E*Trade slashes its fees in bid to shake up market
E*Trade slashes its fees in bid to shake up market
ROB CARRICK
Those low stock-trading commissions that American on-line investors have enjoyed for years are coming to Canada.
Discount broker E*Trade Canada is to announce today that its minimum commission for trading stocks on the Internet will fall 26 per cent effective Jan. 10. The new rates are to be $19.99 for mainstream investors and $9.99 for active traders, down from E*Trade's current top fee of $26.99 and as much as $29.95 at other firms.
Discount brokers are basically order takers for investors who call their own shots, and that's why they charge about one-third the commissions of full-service investment dealers. You can trade on the phone with a discount broker, but the lowest commissions are always reserved for on-line trading.
E*Trade is cutting commissions to build its presence in the Canadian market, where it has never made much headway against dominant bank-owned brokers, such as BMO InvestorLine, CIBC Investor's Edge, RBC Action Direct, ScotiaMcLeod Direct Investing and TD Waterhouse, the industry leader.
"Separating ourselves by a dollar or two from the pack isn't really separating yourself," said R. Jarrett Lilien, president and CEO of New York-based E*Trade Financial Corp., parent of E*Trade Canada. "We have to make a clear statement."
When it comes to price, the only clear statement from Canada's bank-owned discount brokers is that stock-trading commissions are an area where they choose not to compete these days with anything more than perfunctory effort.
A grand total of $4.95 separates the most expensive of the bank-owned brokers, Action Direct at $29.95, from the cheapest, which is Investor's Edge at $25. A $24 commission is available at the tiny independent firm, eNorthern.
"The market is less competitive in Canada," Mr. Lilien said. "That's one reason why we haven't had to become more competitive earlier with our commissions."
E*Trade's commission cuts will bring its Canadian fees in line with those charged in the U.S. market. The firm says it polled some of its Canadian clients and found that 80 per cent of them believed there was an unacceptable difference between Canadian and U.S. commissions. More than 50 per cent said they would bring additional assets to the firm if commissions were cut to U.S. levels.
Canadian discount brokers have certainly lowered prices from the early days of on-line stock trading in mid-1990s, when E*Trade Canada charged $38.88. But most now have pretty much the same pricing scheme they had in place five years ago or more.
Brokers in Canada have a few stock reasons why they're so much more expensive than their U.S. counterparts. There's the larger U.S. market and the economies of scale that entails, and there have been claims that Canadian investors don't trade as much as Americans and thus don't generate as much revenue.
Whatever the reasons, the competition that hit the U.S. market hasn't arrived north of the border until now. Ironically, Mr. Lilien says, price is hardly an issue for U.S. discounters any more. "People aren't competing on price any more," he said. "They're competing on functionality and service."
E*Trade Canada compares well with other brokers in terms of functionality, but its service has generated many complaints to this column over the years. Mr. Lilien said that in addition to cutting commissions, the firm will also try to improve its services levels.
The bigger problem for E*Trade, one of the largest discount brokers in the U.S. market, is that it's an independent going up against bank-owned competitors who have a built-in pool of potential customers.
At $26.99 for stock trades, E*Trade Canada doesn't have enough leverage to pry investors away from the comfort of dealing with a familiar name.
E*Trade also hurt itself in Canada with fuzzy marketing that seemed to target aggressive stock traders as opposed to mainstream investors, even while the firm provided the mutual funds and bonds that the mainstream requires. E*Trade offered steep commission discounts for active traders, but the pricing scheme was laughably complex.
"Our pricing hasn't been awful, but it has been confusing and it hasn't been the most competitive," Mr. Lilien said. "Our overriding idea now is to take control, to go after it a little bit."
Active clients will qualify for the $9.99 rate if they trade more than 30 trades a quarter. As is standard practice in the discount brokerage business, this commission will be applied in Canadian dollars for trades on domestic exchanges and in U.S. dollars for trades on U.S. markets.
The changes at E*Trade Canada include a new head of operations, Duncan Hannay, who replaces Bruce Seago, a 10-year veteran at the firm. In a sign of further change in the discount world, BMO InvestorLine recently parted ways with president Tom Flanagan.
rcarrick@globeandmail.ca
The cost of trading stocks
E*Trade Canada will be cutting its minimum stock trading commission to $19.99 from $26.99, effective Jan. 10. Here's how E*Trade compares with other discount brokers for trades of up to 1,000 shares.
MARKET ORDERS LIMIT ORDERS
E*Trade Canada $19.99 (from $26.99 Jan. 10)
eNorthern $24
BMO InvestorLine $25 $29
CIBC Investor's Edge $25
Credential Direct $25 $29
ScotiaMcLeod Direct Investing $25.95 $28.95
Qtrade Investor $27
National Bank Discount Brokerage $27.95
Disnat $29
HSBC InvestDirect $29
TD Waterhouse $29
RBC Action Direct $29.95
Market orders are where the investor accepts or pays the going market rate for a stock, while limit orders specify a maximum the investor is willing to pay or a minimum he or she will accept.
July 16, 2006 at 02:06 AM in Financial Services | Permalink
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