Schwab to Buy TD Ameritrade for $26B: Report

The larger 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.”

Effects of Pricing Pressures

Soon after E-Trade announced its embrace of zero commissions, Fitch Ratings said no-commission trades “will pressure industry revenues, further emphasizing the importance of net interest income from accompanying bank sweeps, wealth management and investment management revenues, and will likely drive further industry consolidation.” 

Of the three brokerages, Fitch Ratings, rates only Schwab, which analysts Michael Taiano and Dafina Dunmore believe is “better positioned to weather the decline in trading commissions than many of its competitors”  due to its “scale and breadth of offerings.”

Still Schwab’s revenues, already under pressure from declining commissions, low interest rates and falling fees for mutual funds and ETFs, will suffer, according to the analysts’ report.

“It  will be increasingly important for Schwab to further improve cost efficiencies while also growing client assets and exploring additional sources of revenue from its sizable client base,” the Fitch analysts said. 

(Bernice Napach contributed to this report.)

— Check out Charles Schwab Says Zero Commissions Will Benefit Advisors on ThinkAdvisor.