The rapid succession in which the major brokerage firms eliminated trading commissions in early October sent a shockwave through the market. But according to Fidelity CEO Abigail Johnson, the move was a long time coming.
“There's a big secular cycle in our industry where we are in a business that has, for many years now, been in a deflationary cycle where the fees on pretty much everything in financial services are trending down,” she said. “Zero fees that the industry has now come to, is something that we've been talking about for a long time. We've been anticipating this.”
Johnson made the remarks during a panel discussion led be eMoney Advisor CEO Ed O’Brien at the 2019 eMoney Summit, the industry’s premier event for planning-led financial advisory professionals. The three-day conference attracted 1,000 of the industry’s best advisors, featuring speakers and thought leaders from around financial services and other ancillary industries offering insights that will move the financial advisory industry forward. This year’s theme was “The Heart Of Advice.”
Johnson said that the culmination of The Fee Wars in trading commissions was a natural extension of the fee pressures seen in other areas of financial services, particularly index funds. She said this allows a firm like Fidelity to differentiate themselves by offering more holistic financial services.
“At the same time, customers expect more. Every year they expect higher levels of service, they expect more choice, they expect more feature functionality,” she said. “Our path is a lot different because we're a very holistic provider. We are offering lots of different ranges of services and we hope people will be willing to pay us for the things that are really, truly value-added and differentiated.”
While robo-advisors and other low-fee investing products have lowered the barriers to entry for new investors, Johnson said she believes there will always be room for the investor that wants more face-to-face interaction, especially when it comes to making a financial plan.
“The decisions that you have to make about what your personal plan is that you're navigating are intensely personal. And there is no substitute for having an interpersonal conversation and assessment that's based on some other human being understanding you and you being able to bounce your ideas about what might be right for you off that person.”
“Not All Trades Are Created Equal”
Mike Durbin, president of Fidelity Institutional, added that the end of trading commissions will allow brokerage firms to separate themselves in their order execution. The fact that the firm does not accept payment for order flow—making it an outlier in the brokerage industry—allows it to provide institutional-quality order execution for clients.
“I hope this is the moment where Fidelity, and hopefully others, will truly execute the market on ‘Not all trades are created equal,’” he said. “And good trade execution, particularly for practices that are increasingly using individual securities...you've got to pay attention to where that order is being routed and what kind of economics are leeching off of that particular trade.”
Durbin highlighted Fidelity’s participation in the Financial Information Forum. They are the only major brokerage, he said, that provides full transparency of its trading execution.
“We know through various forms of reporting, the average price improvement on a thousand share order that we give to our clients is over $17 per trade. Industry average is less than $3 per trade. That delta is a heck of a lot more than [a $4.95 commission].”
Photo courtesy of eMoney
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