What do commission-free trades mean for you?

Brokerage firms Charles Schwab & Co. and TD Ameritrade recently announced that they would stop charging brokerage commissions on trades for exchange traded funds and even stocks.  Some of you may have wondered what impact this will have on you and also will we (Beacon) make any changes to your portfolio as a result.  Here are our answers to a number of common questions:

1.    Will this result in a meaningful cost savings for me?

While we would not expect a significant cost savings to Beacon clients every little bit helps.  The reason for this is due to the fact that our investment and trading strategy already revolves around controlling many of the “frictional” costs of investing.  These would include commissions, tax costs and mutual fund internal expense ratios. Because trading costs have always been minimal for our clients, we do not expect the elimination of trading costs by Schwab and TD to create a significant cost savings.

2.    Will Beacon be making changes to my portfolio as a result of there being no commissions assessed on some trades?

Over the course of the last decade, there has been an industry-wide shift away from mutual funds toward exchange traded funds (ETFs).  There are a number of reasons for the transition to ETFs, but we expect this transition to accelerate as a result of the elimination of trading costs. For a deeper understanding about industry-wide shift away mutual funds to exchange traded funds (ETFs) checkout this article!

For Beacon clients, we would expect to expand our use of exchange traded funds and take advantage of the many benefits they offer.  Without the “hurdle” of a trading cost, we will be able to more efficiently utilize ETFs in client portfolios.

3.    Will Beacon only use exchange traded funds in client accounts?

No.  We will continue to own and invest in traditional open-end mutual funds for those clients in which it is most beneficial to do so.  Every client has varying preferences and circumstances.  We will do what’s best for our clients.

4.    Will clients be assessed “other fees” to make up for Schwab and TD losing the revenue stream of commissions?

For now at least, there are no plans for Schwab or TD to increase account fees by passing along other types of account-related expenses to clients.  Industry pundits have guessed that both Schwab and TD are considering asset-based pricing models, which charge clients based on the amount of assets held in accounts.  However, this is purely a guess.  As a fiduciary working in our clients’ best interest, we will monitor this situation closely and recommend changes as needed.

The financial services industry has experienced many changes and shifts over the years.  Fortunately, many of the changes serve to benefit investors by providing ease of cost-effective access to the financial markets.  We are excited about the direction our industry is headed and look forward to helping you navigate an ever-changing world!