We have witnessed a multitude of firms announcing they will be offering zero-commission trading on their platforms in recent months. Now, Bank of America is the latest to join them, after they announced today that their Merrill Edge program will allow unlimited commission-free trading. Charles Schwab Corp, Fidelity Investments, and TD Ameritrade had recently eliminated commissions on online trading earlier this month to entice clients amid increased competition from numerous fintech startups, like Robinhood and Wealthfront, that were offering free trades on their platforms.
The rise of commission-free/robo-investing fintech apps was starting to take a toll on the usage of previously dominant financial institutions. Millennials were attracted to fee-less, easily navigated startup apps like Robinhood, which saw a 50% increase in user growth over the second half of 2018. The rapid growth of cheaper alternative financial services spurred long-time national broker Charles Schwab to become the first of the major firms to announce commission-free trading, which was quickly matched by TD Ameritrade within hours of the news. The firms are aiming to steal away young investors from apps like Robinhood by eliminating their competitive advantage and providing new customers with increased security and reliability for their investments. The large firms joining the zero-commission club are however sacrificing short-term profits, as the absence of commission revenue will reportedly cost over $100 million for a few of the firms.