JPMorgan’s free stock trading app could prompt race to the bottom from Fidelity, Schwab

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A big announcement by JPMorgan on Tuesday could precipitate the next chapter of a price-war that’s long been underway on Wall Street. 

JPMorgan unveiled a new stock trading application that would offer in some cases zero-commission stock trades in an interview with CNBC. Vanguard Group also said on Tuesday it would offer a platform of free ETF trading, following Fidelity which announced earlier in August that it was rolling out a zero-fee index fund.

And now market experts expect the news could bring the cost of trading sharply lower, accelerating a trend that’s been in the works since discount brokers came online decades ago. 

“It is another piece of evidence that we are going to zero,” Devin Ryan, an analyst at JMP Securities, said in an interview with Business Insider. 

Ryan said the news would force the hand of other brokerage firms to act soon to preserve their own market share. 

“The question is how does the industry react,” he added. “We are going to see them invest in pricing. They’re going to act a little sooner than they might have.” 

JPMorgan is following a similar model to Amazon Prime. Free two-day shipping to customers may act as a loss leader to Amazon, but the company is betting this perk will encourage shoppers to buy more on the site. In the same vein, JPMorgan is offering free trading services to Chase users with the hopes that it’ll incentivize them to do other, higher margin business with the bank. 

Shares of online brokerages such as Charles Schwab and E-Trade dropped on Tuesday, showing the risk that JPMorgan’s plan poses to the already cut-throat brokerage price war. 

These firms are already bringing down their costs to fend off upstart firms such as Robinhood, which pioneered zero-commission stock trading for its 4 million users. 

“Free is the new cheap,” wrote Bernstein quant and macro specialist Ethan Brodie in a note to clients. 

A TDAmeritrade spokesperson told Business Insider it is “very well positioned to compete and win in a low-cost environment. However, the competitive environment will likely continue to shift, and we will remain nimble.” 

A spokesman for Schwab did not specifically refer to price compression, saying in a statement that the firm would “continue to aggressively lead the way in improving how people invest and manage their wealth.”

TDAmeritrade charges $6.95 per trade, whereas Schwab charges $4.95. 

Ryan said it’s a matter of when these firms charge zero for trading, not if. Ultimately, that will translate into a world in which brokerage firms and startups alike will have to adjust their business models to offer other high touch services to clients from which they can profit. Ryan specifically said they might venture into financial advice.

“The world is evolving and finance firms will have to offer more holistic services,” he said. 

Mike Sha, the CEO of digital wealth management firm SigFig, said that the end of the broker price-wars may end with only a few casualties. Sha’s thesis is that there are enough under-invested Americans for startups and existing brokers to survive. 

“I actually think what is going to happen in this industry is a rising tides lifts more ships situation,” he said.