Samantha Lee/Business Insider
The online brokerage price war has roiled the industry. Now Bank of America is jumping in with adjustments to its trade commissions.
- Bank of America is getting in on the online brokerage price war that's roiled the industry and introduced a new wave of competitive pressure in recent weeks.
- Merrill Edge, the firm's online brokerage business, is scrapping commissions on unlimited stock, exchange-traded fund, and options trades to clients of all tiers of its preferred rewards program.
- But commissions aren't going to zero for everyone. For customers outside of its preferred rewards program, the price of trading stocks and ETFs will drop to a flat rate of $2.95, down from $6.95, with no trade or balance minimums.
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Bank of America's $2.9 trillion wealth management arm is getting in on the online brokerage price war that's roiled the industry and introduced a new wave of competitive pressure in recent weeks.
The bank's online brokerage business Merrill Edge is scrapping commissions on unlimited stock, exchange-traded fund, and options trades to clients of all three tiers in the company's signature rewards program, the company said on Monday.
Commissions aren't dropping to zero for everyone. For customers not enrolled in the preferred rewards program, the price of trading stocks and ETFs will drop to $2.95 per trade, down from $6.95, with no trade or balance minimums.
"The timing makes sense," Aron Levine, the head of consumer banking and investments at Bank of America, told Business Insider in an interview. "It was something that we've been thinking about - might as well go ahead and drive it out."
The firm's decision, which takes effect on Monday, follows moves at the major online brokerages - Interactive Brokers, Charles Schwab, TD Ameritrade, E-Trade, and Fidelity - in recent weeks as the competition to lure young customers who expect rock-bottom prices for financial services hits a boiling point.
Some 87% of trades on the Merrill Edge platform are already commission-free through perks offered to preferred rewards members, Levine said. He now expects that figure to rise to 95% with this move, with the other 5% of users paying $2.95 per trade. Merrill Edge has around 2.5 million users.
Previously, Merrill Edge had only waived commissions fees for 10 monthly stock and ETF trades for its first tier; 30 for its second tier; and 100 for its third tier. That first tier requires $20,000 in deposits or investments. To get access to unlimited free trades across every tier of rewards, clients are required to sign up for a preferred rewards account first.
Bank of America's decision will not have a material impact on total revenue during the fourth quarter, Levine estimates, and anticipates no change to the role of financial solutions advisers (employees who work on the Merrill Edge product, who differ from traditional financial advisers).
The discount brokerage TD Ameritrade, for its part, is more highly exposed to trade commissions. The firm said in a release earlier this month that it expected its commission elimination would have a revenue impact of around $220 million to $240 million per quarter, or some 15% to 16% of net revenue.
Brian Moynihan, Bank of America's chief, on the firm's third-quarter earnings call with analysts last week brushed off the notion that the firm had yet to address the brokerage price war.
"I had that business when we introduced $0 commissions in 2006," he said. "So it's not a new concept to Bank of America."
Bank of America's announcement comes days after the firm released third-quarter earnings results. The firm reported $16 billion in Merrill Edge flows year-to-date.
Merrill Lynch, among the largest US wealth managers, reported 17,657 financial advisers and some $2.9 trillion in client balances.
Rival brokers have also played down the premise that they are responding to competitors by slashing commissions.
Charles Schwab chief executive Walt Bettinger said last week on a call with analysts that Interactive Brokers' move to offer a commission-free tool prior to Schwab's announcement "was not a weighing factor in our decision."
Bettinger added: "This is rather, again, as I indicated, the culmination of planning that we've done from many, many years, and we execute on these type of things without regard to near-term economic factors."
