Charles Schwab announced on Tuesday that it would eliminate trade commissions on a host of its offerings, in a move that further escalates the price war among online brokers competing to be at the forefront of low-cost investing.
Schwab announced that beginning on October 7, it would slash trade commissions for U.S. stocks, exchange-traded funds and options from $4.95 to zero.
The move comes amid a larger price war among online brokers, spurred by the rise of low-cost, passive investing. For years, firms have competed to lower costs and meet growing demand for cheaper–or entirely free–investment products.
Popular investing app Robinhood, for example, has been offering commission-free trades since 2013, setting off a chain reaction within the brokerage industry.
One of Schwab’s main rivals, the Vanguard Group, announced last year that investors using its online platform could trade all of its ETFs without paying commission. In June 2019, another of the biggest brokers, Fidelity Investments, also expanded its lineup of commission-free ETFs. J.P. Morgan Chase unveiled its own free trading app in August, while the Interactive Brokers Group also announced it would offer free trades last Thursday.
“Generally, lower fees are good for investors,” Alex Bryan, director of passive strategies for North America at Morningstar, says of the Schwab announcement. “From an individual investor’s perspective, it’s not going to move the needle all that much—but it could clearly be a precursor to a larger shift in the business model for many of these low-cost brokerage firms.”
In a comment to Forbes, Vanguard said the firm is “happy to see others in the industry continue to follow our lead in reducing the cost of investing.” In contrast, Fidelity said the value they offer is “unmatched,” pointing to their firm’s higher interest rate offering on cash; “we will always look for ways to leverage our scale to deliver even more value.”
Crucial quote: “From day one, my passion has been to make investing easier and more affordable for everyone,” company founder and chairman Charles Schwab said in a statement. “Eliminating commissions ensures my ultimate vision is realized—making investing accessible to all.”
What to watch for: Schwab’s announcement caused online brokerage stocks to tank, with some plunging to their lowest levels in years. Schwab’s own stock fell 9% on Tuesday morning. Rival TD Ameritrade fell more than 23%, its worst single-day drop since 2006. Online broker E-Trade also cratered, plunging over 16%
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