The race to the bottom has begun! With the herd effect, the other on-line houses will be following suit shortly. The herd effect is alive and well.
I remember the days when it cost over $100 to buy a round lot (100 shares) of stock. The commissions went up at a decreasing rate the more shares the investor purchased. Have times changed!
Now for those grizzled veterans of investment, we know that you don't get something for nothing. There is no free lunch. The question is where they are going to make it up.
With ETF's, they'll probably bury it in an ever so slight increase in their expense ratio. Many investors don’t pay much attention to the fees they pay. ETF’s are a huge part of the brokerage industry’s business now. With commissions so low as they are, it probably wouldn't take but a few basis points (1/100 of a percent) increase in their expense ratio to make it up.
With stocks, they make money loaning LT investor's stocks out to short sellers (They can do this. Authorization is often buried in the fine print when an investor opens an account.). It's called rehypothecation and brokerages have been doing it forever.
The beauty of putting the fees a little higher in ETF's is that it creates a known and steady management fee versus the variability of commissions. This is exactly why brokerages have moved to wrap fees over the last 20 years. The story line is that it keeps the investor’s and the house’s interests in line. The truth is the brokerage's P&L (profit and loss) income line is enhanced with steady and consistent fee income.
The brokerage houses are looking to the future. If trading slows down with a potential recession, they will still make consistent fees and decrease the variability of their company's earnings. Their stockholders will love that!
Just keep your eye out for where they will bury the fees. As Warren Buffett says, " If you're playing poker for a while and don't know who the patsy is, you're it!" Remember, there is no free lunch.
