Hey guys welcome back to the channel I'm Suzanne with Arvabelle so this week we've
had some interesting things happen in the financial space a few days ago
Charles Schwab announced that they are going to start offering $0 Commissions
and as of when this video is being posted today October 3rd TD Ameritrade
is also starting to offer $0 commissions so how did this happen in the first
place? what does this mean for you? and what does this mean for both large
brokerages and small brokerages moving forward? If you're not already subscribed
to the channel remember to hit the subscribe button and hit the like button
for more videos on money investing and business. First we're going to look at
why these large brokerages are now going to $0 commissions when historically
they're pretty notorious for charging pretty high commissions to use their
services and to execute trades on their platforms. Their transition to $0
commissions is largely because of smaller platforms like M1 Finance and
Robinhood and Webull that had been gaining traction in the last few years.
If you've been following the news or the financial space at all
you've seen that platforms like Robinhood have really picked up traction
especially among Millennials within the last year or so. They run very effective
influencer and affiliate marketing campaigns a lot of their marketing
tactic has simply just been based on the fact that they have low or no fees and
$0 commissions and that has attracted a lot of Millennials to use their
platforms. Until apps like Robin Hood that was pretty much unheard of to have
$0 commissions and no fees because way back in the day to execute a trade you
had to pick up the phone call a stock broker tell them what you want and they
would hang up the phone call someone else put in your order put down the
phone call you back tell you what they got it for like it was a whole process
and it was expensive so they had really high commissions then enter the age of
more the digital world and these brokerages started having options online
but they also had brick-and-mortar locations that you could physically go
into execute orders if you wanted to do it
that way it wasn't until more recently that you could execute all of your
trades online without having to physically talk to a person or interact
with a person at all but the Commission's still stayed there and
people got used to paying $10 and that was lowered down to like $7
$6 $5 as the companies got more and more competitive
but then enter Robinhood and M1 Finance and Webull who were offering $0
Commission's and that totally disrupted the entire industry. Definitely when
these newer platforms started emerging people were like is this a scam? Like how
are these companies making money and that is a several part answer so one
reason that they are largely able to offer $0 commission's is because they
don't have any physical locations and their customer service is not quite up
to par with the larger companies. So if you've ever tried to call TD Ameritrade
they like answer your question before you can even ask it, but if you've
ever tried to contact Robinhood M1 Finance or Webull you know
that it takes a while for them to get back to you it's not an immediate answer
and you can't really get real-time help. But for a lot of people that really
wasn't a major factor because they weren't interacting with anyone unless
they had a minor problem another way that these smaller companies have been
able to make money instead of through commissions is through the ask and bid
spread so without getting too much into it when you buy or sell a stock there
are people that are willing to sell at a certain price and there are people
willing to buy at a certain price and the the gap in between there is called
the spread so they would make a little bit of their money through that gap. Once
people started to understand how these smaller companies were making money
people started signing up and especially Millennials because there is a very very
low barrier to entry compared to larger companies you didn't have to have a
minimum balance so you didn't have to have thousands of dollars saved up and
there were no fees so with the larger brokerages if you only had $1,000 to
trade with but you were paying $10 per trade like that it made the barrier
to entry a little bit more difficult whereas with a smaller company like
Robinhood you could just get started with any amount that you had. So now that
larger companies like Charles Schwab and like TD Ameritrade are starting to adopt
this $0 commission thing that's great for you basically what that means for
you is that you have a lot more options for where you want to open your
retirement accounts where you want to invest in your normal standard brokerage
accounts you just have a lot more options available to you now. But I'm not
entirely sure what that's going to mean for the larger brokerages or for the
smaller brokerages going forward and this is entirely me speculating but
they're losing a lot of revenue by going from five or six or seven dollar
commissions down to zero. So I think they are going to have to make that up
in other areas of their business I'm just not sure how they're going to do it
yet. I think that I could definitely see them raising fees in other areas or for
certain services that their platforms offer I could see them shutting down
physical locations or maybe cutting back a little bit on customer service I think
we'll kind of just have to wait and see what happens and what these larger
brokerages choose to do. So potential areas that I could see them potentially
adding on fees and again this is just me speculating but if you choose to get a
financial advisor through one of these brokerages I could see those fees going
up even like with TD Ameritrade I feel like a very large draw to the platform
is actually for their thinkorswim platform for technical traders. I could
definitely see them like adding on a subscription cost to use that platform
I'm not sure that they would actually do that but I feel like it would make
sense because then they wouldn't be making as much money but they wouldn't
be losing that revenue entirely from day traders they could also potentially make
money from the ask bid spread as well but with the larger companies I'm not
sure that I see that as a way that they would necessarily want to make money I
don't know I think we'll just have to wait and see but I definitely think that
we can expect to see a change either in these companies physical presence
in the quality of their services or in the pricing of some of their other
services. Now as far as these smaller brokerages go I'm not sure exactly what
that's going to mean for them either because before if their main marketing
strategy and their main draw to the companies was like hey look Millennials
we're almost kind of like the big companies but we have zero dollar
commissions and no fees now that marketing tactic is kind of gone so I'm
interested to see what direction they'll take that in. I also think that in order
to be able to compete with the larger brokerages these smaller brokerages are
going to have to start making very big advances in what they're doing and in
their technology in order to be able to compete. But you could also argue that
the whole draw of these three companies of Robinhood M1 finance and Webull is
that they are so simple and so beginner friendly and there's a very low barrier
to entry but the platforms themselves are just very simplified and that's
something that I don't think the larger brokerages are very interested in they
in my opinion don't really have an interest in getting beginner traders
onto their platforms they kind of just want the people that already have money
and already sort of know maybe what they're doing. I just think it's going to
be really interesting to see what all of these companies marketing strategies and
growth strategies are going to be moving forward because Gen Z and Millennials we
are a very different demographic than what the large brokerage is have dealt
with before and I think these smaller platforms M1 Finance Robinhood and
Webull have all done a very good job of marketing to us in the sense of being
like hey you don't have a lot of money that's okay
coming invest with us don't invest with big corporations and their
marketing strategies with influencers and with affiliate marketing has been
really really effective for our generations. So in a way they're kind of
forging the way in the financial space but I think we are going to see some
very very interesting changes in the next few months or the next few years. So
let me know down in the comments what changes
you think that we'll see or if you think that there are any other reasons behind
why these companies are going to $0 commissions because honestly I don't
know what's going to happen but I think it'll be very interesting to watch. So as
always remember to hit the subscribe button for more videos on money
investing and business and remember to drop a like on this video. If you want to
learn how to use a platform like M1 Finance I will link to my review video
walking through the platform up here and I guess now I'll have to make videos on
all the other ones that are now starting to offer $0 commissions. Thanks for
watching and I will see you guys next time.