Robinhood changed the industry.
IBKR dropped it to 0 last week. with distinction for 2 seperate products. 1 regular (low fees, better pricing). 1 lite (orders sold to market makers).
SCHW followed suit today to 0. no distinction.
All brokerages are down a lot. AMTD for instance down 22% at $36.5. Peak at 63 in mid 2018. LOL
anyways insane to the membrane!
I don’t know a ton about this world – how are they able to run a business and not charge fees? I can see robinhood just plowing through VC money, but what about the others? Do they lie about the spread or something and skim a little off the top?
Also curious… I’ve read that they make money on cash balances… what else?
https://www.sec.gov/Archives/edgar/data/316709/000031670919000008/schw-12312018x10k.htm
schw has about 11b in revenues. and 3.3b in NI.
they have about 7b in interest revenue. 5.8b in net interest.
they also have 3b in asset management and admin fees.
and trading revenue with other is about 1b. (this is commish)
so schwab is more liek a bank than a brokerage. since their trading is 10%
for comparison. AMTD for trading is about 35%.
No, they demand more money from asset managers like my firm. For example, let’s say a fund company pays a blended rate of 4 bps on ETF assets held at Schwab. Next year they’ll want 5 bps and they’ll wind up generating more revenue while making their RIAs and investors happy. It’s a good long-term play by Schwab and another reason margins are compressing at fund companies.
etf fees going up? i dont think so. its a race to 0 on that side to. fidelity has already made 0 mgmt fee etf.
Control yourself, take only what you need from itA family of trees wanted to be haunted
Wait a minute, you have to pay Schwab a custody fee just because some retail investor owns one of your ETFs inside their account?
I just got a billion dollar idea.
Yep, we all do except maybe iShares. If you don’t work on the distribution side (i.e. our PMs have no idea about the behind the scenes economics) most people don’t understand how a broker-dealer makes most of their money. It’s from revenue sharing (this goes by many other names but it’s all the same) from asset managers. For active mutual funds, we “reimburse” Schwab or Ameriprise or Morgan Stanley (you get the idea) a certain amount of bps. It varies by firm, obviously, but it could be anywhere between 15 and 34 bps on equity funds.
Nery, that’s the exact opposite of what I said. We (mutual fund or ETF providers) have to pay Schwab bps on our products held with them. Doesn’t matter if it was sold by an RIA or someone going to Schwab.com. That separate from the ETF’s expense ratio. Two completely different things.
Yes, yes we do.
ahh icic.
Does this mean we can expect expense ratios to rise in the future?
Leg, don’t you recapture that fee from your customer as part of your total expense ratio? I think the no-fee brokers are making money on securities lending as well.
amtd just dropped it to 0. i cant believe that vanguard and fidelity wont follow suit.
@CEO - No, unfortunately it just means margin compression (which means lower comp).
@Malee - I wouldn’t consider it “recapturing” the revenue. Think of it as a line item on an income statement. Say Schwab (RIA, retail, doesn’t matter) has $1B in one of our mutual funds with an expense ratio of 1.00%. We collect the full $10mm (hope I did the math right) but then pay Schwab 35 bps in reimbursement. It’s basically Cost of Goods Sold. So we pay them the $3,500,000 to give us net revenue of $6,500,000.
On the flip side, the brokerage firms will start to charge subscription like fees with tiered products for financial advice - an initiation fee with a monthly subscription fee for un-metered advice from a CFP.
Yang gang looking good now to the crew who thought automation was beneath them.
I already have free unmetered advice from a CFP at Fidelity since I have x amount with them. The guy calls me occasuonally, nice guy. And I’m just hood rich, not ohai rich
what can that guy do that you cant do.
He knows the general rules around different types of investment accounts and stuff, 529 in state vs out, ect, stuff that you may encounter once when setting up but he deals with all the time. I could probably google and find out if I didn’t have him.
fidelity cuts to 0 too. so vanguard prolly goign to join pretty soon!
Vanguard is already at zero for everything except leveraged and inverse ETFs. The only one left is Pershing and they have no plans to make all ETFs commission free. But their business model is a little different so it’s not as big of a deal.