Ally Invest, the online brokerage and wealth management arm of Ally Financial, has joined the ranks of brokerages that are eliminating commissions on stock, ETF and option trades.
Beginning Wednesday, Ally Invest will no longer charge commissions on trades that today cost $4.95 each. Options trades, though free of commissions, will include a 50-cent contract fee.
“With continued advancements in technology making online trading increasingly more cost-efficient, it was inevitable our industry would reach a point where self-directed investors could participate in the market for little to no cost,” said Lule Demmissie, president of Ally Invest, who added that Ally is “happy to be in the company of firms prepared to offer customers zero-commission trading.”
Earlier this week, several brokerages, starting with Schwab, announced the end of commissions on stock, ETF and options trades. TD Ameritrade followed later the same day and E-Trade the next day. All three noted that revenue will be reduced as a result of the commission elimination. Ally made no mention of the impact of its commission elimination on revenue, and none of the brokerages offered their plans to make up for that lost revenue.
“It’s important for customers to understand how a company may be making money even as they cut their most visible fees,” says Adam Grealish, director of investing at Betterment, a standalone, independent robo-advisor whose management fees cover all commission costs on individual trades.
“Brokerages make money when customers trade more frequently … If offering free trades encourages clients to trade much more frequently, the client is more likely to perform worse and the brokerage will still be generating revenue through activities like selling order flow.”
Bill Capuzzi, CEO of Apex Clearing, said brokerages can also make up for lost revenue through new offerings such as securities lending, new asset classes like futures, options and cryptocurrency and fractional share trading.
As of June 30, Ally Financial, once known as GMAC, had $180.4 billion in assets.
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