Bank of America Joins the Zero-Commission Wars

October 21, 2019 | FinTech, Investments, Latest News, News
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Charlotte-based firm cuts commissions to zero for Preferred Rewards customers

Bank of America has joined the chorus of brokerages to target Fintech startups and slash commissions through its Merrill Edge Self-Directed platform.

The company said Monday that it will expand its zero-dollar to Preferred Rewards customers. It will also reduce commissions for all other customers.

“We began offering zero-dollar trading 13 years ago as one of the many ways we reward clients for doing business with us,” said Aron Levine, head of Consumer Banking and Investments at Bank of America.

In a statement, the firm also said that roughly 87% of trades on its Merrill Edge Self-Directed platform were commission-free.

The firm also said that all Merrill Edge Self-Directed clients who don’t take part in the Preferred Rewards will see cheaper trade costs. The program will offer flat-rate pricing of $2.95 for online stock and ETF trades – down from $6.95 – with no trade or balance minimums.

Bank of America Takes on Fintech Startups

The decision comes weeks after discount brokers like TD Ameritrade, E*Trade, Fidelity and Charles Schwab slashed commissions. The dramatic cuts took aim at Fintech startups like Robinhood, who had generated a loyal following among Millennial investors.

The move by discount brokers could further fuel a massive migration of investors away from these startups. Recently, UBS senior equity analyst Brennan Hawken told CNBC that Robinhood could start to lose its faithful customer base.

“Their business model is now in serious jeopardy,” Hawken said. “Models like Robinhood and others seem unlikely to press ahead at their current pace.”

Meanwhile, discount brokers are likely to see a sharp decline in revenue due to the change in commissions. Firms like Charles Schwab and TD Ameritrade are likely to push customers toward their own internal advisory teams. This could put additional pressure on the RIA industry to develop and maintain client relationships.

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