A man studies the Wall Street Journal and considers placing a trade
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In a matter of a few days, the brokerage industry went from charging customers for making trades to handing them out like candy at Halloween. Virtually every major online broker is now letting you trade stocks and ETFs without a fee. Many are also offering options trades without a base commission, though they do still require a per-contract fee, often around $0.65 a pop.

So with brokers ending the price war in a tie, what should consumers be looking for next from their broker? Bankrate spoke with several people across the industry to get their takes on how they see things shaping up in the near future.

Free trading is the new standard

Interactive Brokers kicked off the latest – and presumably last – round of price cuts in the race to zero commissions, launching its discount platform IBKR Lite. Days later, Charles Schwab announced they would stop charging commissions for stock and ETF trades, as did TD Ameritrade. Then in subsequent days nearly every other major player fell in line – E*Trade, Ally Invest and others came shortly thereafter.

Merrill, owned by Bank of America, joined the fray more recently, slashing its standard commission from $6.95 to $2.95. Members of Bank of America’s preferred rewards program now receive unlimited free trades, though they still pay a per-contract fee for options trades.

Fidelity Investments took a few days to fire its shot in the price war, and it showed why Fidelity was Bankrate’s selection for best overall broker. Not only did Fidelity slash its trading fees to zero, it also emphasized the company’s investor-friendly heritage and hinted at how other brokers would subsidize free trades — by selling their clients’ order flow to high-speed traders.

So Fidelity said that it would “automatically direct retail investors’ cash into higher yielding alternatives available for new brokerage and retirement accounts, and provide industry-leading best execution practices with zero payment for order flow for stock and ETF trades.”

“Up until the major players started announcing zero commission they decried payment for order flow as being against the customer’s best interests,” says Anthony Denier, CEO of Webull, a commission-free trading platform. “Now they embrace the practice — a very abrupt change.”

Fidelity explicitly called out this practice, and its moves are among the most investor-friendly in the industry, as it’s already anticipating the next front in the broker wars — around other services.

The next battle lines for brokers

Now that brokers won’t be competing on price, the battle lines are being redrawn. The industry will shift, and many changes are afoot, some of which will be beneficial to investors. Here’s what investors should be watching and demanding from their broker. While brokers may be introducing new services to compete, they may also be cutting other services you value.

“Think of telco operators back in the ‘90s, who all tripped over themselves to offer free long-distance calling when in reality it didn’t cost any more money to place a long-distance call versus a local call,” says Alan Grujic, CEO of All of Us, a new trading platform. “In a similar way, the time for extraneous fees in investing has ended.”

While the commission-slashing is good news for investors, it’s long-term buy-and-hold investors who really make out on this seismic shift in the industry.

“It seems as if these brokerage firms are encouraging frequent trading, which is not always beneficial for the investor,” says Morris Armstong, head of Armstrong Financial Strategies in Cheshire, Connecticut. “The reality is if you paid $15.95 for a long-term investment, or zero, it will not matter.”

Armstrong suggests that investors who ramp up their trading activity could be increasingly preyed upon by more sophisticated high-speed computerized traders.

“If offering free trading encourages clients to trade much more frequently, the client is more likely to perform worse and the brokerage will still be generating revenue through activities like selling order flow,” adds Adam Grealish, director of investing at robo-adviser Betterment.

But the presence of the high-speed pros shouldn’t scare away investors, either.

“If you’re a small investor, you’re probably better off with no commissions than the minimum gain you’ll get on better execution,” says Jerry Raio, head of capital markets at ClickIPO, a company that allows investors to find and purchase IPOs.

So investors should be watching that they maintain their investing discipline even as fees shrink. They’re also likely to see brokers add new features or compete more on existing features.

“Now that commission pricing has been normalized, investors will be able to compare brokers on their accessibility, offerings and customer experience,” says Denier.

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Watch for these new features

The sweep account could be a new battlefront, and investors should keep an eye on this area to see who might be helping or shortchanging them as a way to make up lost trading revenue.

“The individual investor needs to be looking at other places where the broker might be making up the revenue, and the sweep account is one area,” says Raio.

A sweep account is an account where the broker moves the client’s excess cash, to earn them some extra money. The money is typically deposited in a safe money market fund.

“If the broker does an FDIC sweep, what rate will I be getting on that?” Raio asks.

Robinhood, a broker long-known for its zero commissions, is rolling out a cash management account advertised with a 2.05 percent yield, as a means to help counter its new zero-fee rivals. Interactive Brokers has long been a leader in offering clients an attractive yield on cash, too.

