Race to the Bottom Heats Up

Earlier this month Fidelity became the first investment manager to offer no-fee index funds. In a splashy TV and print campaign the mutual fund giant introduced the aptly named Zero Total Market Index and Zero International Index funds. At the same time, Fidelity announced that it was lowering fees on other core mutual funds by an average of 35 percent.

Then, this week JP Morgan became the first big bank to introduce an app offering free stock and ETF trading. The “YouInvest” service allows users 100 free trades per year and $2.95 per trade thereafter. For Chase Private Clients with at least $100,000 in holdings, free trades are unlimited.

Both events are just the latest moves in what has become an intense and persistent price war in asset management and brokerage. They evidence the cut throat competition among leading providers in the space and the rising demand among investors, particularly millennials, for lower fee products.

They also indicate a new approach to “selling” what are highly popular but commodified services. Fidelity and JP Morgan have both positioned their new free offerings as incentives or complimentary services encouraging clients to build and sustain a broader relationship with the institution.

For wealth managers, the price war is a mixed blessing. While it may increase client sensitivity to fee levels, it lowers the asset management fee for core products allowing the advisor fee to remain competitive.