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Race to the Bottom

Last month, Interactive Brokers Group, Inc., announced the October launch of IBKR Lite, a new offering that would provide commission-free trades on U.S. exchange-listed stocks and exchange traded funds (ETFs). Not to be outdone, three days later, Charles Schwab, the largest publicly traded online broker, followed suit similarly eliminating all commissions on online stock trades. Later the same day TD Ameritrade did the same. E*Trade and Fidelity quickly followed.  

These dramatic events are the latest in an accelerating race to the bottom for fees. The investing public has apparently reached the conclusion that the cost efficiencies of electronic asset management and trading are real, significant and should be passed on to the consumer. Indeed, the perception that many of these services are largely automated and virtually without cost has become widespread, fueling the demand that they should be an accommodation rather than a paid for service.

While these latest events do not impact wealth managers directly, they do help to underscore what the consumer views as value-added versus commodity services. In this regard, wealth managers may be well-advised to take the following steps:
○ Draw a clear line between the product/operational side of their offering and the custom designed, personal advisory side.

○ Ensure through clear and regular communications that clients understand the work involved in, and the value derived from, the advisory side.

○ Be transparent about pricing with reference to the two sides and how efforts are being made to minimize the cost of operational services and product production.