While the war over commissions may be over, brokers may now compete on other prices.

“There is still lots of room for the pricing battle to continue, whether it be returns on uninvested cash or margin financing rates,” says Denier.

Even today, margin rates vary dramatically between brokers. They may sometimes reach as high as 10 percent, while falling as far as the low single digits in the case of Interactive Brokers, which offers one of the most attractive lending setups in the industry.

Still, brokers will need to use other features to make their offerings more enticing, too. Denier sees “educational content, community, and most importantly, technology” as “the differentiating factors that separate the players in the discount brokerage space.”

And new services may also emerge as a way for brokerages to differentiate themselves.

“Brokerages will move toward more advice, toward fee-based accounts,” says Raio. “That may mean that brokers may start charging, say, a subscription fee for advice.”

New services include even more radical moves that actually return money to clients.

For example, trading platform All of Us earns money from selling order flow but caps its fees at 0.5 percent annually, with the rest being returned to the client. With a $20,000 account, for example, a client would pay no more than $100 a year.

New services may also revolve around your phone, which will likely increasingly be a site of contention, as brokers scrap for investors’ mindshare there. “The future is mobile, so expect new battles to be fought for real estate on your smartphone,” says Denier.

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Expect major changes to brokerage services

While the industry is undergoing massive changes, investors should expect the services offered by their broker to change as well, so they’ll want to watch how the fallout affects these services.

One of the near-term changes will be the merger of brokerage rivals. Raio and Denier both foresee this happening in short order.

“In the near term, we will see lots of consolidation as the smaller players get acquired for either their technology or account base,” says Denier. “Regulators will slow this process, but expect to see many headlines early next year.”

This industry consolidation will lead to a greater focus on costs, and that may lead to substantial layoffs and reduced service. Clients may see downgrades in customer service and branch operations, Denier suggests.

With a greater focus on costs, companies will need more efficient processes.

“Investors will increasingly seek better integration of data between banks, custodians, insurance companies, and employer-sponsored retirement plans,” says Clint Walkner, financial adviser at Walkner Condon Financial Advisors.

Walkner sees this trend leading to “the rise of smarter financial planning applications and a more proactive approach to offering solutions, for example, saving money on a mortgage or reducing expenses in investment accounts.”

And low-cost fintech companies will continue to disrupt the industry, so expect innovative services that challenge the traditional discount brokers and other players in the industry.

“The rise of customer-centric fintech companies has pushed the industry in a more client-friendly direction, and part of that is lower fees,” says Grealish. “Fintech companies use technology to achieve lower operating costs and are able to pass that savings on to customers. This has forced incumbents to follow suit.”

Denier adds: “Fintech companies will continue to offer better rates across the board for all products solely because they’re based in technology. The traditional discount brokers cannot compete.”

So individual investors should continue to look for innovative services as competition heats up, but it may mean that some of the services that they’ve relied on until now may be scaled back or eliminated entirely. More costly in-person services, for example, are likely to be downsized, as companies search for the most cost-effective options amid the intense rivalry.

What should investors do?

With all the new services and plummeting prices, it’s a great time to be an individual investor, especially if you’re able to look for the best options and aren’t tied to one provider. But you’ll now have to examine a broker’s features even more closely to see if they meet your needs.

With a headline number such as trading commissions, it was easy to compare brokers on a major feature, even if it wasn’t the only differentiating factor. Now it will be even tougher for customers to evaluate a broker’s offerings, but a good place to start is looking at its sweep accounts and its margin rates, if you use those features.

Of course, it’s not all about price. If a broker offers a certain feature that you need, such as physical branches, then it may be the best choice for you, regardless of other factors. So it’s important not to get caught up in the hoopla surrounding free trades.

“Consider your current and future needs,” says Shad Besikof, COO at TruClarity Management Solutions, an adviser for financial advisers. “For example, if it’s just casual ETF or equity trading that you’re seeking, then all online brokerage platforms can be good options.”

But if you have very specific needs or many different needs, “then it may be best to create a comparative list and ask the necessary questions to each online brokerage firm to ultimately determine what’s right for your specific needs,” says Besikof.

Bottom line

With most of the major brokers dropping their trading commissions to zero, individual investors now need to shift their focus to see where they can demand better service or where they might be paying hidden costs that help offset those new “free” trades.

While free trading may be enticing, investors still need to find the brokers that really meet their needs. So that may mean investors have to probe deeper than ever before to see how a broker truly benefits them.

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