Personal Finance

Charles Schwab Eliminates Trading Commission Fees, Others Follow

Change is in the wind — can you feel it? Just as the leaves are starting to display their autumn coloring and falling to the ground, commission fees at three major brokerage firms are dropping to new lows as well. Now customers of Charles Schwab, Ameritrade, and E*Trade can buy and sell stocks and ETFs for a commission of $0.

Last week Schwab announced that it was cutting its $4.95 online stock trading commission to $0. The new policy is effective as of today, October 7th, 2019. Commenting on the move, Schwab President and CEO Walt Bettinger said in the statement, “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. We’re proud to provide clients with a full-service, modern investing experience that delivers on our no trade-offs combination of service, simplicity and superior value – backed by a satisfaction guarantee.”

In response to the Schwab news, both Ameritrade and E*Trade announced they were also ditching their $6.95 trade fees in favor of a commission-fee structure. While the news may be welcome for some investors, those who own stock in the trio of brokerages weren’t too pleased. As TechCrunch reports, share prices for Schwab dropped 12% after the announcement while E*Trade’s price was off 19% and Ameritrade lost 28%.

Those assessing what led to this abrupt change pointed to one main culprit: Robinhood. For years the FinTech startup has challenged brokerage norms by offering users commission-free trades on stocks and ETFs. In a statement the company acknowledged their role in the evolution, stating, “The changes taking place across the brokerage industry reflect a focus on the customer that‘s been inherent to Robinhood since the beginning.” Of course this also isn’t the first time Robinhood has seemingly had an impact on commission prices. For example last year Chase announced its You Invest platform, offering up to 100 commission-free trades for users. Meanwhile other FinTechs such as SoFi have gotten in on the free stock trading bandwagon, with Square reportedly looking to do the same. However Robinhood insinuated that they didn’t fear competition from these FinTech or other brokerages, saying, “We remain focused on offering intuitively designed products that reduce barriers to our financial system, including account minimums and commission fees.”

For many, it was only a matter of time before Robinhood and other startups forced other brokerages to lower their pricing to $0. Now that day has finally come, potentially putting the pressure on Robinhood for a change. Regardless of what happens on that front, the developments of this past week amount to a big win for investors — especially those who may have been hesitant to get started before.