After trading commissions for stocks, ETFs and options at Schwab, TD Ameritrade, E-Trade and then Fidelity have gone to zero, there’s a “big unknown” but also a likely group of winners in the broker-dealer space and the further strengthening of a significant industry trend, according to veteran recruiter and industry watcher Jon Henschen.
The move to zero commissions represents “huge savings” for advisors’ clients, making it a “huge deal,” Henschen says. “More clients will ask, ‘Why are we paying these ticket charges? Why not zero?’”
The large question mark, Henschen says, concerns the response of the large clearing firms: “It will be interesting to see how clearing firms react to this news, and if we see downward pressure on Pershing and [Fidelity’s National Financial Services], etc., to lower their ticket charges to broker-dealers.”
For advisors, the zero-commission trend “will only fuel advisors to seek out dual-clearing-friendly broker-dealers, where they can save their clients potentially dramatic levels for those advisors that are active traders,” Henschen explained.
At present, the list of independent broker-dealers with a “friendly” attitude towards the use of more than one clearing firm is short, the recruiter points out. It includes the Ladenburg Thalman IBDs — Securities America, Triad Advisors, Securities Service Network, Investacorp and KMS Financial Services — along with Geneos Wealth Management and United Planners.
“There are some other ones, too,” the recruiter said, “which are [generally] small and midsize, as well as a few larger ones. Most BDs are not dual-clearing friendly,” Henschen said.
The longtime industry watcher says that while it remains to be seen if clearing firms “hold their ground or drop their ticket charges,” he expects some advisors to move with their feet in reaction to zero commissions: “This will certainly be a driver for advisors changing broker-dealers to gravitate to broker-dealers that are dual-clearing friendly.”
The zero commissions “will also fuel advisors to give up their licenses and go fee only,” according to Henschen.
“With the CFP Board focusing more on pricing going forward — as well as CFPs being required to apply a fiduciary standard on investment advice as of Oct. 1 (being enforced as of June 30, 2020) — costs like ticket charges, administration fees, markups and platform fees will become increasingly important to weigh out,” he explained.
Henschen also says the latest news should prompt more wirehouse reps to break away: “For wirehouse advisors that tend to be more active traders and use all-inclusive accounts, the new zero ticket will be a major encouragement to go fee only or join an independent broker-dealer that has dual clearing in place.”
As for broker-dealers, those with higher costs in these areas “will need to offer value-added services to justify the additional costs,” the recruiter says.
Zero commissions should be a “major driver [of change] for those advisors who want to net more and lower client costs,” he added. “This [industry development] is going to cause a lot of ripple effects.”