Starting Monday, all Schwab clients will be able to buy and sell stocks, ETFs and options listed in the U.S. or Canada commission-free so long as the trades are done online or via mobile app. Schwab’s already low $4.95 commission for such trades will be eliminated, but options trades will continue to cost $0.65 per contract.
“This is our price. Not a promotion. No catches. Period. Price should never be a barrier to investing for anyone, whether an experienced investor or someone just starting on the investing path,” said Schwab CEO and President Walt Bettinger, in a statement. He noted that the new zero-pricing scheme will apply to the independent investment advisors that Schwab serves.
Beyond that lofty view are the economic realities the discount brokerage faces.
Schwab Chief Financial Officer Peter Crawford explained in a separate statement that since Schwab cut commissions in 2017, new firms have been “trying to enter” the market charging “zero or low equity commissions” and Schwab did not “want to fall into the trap” of waiting “too long to respond. It has seemed inevitable that commissions would head towards zero, so why wait?”
He added that Schwab’s business model doesn’t depend on commission revenue and has a history of focusing on the long term and a willingness to disrupt itself based on client needs and competitive dynamics.
“We’re making these pricing changes because we believe they enhance both our value proposition and our competitive positioning, encouraging the consolidation of client assets and trades at Schwab.”
The new zero commissions do not apply to transaction in foreign stocks, large block transactions requiring special handling, restricted stock transactions, transaction-fee mutual funds, futures, or fixed income investments. Also trades placed by phone will continue to cost $5 each and through a broker $25.
Crawford said the firm is estimating that the zero commission policy will reduce quarterly revenue by $90 million to $100 million, which translates roughly into a 3% to 4% of total net revenue, though the impact could be smaller because commissions per revenue trade have been falling for years.
“It would have been easy for us to kick the can down the road, to hold off on responding to the proliferation of free commission offers for another quarter, another year. Especially considering the somewhat mixed macro environment,” said Crawford. “But that approach is not what has made us successful for over four decades. Chuck Schwab built this company with a culture based on listening to our clients, maintaining a healthy respect for competitors, being willing to disrupt ourselves when appropriate, and prioritizing long-term growth and success even if near-term results are impacted.”
Schwab shares were down almost 8.5% in mid-morning trading at $38.28, while the S&P 500 was off just 0.44%.
As of Aug. 31, Schwab had $3.72 trillion in client assets, 12.1 million active brokerage accounts, 1.4 million banking accounts and 1.7 million corporate retirement plan participants.
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