The Impact of No Brokerage Fees on Retail Investors

Unless you work in finance, you may not be aware of a fundamental shift that’s underway at the moment in the industry. On Tuesday, October 1st, 2019, Charles Schwab rocked brokerage firms around the globe with their announcement to drop all commissions for stocks, ETFs, and options on U.S. and Canadian exchanges – permanently. Within a day, Ameritrade and E*Trade announced no brokerage fees as well. Ameritrade’s stock tanked in response, as 32% of their revenues came from commissions. Not long afterwards, Charles Schwab moved to acquire TD Ameritrade for $26 billion. (Unlike Ameritrade, only 5% of Schwab’s revenues come from commissions with the bulk of revenues coming from interest-earning assets.) The brokerage landscape seems to be forever changed.

The biggest beneficiary of no brokerage fees happens to be retail investors – mom and pop accounts – most of whom aren’t playing in the markets with a whole lot of money. Brokerage fees are now pretty much nonexistent. All those ads we used to run here on Nanalyze touting “cheap trades” over at firms like TD Ameritrade for $4.95 have now gone to zero. For all practical purposes, you can now trade domestic stocks for free at all major brokerage firms. The impetus for this change is said to be a fintech firm called Robinhood that built their entire business around free trading and fractional share ownership. Today, we want to talk about the implications of this change for retail investors, starting with first-time investors.

First-Time Investors

We’re in a unique position to address first-time investors. Many of our readers will discover some exciting investment themes – cannabis stocks for example – and will immediately want to