Broker Price War Not a Positive for All
The announcement by Schwab, E*Trade and TD Ameritrade that they would offer commission-free ETFs on their platforms has been a victory for retail investors, but the firms’ stock prices stumbled as a result, according to the Wall Street Journal. Brokers, like the rest of the asset management industry, have been battling declining revenues and increasing consolidation, the WSJ reported. Online brokers continue to bring in revenue by absorbing cash from brokerage accounts into their banks and through payment order flow, where brokers route orders to high-speed traders for payments, however these firms may have to come up with more creative ways to make money, industry watchers say. ETF providers such as BlackRock, Invesco and Wisdom Tree also were hit by the zero commission announcements. The WSJ explained that ETF providers have arrangements with the brokerage firms that already allow for commission-free ETFs and which steered investors to those large ETF providers. Now that Schwab, for example, offers commission-free ETFs across the board, the value of these arrangements may be in question.