Opportunities are increasing for cheap investors.
Only a couple of years ago I reported that the discount and mutual fund brokers were raising fees and increasing minimum investment amounts. The brokers didn’t want small investors, frugal investors, or long-term investors.
Since then, the stock market has rebounded and trading volume is up. In addition, a number of brokers merged or disappeared. The remaining brokers are competing heavily for investors.
We have seen commission cuts and other investor-friendly changes. But don’t be tempted by headlines and press releases. Many of the lower costs are available only to those who trade stocks and do so frequently. Yet, there are some brokers who are becoming more appealing to investors like us.
Fidelity recently slashed fees on its index funds and dropped the loads on its mutual funds that still had them. Fidelity also reduced stock trading commissions, establishing an $8 rate for some online trades. It also changed bond pricing so the true cost of the trades would be more clear.
At Schwab most of the changes favor stock traders; commissions were reduced at least twice. But there were broader price reductions. The biggest move is that most account maintenance and service fees are eliminated for customers with at least $25,000 in household assets at Schwab. Previously, $50,000 was the cut off for fees. IRA service fees are eliminated for clients with household balances of at least $10,000. Those customers with at least $10,000 in investment assets will have fees waived if they also hold either a Charles Schwab Bank mortgage or home equity line of credit.
Schwab also will make available to all customers its proprietary stock-rating system and will restore 24-hour telephone service.
These are big moves for Schwab. Just a few years ago it made clear that it did not want smaller accounts. Now, it is returning to its small investor, low-cost roots.
Another big change in the brokers is that each wants more of your business. Fidelity long ago stopped being a “mutual fund company.” It wants to be your fund company, broker, bank, trust company, and more. Schwab continues its quest to offer all these services as well. Ameritrade and Scottrade are opening more offices around the country, while most other firms are closing or consolidating offices.
TD Waterhouse is not making drastic changes. It did not increase fees and raise minimums after the bubble burst, so it doesn’t have much backtracking to do.
As usual, the best deals are available to investors who trade individual stocks and do so frequently. Lesser deals are available to individuals who make fewer trades or invest in mutual funds. A key competitive tool for the brokers now is to make available software and other research tools for investors who make a lot of stock trades.
At most brokers there are separate fee levels for Internet, telephone, and broker-assisted trades.
The table on page six highlights the important features of the major fund brokers and mutual fund families. Remember to check details before opening an account. A low trading fee might require Internet trading or a minimum holding period. There also might be annual account maintenance fees or other charges. Or a firm with a lot of no transaction fee funds might not offer in its NTF program the funds you want to own. Finally, try any web site trading demo that is available.
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