading in US stock and exchange-traded funds (ETFs) by nearly 40 percent, from US$7.95 to US$4.95 per trade for individual investors.
The US’ largest online retail brokerage firm, with 17.9 million accounts and US$1.7 trillion in client assets as of Dec. 31 last year, is also cutting options pricing from US$0.75 to US$0.65 per contract and lowering margin rates for investors.
The new commission pricing is 50 percent lower than standard commission trades at E*Trade Securities LLC and Ameritrade Holding Corp, and 28 percent lower than at Charles Schwab Corp, Fidelity retail brokerage business president Ram Subramaniam said.
“For us, this is a real commitment to being the undisputed value leader,” he said.
Investors who trade on margin, with money borrowed from the broker, get some decent rate cuts on their balances. The new rates span five tiers of assets, instead of six, and start at 8.325 percent for a balance of up to US$24,999.
Under the eliminated tier, clients were charged 8.825 percent for balances up to US$9,999.
The rate on balances from US$50,000 to US$99,999 fell from 7.235 percent to 6.875 percent, while on balances from US$100,000 to US$499,999, from 6.825 percent to 6.575 percent.
The fee war over retail investment products is raging as the big brokerage firms vie for market share.
Sometimes, the arms race over basis points (100 of them in 1 percentage point) and half-basis points can get “silly,” Independent Adviser for Vanguard Investors editor Dan Wiener said.
For example, on Friday last week, Fidelity ran ads in major US newspapers comparing expense ratios on some of its ETF and index funds with similar products at Vanguard Group.
One ad showed a 0.045 percent expense ratio on a Fidelity S&P 500 fund next to the 0.05 percent charge for a similar Vanguard fund.
Fidelity soon found it had lost those bragging rights.
New fund reports from Vanguard showed a 0.04 percent expense ratio for its S&P 500 fund, Wiener wrote in an e-mail to clients.
“One basis point on a US$10,000 investment adds up to a whopping US$1,” Wiener said.
Vanguard also lowered expense ratios for 68 ETFs and mutual funds. That was the third set of cuts by the company since December last year.
State Street Corp and BlackRock Inc had lowered their ETF fees earlier in the year.
Fidelity hopes young investors, among others, will be attracted to its lower fees.
“Millennials are starting to come into the market, and they represent a huge customer segment for the future,” Subramaniam said.
Last year, the company launched Fidelity Go, a robo-adviser catering to “digital first” investors.
Millennials are living in a world where the damage that high fees can do to a retirement portfolio is widely discussed.
A US Department of Labor rule to require firms that handle retirement accounts to act as fiduciaries — advisers that must put their clients’ interests before their own when recommending investments — was to go into effect on April 10.
The administration of US President Donald Trump has ordered the department to reconsider the rule. Its fate is now uncertain.
All the more reason to make sure your adviser is a fiduciary, bound to watch out for you when it comes to high fees and other perils.
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