Saturday, February 20, 2010
One Client, One Quote
WHEN CHARLES SCHWAB IN LATE JANUARY WENT to a single, lower fee for online stock trading, we figured other changes were on the way. We were right. Fidelity ended its tiered pricing structure a few days later, and E*Trade followed suit just a few days after that.
As we discussed on Barrons.com Jan. 28 ("Has A New Price War Broken Out in Online Trading?” ), Schwab’s (http://www.schwab.com) peers and competitors interpreted the pricing change as a positive, putting the fees more in line with the rest of the world (at $8.95, the commission is in the middle of the industry pack), rather than setting off a quick race to the bottom. The big shift is that different prices for different customers appear to be coming to an end, and for that, hallelujah.
James Burton, president of Fidelity’s (http://www.fidelity.com) retail brokerage, admits his firm’s price change, which drops all stock trades to $7.95 per transaction, was a response to Schwab (ticker: SCHW): “It’s a competitive business. We listen to our customers’ feedback and do what it takes to stay highly competitive.”
One twist from Fidelity is that customers can trade 25 iShares exchange-traded funds free. This suite of 25 BlackRock ETFs, according to Burton, covers the key U.S. asset classes: large-, mid- and small-cap, with a mix of growth, value and blend funds. There are also international and bond ETFs available. “Investors who want to use passive index products to supplement or form the core of a portfolio can now do that at no cost,” says Burton.
BlackRock’s iShares S&P 500 ETF (IVV) already has an extremely low expense ratio of nine basis points (0.09%), according to Burton. If you held $1,000 worth of IVV, that would cost you 90 cents a year in administrative and other fees, compared with the 0.5% to 3% most mutual funds charge. And then you don’t have to worry about other transaction costs, bringing the relative cost of owning or trading ETFs way down. “We’ve removed that incremental cost,” says Burton.
E*Trade (http://www.etrade.com) didn’t toss the tiered structure entirely, but eliminated the top tier of $12.99 per trade for less-active customers. Now the top commission is $9.99 per trade; active traders with more than 150 trades per quarter will pay $7.99. In addition, the firm will stop charging a quarterly account-service fee of $40 in the second quarter of 2010. E*Trade (ETFC) is also dropping a per-share charge for trades of more than 2,000 shares.
Years ago TD Ameritrade made a big splash when it announced that all stock trades would carry a $9.99 commission. It was a big deal because the broker wasn’t playing the tiered-pricing game. With E*Trade hanging on to its tiered pricing structure—albeit a reduced one—the industry can’t quite say a final good-bye to this idea. Which is too bad.
LIGHTSPEED LAUNCHES WEB TRADER Lightspeed (http://www.lightspeed.com), which has focused on active retail traders as well as proprietary trading groups, hedge funds and algorithmic “black box” firms, noted with interest that about 30% of its new clients in 2009 came from traditional online brokers. Some of these new customers, the online broker says, previously were intimidated by Lightspeed’s extremely customizable software-based trading application. Now the firm hopes to make it even easier for them to join up.
Stephen Ehrlich, Lightspeed’s CEO, says most of the new customers “graduate” to Lightspeed’s platform, but many have asked for a Web-based application. “They’re just about ready to make that jump, but to get ready they want to use the Web-based platform, use the demo of the software platform and then make the move,” he notes. “Our Web Trader will remove that intimidation and help the customer coming from a traditional broker make the switch,” says Ehrlich.
The Web Trader went live on Feb. 2. Customers can trade stocks and options on the Web Trader but must use the Lightspeed software application to trade futures. Lightspeed charges 0.395 cents per share for stock trades, and 50 cents per contract for options transactions, with no minimum.
One drawback I see is that customers must choose one platform or the other, and can use only one at a time. So once you begin using the software platform, you can’t go back and use the Web application. Ehrlich notes the Web platform is version 1.0 and Lightspeed will continue to work on it, making it more powerful. I hope it will be interchangeable with the software platform in time as well.
SCOTTRADE’S FOREIGN FORAY
Customers of Scottrade (http://www.scottrade.com) can now place orders online for approximately 3,700 international securities, including many Canadian stocks. The securities include American depositary receipts along with U.S.-traded foreign stocks from approximately 20 countries on six continents.
In addition, Scottrade added an International Investing filter to its stock screener, which can be found in the Quotes & Research section of the site. The online Knowledge Center now includes research materials about ADRs. The section includes information about different types of foreign securities at Scottrade, how to trade them and how to read the symbols.
Commissions are $7 per transaction for stocks priced over $1 a share. All transactions are completed in U.S. dollars, including dividend distributions.
IS THAT STOCK FAIRLY PRICED?
Market Topographer (http://www.markettopographer.com), launched in mid-January, attempts to provide the answer. The site combines fundamental and behavioral analysis, focusing on a company’s relative risk profile, its trading multiple, and whether expectations embedded in its share price are achievable.
Free during an evaluation period, the platform is driven by a financial model with 20 years of data, analyzing 12 core risk-assessment characteristics. The suite of tools is designed to be agnostic and avoids buy and sell signals. You’ll find comparisons between two stocks, with the price broken down into a variety of components, such as expected earnings growth and dividends paid.
Check out the free trial, because it appears to me that this will be an expensive site once the publisher starts charging.
Published in Barron’s 2/15/2010