Charles Schwab fees cuts won t stave off Robin Hood, disruption in broker industry, Jim Cramer says

will there be an effect on interest rates if brokerage commissions on stocks fall? This is a topic that many people are looking for. is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, would like to introduce to you Charles Schwab fees cuts won t stave off Robin Hood, disruption in broker industry, Jim Cramer says. Following along are instructions in the video below:

“Me this why the heck would you give something away for free. If you could could charge real money for it. Instead. I know a lot of people were asking that very question yesterday.

When charles schwab. The big online brokerage house announced. They were getting rid of commission s on certain kinds of traits. Namely stocks options and ets rather than making money from commissions.

They ll make money from the net interest income from clients bountiful cash balances margin lending and the selling of order flow now judging by the way the brokers reacted. You think this news came out of completely no winner. So i plunged 10 percent competitors didn t to the horse he tripped plummeting 16 per second td ameritrade td murphy jimmy be weighted down more than 25 you can understand why investors decide to sell first and ask questions later to be fair swap upended the whole industry. Forcing everyone else to react.

After the closed. Last night. Td. Ameritrade decided that they too would offer commission s free trading and then of course your feet ready and then each.

I did the same thing after the close today suddenly these companies have radically different revenue structures. I mean all the models that wall street had drawn up or wrong. And it s safe to say that wall street isn t thrilled all three stocks got hammered again today so what if it s one here swaps from charging five dollars. A trade now it s go charge zero a trade you can t make that up in volume or they do that simple all these online brokerage houses are under attack from smaller privately held upstarts that are disrupting the entire industry like so many other industries that bender upped disrupted by technology.

I ve surface like robin hood. We had them one we were in california. They already offer free stock trading millennials love them and when enough of your competitors..


Start giving something away for free well it becomes harder harder d for you to charge in other words this was inevitable swap sort of coming and chose to get out ahead of it leaving each rated tv ma rated didn t alert. I just look at the action well all three of the online broker stocks got eviscerated yesterday. The whole group actually peaked about 18 months. Ago epic.

Terrific run from 2016 through spring of last year. Schwab e. Trade and umber tree crashed headfirst into a rig. Even before yesterday s breakdown.

Schwab stock it falling 30 percent from its highs in 2018. A trip. As well 34 percent married down 26. Why because they re being disrupted that s what it looks like to be disrupted.

I think about amazon retail forever sake these smaller millennial focused online brokerages have been eaten alive. Robin hood s the most recognizable one six years ago offering free trading stocks ets options crypto currencies and it s been taking market share ever since as of last year. They have 6 million accounts. You ve also got acorns that s the cbbc partner.

The specializes in micro investing not to mention m1 finance. Which offers free trading and specialized in automated investment. But it s not just these small venture capital backed firms that are shacking thing shaking things up even some major players like jp morgan and begun to dabble in commission free training put it all together as clear. The writing was on the wall.

And that s why schwab did what it had to do as cfo. Peter crawford. Explained that quote..


We re seeing new firms trying to enter our market using zero or low equity commissions as a lever. We re not feeling competitive pressure from these firms. Yet. But we don t want to fall into the trap that a myriad of other firms in a variety of industries have fallen into and wait too long to respond.

The new entrants. It has seemed inevitable that commission s would head towards zero. So why wait end quote. Sure makes sense to me smart guy.

What does it mean in terms of the numbers swab sacrificing 90 to 100 million in quarterly revenues. Only three to four percent of the total total because commissions per revenue trade have been flowing for years. Yet. The stock was down ten percent yesterday.

Now after taking the day to think things over td ameritrade came out after the close sorry. They re gonna get rid of the commission s to each trade. I ve mentioned followed and footsteps 24 hours later it s very difficult to keep charging money for something that your competitors are giving away for free. All of this is starting to sound.

Familiar to you that s because we ve heard the story before in a host of different industries. All my brokerage space is just the latest business to be disrupted mostly by unprofitable venture capital back competitors. If your investors only care about revenue growth not earnings. It s really easy to undercut your rivals.

Most recently for instance. We ve seen this in the online food delivery space for years dominated the industry. Very little in the way of meaningful competition stop was an incredible performer..


But that all of these money losing competitors started expanding aggressively from the oberon suppose pigs door wow now grab what needs to fight tooth and nail for every basis point of market share in their stocks been crushed how about a line technology make your invisalign braces the transparent removal ones that people absolutely love aligns patents expired now they re facing a competition for any a small threat club another unprofitable venture. Kappa bad company. That s trying to disrupt that industry. Now smile.

Direct has been a completely awful performer since it came public a few weeks ago. But that s not much solace tell line shareholders uber and lifted the same thing to the tax. The industry as long as these leaner meaner disruptors can keep securing new funding. They can wreck the margins of their competitors.

Now we ve had so many of these money losing ipos that the marcus gotten sick to them that s really neither here nor. There is it the point is that there s an established pattern here that s what schwab is reacting to in other words while the market may have been surprised by this news. Anyone who was paying close attention to the industry probably should have known it was coming. I think it s too risky to necessarily start bottom fishing in these stocks not in this hostile market.

It s kind of disruption often results in prolonged periods of weakness for the incumbents. That said if you put a gun to my head. I would say will you please take the gun away from my head. But i would look at schwab.

Because only 6. Is commish right six for the total rev. So it s not really sacrificing much. Remember that cfo said was more like the three to four percent hit that s very different from a trade commissions make up 16 of the total say nothing a merger trade.

24. No wonder murder trade got hit hardest. Plus..


You got a finger swab is more prepared for this and their betters they the ones implanted and they also have the most incredible acid gathering machine. I have ever seen in my career bottom line thanks to smaller privately held players like robin hood. Which can lose scads of money to grow fast. Charles.

Webb t. V. Ameritrade and etrade have been forced to offer commission free trading. But this is not some one off out of nowhere event.

Schwab made the move because they were being disrupted and while this should give them more breathing room. I don t think it changes the core dynamic here at the end of the day. You don t want exposure to an industry. That s being disrupted.

Now swab is definitely positioned better than the other. But it might turn out to be just the best house and a very bad paper sticker don t miss a second of mad money follow at jim cramer on twitter have a question tweet cramer hashtag mad tweets send jim an email to mad money at cnbccom. Or give us a call at one eight hundred seven forty three cnbc miss something head to mad money duck cnbccom. You e ve to help you make money say money or save you from making a mistake.

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