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Continuing with our new millennium gold rush metaphor, here are some ways the brokerage industry is rushing to accommodate online prospectors. |
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The Rush to Lower Commissions |
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By the time you read this, the market landscape will be changing in significant ways to favor you, the online trader. For example, Merrill-Lynch, the traditional brokerage house that resisted online trading to protect the income of its brokers, recently announced they are going to become an online presence, joining the more than two dozen others who are already at it. |
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When you have assets deposited with them over a set amount, they will offer you a flat-fee-per-year trading fee that allows you unlimited trades. Surely, other brokerage houses will jump into the fray with competitive offerings so they will not be left behind. |
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What is significant about this move by Merrill is that it acknowledges that the old system of paying hundreds of dollars commission for a full-service broker is drastically changing. Full-service brokers are realizing that they must offer customers discounts for online trading or they will lose substantial business. |
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If your full-service stock broker doesn't have any information that you don't have, and can't get it any faster than you can, what added value is he or she providing you to justify charging up to 10 times higher commission? With all news and analysis immediately available to you on the Internet, all you have to do is know where to find it, take the time to read it, and learn to understand it. |
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It is quite possible that in the next few years, individual full-service stock brokers will become the dinosaurs of the brokerage industry. And like dinosaurs, they will slowly become extinct. If you think I'm exaggerating, listen to this story for a clue as to where it's going. |
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A guy in his fifties comes into my office looking and sounding miserably depressed. He is facing the loss of his home, no longer able to make his mortgage payments. He tells me he used to head his own brokerage office where he managed 10 stock brokers, earning a small fortune in commissions. |
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Because of the explosion in popularity of online trading, in the last two years all of the brokers have left him. They no longer could afford to work for him, struggling to hang on themselves. He had no long-term clients to help him survive economically. |
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