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Investors Win as Discount Brokers Cut Commissions

Save the Date! Our 2017 Investor Conference will be held November 3-5 at the Loews Royal Pacific Resort in Orlando, FL. We’re scheduling many great speakers for the event, including Mark Hulbert, John Buckingham and Wesley Gray among others. You’ll also get to meet my fellow colleagues as well as other AAII members. It’s always a great event.

This week’s commentary was originally going to feature highlights from Warren Buffett’s annual letter to Berkshire Hathaway (BRK.B) shareholders, but then a price war erupted among the discount brokers. On Tuesday morning, Fidelity cut its commissions for buying and selling stocks online to $4.95 per trade on, down from $7.95. Literally hours later, Charles Schwab responded by cutting its commissions to $4.95. The move came after Schwab had already lowered its commissions to $6.95 a few weeks earlier. On Tuesday night, TD Ameritrade announced that its commissions will be $6.95 starting on March 6, down from $9.95. Then this morning, E*Trade cut its commissions from $9.95 to $6.95. Scottrade is still charging $7, but the firm is being acquired by TD Ameritrade.

Saving $6 cumulatively on a roundtrip trade—or in Schwab’s case, $8 relative to the start of February—isn’t, by itself, going to make any one significantly wealthier. Costs and savings, however, are cumulative. Even at just five buy/sell transactions a year, the savings amount to an extra $300 over the course of a decade—and that’s before factoring in the impact of compounding. Continue Reading »


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Highlights from this month’s AAII Journal


AAII Sentiment Survey

Pessimism about the short-term direction of stock prices rose to a post-election high, though optimism remains near its historical average. More about this week’s results.

This week’s results:
  • Bullish: 37.9%, down 0.6 points
  • Neutral: 26.5%, down 2.8 points
  • Bearish: 35.6%, up 3.3 points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Take the Sentiment Survey.


AAII Asset Allocation Survey

Fixed-income allocations rose to a six-month high in February. Equity allocations declined, but remained above average for the 47th consecutive month. More about the latest results.

February AAII Asset Allocation Survey results:
  • Stocks and stock funds: 65.5%, down 0.5 percentage points
  • Bonds and bond funds: 17.3%, up 0.9 percentage points
  • Cash: 17.2%, down 0.5 percentage points

February AAII Asset Allocation Details:

  • Stocks: 26.9%, down 4.2 percentage points
  • Stock funds: 38.6%, up 3.8 percentage points
  • Bonds: 3.3%, down 0.1 percentage points
  • Bond funds: 14.0%, up 1.0 percentage points

Take the Asset Allocation Survey.


The Week Ahead

My colleague Wayne Thorp will explain how to determine a stock’s worth to our Baton Rouge Chapter on Saturday, March 11.

 

Fourth-quarter earnings season is winding down with six members of the S&P 500 scheduled to report: Brown-Forman Corp. (BF.B), H&R Block (HRB) and Urban Outfitters (URBN) on Tuesday, and Signet Jewelers (SIG) and Ulta Beauty (ULTA) on Thursday.

The week’s first economic reports will be January factory orders, which will be released on Monday. Tuesday will feature January international trade data. The February ADP Employment Report and revised fourth-quarter productivity will be released on Wednesday. Thursday will feature February import and export prices. The February jobs data—including the change in nonfarm payrolls and the unemployment rate—will be released on Friday.

Minneapolis Federal Reserve bank president Neel Kashkari will make a public appearance on Monday.

The Treasury Department will auction $24 billion of three-year notes on Tuesday, $20 billion of 10-year notes on Wednesday and $12 billion of 30-year bonds on Thursday.


Local Chapter Meetings

AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you!

Upcoming Meetings »


Let the AAII Journal Guide You to Better Investment Returns

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Forbes Magazine says, “The AAII Journal is a thoughtful mix of investment professionals’ views” and that “the $29 a year it costs to belong to AAII is a bargain.”

Free Guide—New Members are rushed a comprehensive guide that covers our popular library of Stock Screens in great detail.

Join AAII and See the New March Issue!

 

One thought on “Investors Win as Discount Brokers Cut Commissions”

  1. While the link to the full article “Investors Win as Discount Brokers Cut Commissions” seems to be broken, at least for me, it’s obvious that the author is enthusiastic about the cut in brokerage commissions; a sentiment I don’t share.

    There’s an old saying: “If you’re not paying for a product, you ARE the product”. And that’s exactly what’s going on. Retail brokers have multiple revenue streams: Commissions from their investing customers, compensation from executing broker/dealers for bringing deal flow, interest spread from margin accounts, and proprietary trading. That’s how zero-commission brokers are able to survive.

    Why is it bad when commission is replaced by those other revenue sources? Because those other sources are not paid by and transparent to the investor, and they subvert the broker/client relationship away from an agency relationship, towards an adversarial one.

    I experienced the nefarious aspect of this myself, less than two weeks ago: I placed a “market order” to sell stock with my retail broker (Fidelity). The retail broker placed my order with an executing broker (Cantor Fitzgerald) who is making a market in the stock. Being a “market order”, I expected the transaction to filled in a second or two. But when I checked on it a while later, I saw to my horror that it had sat unfilled for several minutes, while the price of the fast-moving stock deteriorated. It was finally filled more than 6 minutes after I had placed it online, and at a price that was more than 10% worse than the market price at the time I had placed the order. Only a few minutes later, the price of this security recovered those 10%, leaving Cantor Fitzgerald with a very fast 10% gain (assuming that they operated as principals, which I would consider a safe bet), and me with the offsetting loss.

    Of course I complained to Fidelity, and they claimed to look into it. But nothing happened. Their lack of interest in this egregious abuse is only surprising, until you understand that Fidelity actually profits from it. The less diligence they apply in overseeing the executing brokers, the more valuable the deal flow they provide to those executing brokers, and the greater the compensation they can claim for it.

    For people who value low commissions above all else, zero commission brokers have been available for a while. But for those of us who expect their brokers to be a trusted partner in their efforts to navigate the markets, the recent commission developments are a very troubling sign. I, for one, am looking at direct access brokers, now. Because if my broker becomes my adversary, then no commission is low enough.

     

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