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Zero Fees – Part Deux

Updated: Jan 11, 2021

Ode ‘n’ Such to Zero Fees

Throwback Thursday #TBT, to a Thursday in late November (2019)! Back in a different time, a simpler time, a time when zero fees weren’t everywhere. Where all you were consumed by, was frantic shopping, and drunk relatives (well, actually, timely still).

You might recall the below {ETFication} renewsing segment. But I remember when Schwab went to zero fees… And thinking to myself… ‘well, things are never going to be the same’.

But are Zero Fee’s really all they’re cracked up to be? The jury’s out:

Schwab Wasn’t The First…

I mean sure, there was Robinhood first…  but this felt different. And it was different. As the Schwab father himself (Charles Schwab, founder and CEO of the publicly traded company bearing his namesake SCHW) put it best: “With commissions out of the formula, investing is more efficient. Commissions get in the way of investment performance and asset allocation and they are an unneeded encumbrance for the investor.” (And we couldn’t agree more!).

And so uncle Chuck forced the smaller hands of Ally Invest and E-Trade and the relatively larger hands of Interactive Brokers and TD Ameritrade. Which later moved the HUUGE hands of Fidelity and finally Vanguard.

(Quick poll: better hands: Trump Hands / Adam Smith’s Invisible Hands)

But of course, Robinhood had already, in the words of LL Cool J: “been here for years, rocking my peers, putting suckers in fear”… by their offering no-free trades since 2014 – having been initially laser focused on this area.

A big part of why Schwab felt different (and was different), was because when Schwab went zero fees, it rocked TD’s stock price… and then Schwab buys TD for part of their master plan. 

So it was actually more like Schwab who, also in the words of LL Cool J, were “Makin’ the tears rain down like a monsoon, listen to the bass go boom, explosions, overpowerin’, over the competition … towerin’ know.. and general boss maneuvers.

But let us table for a moment our interpretation of which modern finance company would best substitute as the protagonist of 1990’s epic diss track: “mama said knock you out”, and turn to an equally riveting topic: a nuanced look into business economics and the personal finance landscape. Do we know how to party, or what?

Is It All Benevolence, or Is There Some Business Too?

Schwab and TD have approximately $4 trillion and $1.3 trillion in client assets, respectively.  And while we agree with part of what Chuck says – that fees are an unneeded encumbrance for the investor, it’s important to understand how he himself is an investor, and/or runs his company.

Net interest generates >60% of Schwab’s annual revenue, and in 2019, they paid clients an average of 0.33% on deposits while earning an average of 2.17% on those assets.

Read: They want to pick up more of those assets (read: your accounts $$$). So buying TD is a play to more of that. And it’s also strategic, in that TD is more trading/trader focused, and Schwab is more advice/ less frequent trading driven.

But the combined firm would have about 1/3 of its assets in their custodial / RIA business (read: the fee-based, fiduciary advisers that Schwab and Ameritrade provide the custodial platforms for).

Charles Schwab 10K

Charles Schwab 10K

“Direction and level of interest rates are important factors in our earnings” -10K annual report.

That was me putting it mildly, Schwab also has a bolded section: Significant interest rate changes could affect our profitability well. Know what else is going to 0? So expect some volatility and correlation with rates (i.e. Schwab’s stock fell >10% on 3/16, a day after the Fed cut rates)

Schwab told shareholders at the end of November that TD Ameritrade’s cash sweep vehicle would be a key opportunity for the firm after it renegotiated its cash agreement with TD Bank, and it anticipated spread-based revenue to make up 58% of the combined entity’s net revenue.

Well, with that given strategy, and the way things are unfolding with rates now… I imagine there’s gonna be a call-back to this article/theme as a re-re-renewsing of sorts. We’ll try to chime back in with some updates on priority as things develop


Overall, ETFication try to present the best info, innovations and resources (via our info & tools, like Portfolio Shepherd – our APP) so that you can become the best shepherd of your own portfolio.

If you continue to learn (like what we strive to impart, and seek out your own/other learnings) and if you like the prospects of SCHW, you can buy that stock and add it to your flock (or stay away of that wolf in sheep’s clothing). Or you could look at some of their products and services to help manage your portfolio.

If you don’t know where to get started with ‘portfolio’ or ‘investing’, look around here.

[Also, this is in no way a recommendation for you to buy any stock specifically, or use their platform or services, just an encouragement for you to understand their business, and to take control of your finances and investments]

Like It or Not, Changes in the Industry Are Coming…

At the time, many of the naysayers and haters said, What-The-Chuck!? and spoke of the unintended negative externalities of moving to zero fees – like under-thinking or overtrading. Well, we think something is coming with this ETFication of sorts, and the industry is you know, as LL Cool J would say: “going insane, Startin’ the hurricane, Releasin’ pain, Lettin’ you know, You can’t gain or maintain, Unless you say my name” We also aim to alleviate the so-called ‘encumbrances’ that are self-afflicted – either by unknowing bias’, or via missing information on a topic/opportunity.

One quick thing before we go, which we can dive into later, but not to keep the party too Chuck centric, Morgan Stanley (Ticker: MS) announced its acquisition of E*Trade on Feb. 20… *It’s going to be even BIGGER and BETTER than the Schwab party… yeah, you’ll see…

The long and the short of it is. There’s a lot happening in the industry, and a lot of competing forces… but a lot of that flushes out some great opportunities for the investor.

We hope you found this insightful, and as always, please add your .02 in the comments! What did we miss, what did we get right, what’s on your mind, what do you want to hear more of?

Shepherd your portfolio. Shep it good.

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