(Bloomberg) -- Fidelity Investments is crashing the free-trading party, challenging rivals in a gambit to lure assets by ending commissions.
The firm will offer not only zero commissions for online buying and selling of U.S. stocks, exchange-traded funds and options, but also provide higher yields for cash balances and better trade execution, according to an announcement Thursday.
The move is the latest leg in the price-chopping frenzy engulfing retail brokerages. Fidelity is the fifth major industry player since last month to roll out some form of zero-commission online stock and ETF trading as companies duel to win investors gravitating toward the cheapest products. Fidelity and its rivals have also been slashing other trading commissions and fees.
The Boston-based firm, the largest online brokerage with almost 22 million accounts, boasts in a new ad that retail customers will earn 1.58% on their cash balances automatically swept into a money-market fund, based on yields as of Oct. 8. That tops rates at rivals, the firm said, asserting that customers also save by using Fidelity’s trade execution.
“This combination is something that no other firm offers,” Kathleen Murphy, president of the closely held company’s personal investing business, said in the statement.
Vanguard Group, a low-cost fund leader, said the firm also sweeps investors’ brokerage account cash balances into higher-yielding money market funds with a low expense ratio. The Vanguard Federal Money Market Fund, for example, yielded 1.9% with an expense ratio of 11 basis points as of Oct. 9. For mutual fund investors with less than $50,000, Vanguard charges $7 for the first 25 online trades and $20 thereafter, according to the firm’s website.
The competition among banks, brokerages and money managers has been intensifying. The investing industry crossed a milestone in August as assets in index mutual funds and ETFs surpassed those in actively run vehicles for the first time, and heavyweights like Charles Schwab Corp., Vanguard and BlackRock Inc. have stepped up the battle for market share.
Interactive Brokers Group Inc. announced commission-free trading of U.S.-exchange listed stocks and ETFs in late September. Schwab, TD Ameritrade Holding Corp. and E*Trade Financial Corp. rolled out similar offerings the following week. The announcements of the free service, which threatens the revenue of the brokerages, spurred share declines for the publicly traded companies.
Schwab, with more than 12 million brokerage accounts, dropped its commissions from $4.95 per trade, starting Oct. 7. The company had previously matched cuts by Fidelity, reducing its retail trading commissions to $4.95 from $6.95 in February 2017.
Fidelity’s latest move is part of an ongoing shuffle at the firm, which had $2.8 trillion of managed assets as of Aug. 31.
The company that built an empire on the prowess of its stock pickers startled the industry last year by offering several zero-fee index mutual funds and has since expanded its slate of commission-free ETFs, giving investors more options with smart beta and active products.
Abigail Johnson, the company’s chief executive officer, said in an interview with Bloomberg Markets magazine in November 2018 that offering a series of zero-fee funds and eliminating investment minimums were aimed at allowing the firm to “find other ways for people to give us a try.”
(Adds Vanguard comment in sixth paragraph.)
To contact the reporters on this story: Michael McDonald in Boston at firstname.lastname@example.org;Melissa Karsh in New York at email@example.com
To contact the editors responsible for this story: Alan Mirabella at firstname.lastname@example.org, Josh Friedman, Vincent Bielski
For more articles like this, please visit us at bloomberg.com
©2019 Bloomberg L.P.