It’s the herd mentality at work in the online brokerage industry.
Just hours after Charles Schwab announced it was eliminating commissions for U.S. stocks, exchange-traded funds and options, rival TD Ameritrade did the very same thing.
“It’s awesome, I’m hoping Fidelity announces soon, as well,” says Noah Hamman, CEO of AdvisorShares.
Hamman’s firm offers clients 16 products and has $700 million under assets.
“I hope they keep the platforms open for smaller players,” Hamman tells Yahoo Finance, “which gives investors more choices, but I’m excited to see the news, and I think it’s a great opportunity for us and for investors.
But will zero commissions be a bullish catalyst for the market since it may encourage more people to trade stocks?
“You could see more volume and more volatility the easier it is to trade those underlying securities, for sure,” says Hamman.
“People can trade much more quickly with the snap of a finger or a swipe on the screen and sometimes that may cause you to make decisions you don’t really want to make and react emotionally,” he says.
Not surprisingly, Hamman believes in managed products and picking the right money manager who will try to help investors take the emotion out of their trading decisions.
Shift in business model
Experts say the move to zero commissions by more big industry players signals a larger shift in the business model for many of these low-cost brokerage firms.
“If now advisors and individual investors can do their rebalancing and do their monthly allocations in products like ours,” says Hamman, “and reduce some of that friction in commission costs – it’s immensely helpful.”
The price war among online brokers was sparked by the rise of low-cost, passive investing, as well as investing apps like Robinhood, which has been offering commission-free trades since 2013.
Schwab’s Chief Financial Officer Peter Crawford said in a statement: “We are seeing new firms trying to enter our market – using zero or low equity commissions as a lever. It has seemed inevitable that commissions would head towards zero, so why wait.”
Shares of online brokerages were pummeled for a second day including Charles Schwab (SCHW), E*Trade Financial (ETFC) and Interactive Brokers Group (IBKR). TD Ameritrade (AMTD) took the biggest hit, sliding another 3% after Tuesday’s 26% drubbing.
Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.