Online Brokers Open Physical Offices/Online Trading Is Free for Large Depositors

The cost of trading stocks online has plummeted since the inception of online trading in the 1990s, thanks to the low overhead achieved when an internet-enabled brokerage uses the latest technology to cut the amount of costly office space and support staff required to execute trades. (Processing trades online is vastly more cost effective than the pre-internet process of placing orders by phone with individual brokers.) Furthermore, an increasing number of investors are using the internet as their primary method of buying, selling and tracking investment portfolios and financial accounts, regardless of whether those portfolios consist of stocks, bonds, mutual funds or other assets. Likewise, tens of millions of households now manage their bank accounts online. Research and investment advice (both good and bad) are readily available and easily located on the internet. Virtually all stock brokerages that offer online trading also make research reports available online to their registered account holders.

In October 2019, Charles Schwab Corp. ceased charging commissions for trading stocks, ETFs and options online. Competitors including TD Ameritrade Holding Corp. and E*Trade Financial Corp. rushed to do the same. Brokers now must find alternative ways of generating income, such as Charles Schwab’s asset management service called Schwab Intelligent Portfolios Premium. Customers pay a modest service fee for unlimited access to financial planners and online tools to meet financial goals. The focus is on financial planning as opposed to investment management. Many of the financial plan details and suggestions are generated by computer models that take into consideration such factors as age, income and personal goals.

Also, like most banking companies, many leading online brokerages are adopting a bricks-and-clicks model that combines physical storefronts with online services. For example, E*Trade opened its first physical brokerage branches in 2001. Called E*Trade Financial Centers, these branches are designed to encourage personal visits by customers. Locations are now in major cities nationwide. In fact, E*Trade has broadened its services beyond trading to include banking, lending and outsourced services. Leading discount broker Charles Schwab has also built a blend of storefronts and online offerings. Fidelity has a nationwide chain of large storefronts in addition to its popular web site. TD Ameritrade has hundreds of branches across the U.S. to service its accounts in person as well as online.

This is all part of a general trend for discount brokerages to expand physical branch networks and seek new ways to earn revenues from fees and services in addition to trading. These services may include options and futures trading, financial advisory services, life insurance, annuities, banking, lending and outsourced employee benefit services. This is particularly important today since competition for discount trades has become so fierce and commission rates have dropped to rock-bottom levels.

In October 2020, Charles Schwab completed its acquisition of TD Ameritrade Holding Corporation for approximately $22 billion. Both companies had a history of working to make investing more accessible. They offer free online trading along with appropriate tools to assist customers online. At the same time, both own chains of hundreds of physical brokerage offices so that customers can obtain assistance in person when desired, to accomplish tasks such as opening accounts and making broker-assisted trades. The bricks-and-clicks strategy also includes touch-tone phone trading—seeking every possible avenue to communicate with and satisfy its customers.

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