TD Ameritrade announced late Tuesday that it will cut online equity, ETF and options trading commissions to $6.95 per trade effective March 6 for its retail clients and clients of RIAs who custody with TD, following the lead of Fidelity Investments and Schwab, which earlier in the day made their own trading price cuts.
In a statement, TD Ameritrade CEO Tim Hockey positioned the price cuts in a broader context. “There is an effort underway in our industry to redefine value. While some are leading with price, our clients tell us it’s much more than that,” Hockey’s statement read.
“With our pending acquisition of Scottrade on the horizon,” Hockey continued, “we have a unique opportunity to enhance that [investor and advisor] experience even further with lower pricing for all of our clients.”
Specifically, online equity and ETF trade commissions will be lowered from $9.99 to $6.95, while options pricing will also be $6.95 plus $0.75 per contract.
Earlier Tuesday, and less than a month after Schwab cut commissions $2 to $6.95 a trade, Fidelity Investments announced a $3 drop to $4.95 per trade and within hours Schwab matched it. Fidelity and Schwab also lowered options prices to $0.65 from $0.75 per contract.
This is not the first time that TD Ameritrade has cut costs for popular investment vehicles. In October 2010, TD followed the ETF trading and expense ratio cutting lead of Schwab Investment Management and Vanguard in rolling out a list of 101 commission-free ETFs.
The latest sortie in the brokerage/RIA custodian price wars was a subject of much conversation at the opening reception for another big RIA custodian, Pershing Advisor Solutions, at its inaugural Elite Advisor Summit in Miami. Tim Welsh, president of the consulting firm Nexus Strategy (and a regular contributor to ThinkAdvisor’s TechCenter), wondered aloud when trading commissions would go to zero, suggesting it could be just a “matter of time.”
Commenting on the Fidelity cuts that were matched the same day, Welsh, a former Schwab Advisor Services director of business consulting, noted that “these price changes aren’t simple” to make technically, suggesting that Schwab had its systems in place already to be able to react so quickly.
Speaking after Fidelity and Schwab’s announcement but before TD Ameritrade’s, another informed observer of the advisor space at the summit questioned whether TD would be able to match its competitors’ commission cuts, since TD the company derives a fairly substantial percentage of its overall revenue from trading commissions.
That point was emphasized by Schwab CEO Walt Bettinger last October when in an interview he commented on TD’s then-recent announcement that it would acquire Scottrade. He said then that “while he understood why the acquisition made sense for TD Ameritrade, “it did not make sense for us; their business is so much more transaction-oriented than ours.” Schwab Advisor Services’ chief, Bernie Clark, made a similar point when Schwab kicked off this latest round of price cuts during the company’s analyst briefing on Feb. 2.
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