Fidelity cuts stock trading commissions to $7.95 for all customers; gets ETF pact with iShares

By Mark Jewell, AP
Tuesday, February 2, 2010

Fidelity cuts trade commissions to flat $7.95 fee

BOSTON — Fidelity Investments on Tuesday undercut its brokerage rivals, reducing its online stock trading commission to a flat fee of $7.95, four weeks after Charles Schwab Corp. cut its price to $8.95.

Fidelity’s flat fee replaces a tiered structure that had charged customers as much as $19.95 per trade to as little as $8 depending on asset levels and how many online trades a customer made.

In addition to bringing Fidelity’s trading commission below Schwab’s new price, the reduction puts privately held Fidelity’s price point below its two other largest brokerage rivals. TD Ameritrade Holding Corp. charges a flat $9.99, while E-Trade Financial Corp. charges $7.99 to $12.99, depending on a customer’s assets and trading frequency.

Fidelity, based in Boston, has the biggest market share among online brokerages, measured by client assets, with nearly 40 percent out of an industrywide $1.8 trillion at the end of 2008, according to the research firm Aite Group, also based in Boston. Schwab was second with 27 percent, followed by TD Ameritrade’s 13 percent and E-Trade’s 5 percent. Other players commanded a total 15 percent.

The cuts at Schwab and Fidelity likely won’t go unanswered by their rivals, said Doug Danemiller, an Aite Group analyst, and a former Fidelity employee.

“I would expect reaction — the key factor being, how low can you go,” said Danemiller. “You certainly don’t want to offer the service below your costs.”

Today’s sub-$10 commissions pale in comparison with fees in the late 1990s, when online trading was emerging as a way for self-directed investors to take control of their portfolios. Schwab, for example, cut online trade commissions to $30 from $60 in 1998 in a move that led rivals to follow.

“Online trading commissions will continue to creep down,” said Forrester Research analyst Bill Doyle.

But Omaha, Neb.-based TD Ameritrade said it wasn’t inclined to respond to the moves by Fidelity and Schwab: “Nothing has changed with our position on pricing,” spokeswoman Kim Hillyer said.

She said TD Ameritrade’s brokerage customers value the tools and services they use to make trades, “and when it comes down to a difference of a dollar or two, it doesn’t matter.”

Fidelity’s cut, which takes effect Wednesday, was coupled with a separate announcement that Fidelity will offer its 12 million brokerage clients commission-free online trades on 25 exchange-traded funds from iShares, which commands about half of the rapidly growing ETF market.

Fidelity hasn’t been a player in directly offering ETFs, instead serving as a distributor offering its clients ETFs managed by other firms like iShares. ETFs are baskets of stocks or bonds that differ from mutual funds in that they can be traded like stocks during daily trading sessions, rather than being priced once a day.

ETFs have drawn attention in part because of BlackRock Inc.’s recent acquisition of iShares as part of a broader $13.5 billion deal to acquire the investment unit of the British bank Barclays.

Under the marketing agreement with BlackRock announced Tuesday, Fidelity will still charge $7.95 commissions on about 800 other ETFs from iShares and other providers that Fidelity makes available to its clients. The 25 ETFs for which online trading commissions will be waived cover a broad investment spectrum, offering exposure to everything from the Standard & Poor’s 500 stock index to the MSCI Emerging Markets index.

The commission waiver for those 25 ETFs will be in place for at least three years, and possibly longer, said James Burton, president of Fidelity’s retail brokerage business. No commission-waiver agreements are expected with other ETF providers, Burton said.

Kathleen Murphy, Fidelity’s president of personal investing, said Fidelity will likely remain a distributor of ETFs, rather than a direct provider competing with such ETF providers as iShares, State Street Global Advisors and Vanguard Group.

The commission fee cut on online stock trades comes after San Francisco-based Charles Schwab on Jan. 7 announced a new rate that took effect on Jan. 19, and includes $8.95 stock trades or non-Schwab ETFs. The new rate covers online stock trades regardless of investor portfolio size, frequency of trade or size of trade.

Fidelity’s reduction covers trades made online rather than orders placed by telephone. Trades made by phone will cost an additional $5, or a total of $12.95 per trade, while trades made through a financial representative will cost an additional $25, or a total of $32.95.

While Fidelity is primarily known for its mutual funds, the company has broadened its financial services in recent years, including its brokerage operations.


AP Business Writer Josh Funk contributed to this report from Omaha.

May 25, 2010: 3:49 pm

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