The Race to Zero

– by Chip Sawyer, CFA, Chief Investment Officer

In case you didn’t see the news, TD Ameritrade is eliminating base commissions for online exchange-listed stock and ETF trades, moving from $6.95 per trade to $0.00. To learn more about this announcement, please see the company press release for additional details (HERE).

TD Ameritrade has been and remains a valued strategic partner of Westover Capital Advisors. We’re thrilled by their move to lower the costs of investing and trading for our clients. The change went into effect on October 3, 2019.

Assuming brokerage firms don’t start paying us to make trades (and, never say never, considering there are negative interest rates overseas), this appears to be the logical and inevitable end of a four-decade trend toward less expensive stock pricing, trading, and transaction costs.

Stock Trade Commissions Pre-1975

Here’s the history: In May 1975, the SEC abolished the fixed-commission model that had ruled Wall Street since its inception. Before that “May Day,” it was not uncommon for the Wall Street customer to be charged hundreds of dollars for one simple stock trade. That monumental 1975 change gave birth to the discount broker model, with Charles Schwab being the pioneer. Yet, notwithstanding that change, old school egregious three-figure commission costs continued to be charged by non-discount Wall Street brokerage houses well into this century.

Thanks to technology advances and competition, Westover Capital’s investment advisory clients will know that when we choose investments, each stock and ETF trade we execute will be both priced fairly and commission-free.

When I started in this business in the late 1990s, not only were stock trading commissions potentially in the hundreds of dollars per trade, but stock prices were set in fractions of a dollar rather than in the pennies they are today. This added an additional cost to each trade, as bid-ask spreads were 6 to 13 times as large as they are now.

I take my hat off to our free market system. Thanks to technology advances and competition, which are inherent in a capitalist economy, our investment advisory clients will know that when we choose investments, each stock and ETF trade we execute will be both priced fairly and commission-free.

It’s truly a great time to be an investor.

Feel free to contact us with any questions or if you would like more information.