Study: Despite Being Cost-Conscious, Many Self-Directed Investors Aren’t Making the Most of Their Brokerage Firm – Business Wire (press release)

BOSTON–(BUSINESS WIRE)–In Fidelity Investments®’ second Brokerage Value Study, 1,000 U.S. self-directed investors say they chose their primary brokerage firm for table stake reasons such as “trusted brand/financial strength” (38 percent) and a “wide selection of investments” (34 percent). However, they also cite more specific value components, such as “low commissions and fees” (37 percent) and “high quality trade executions” (31 percent)1.

Although price is a top reason why investors choose a brokerage firm, many don’t know the cost of their investment choices2:

           

 

 

Millennial

  Gen X   Baby Boomer
Don’t know the price of online stock trades   39%   50%   41%
Are unsure of the cost for mutual fund transactions   38%   53%   55%
Don’t know option trading fees   33%   45%   30%
   

Do High Quality Trade Executions Matter?

Investors say high quality trade executions are a top priority, but a full 92 percent don’t know or misidentified how firms execute trades.

After poll respondents were given details on order execution practices, three in four (76 percent) overall say they would consider changing to a firm that delivers superior price improvement3. Remarkably, 92 percent of Millennial-aged respondents say they would seek out a brokerage firm that delivers superior price improvement vs. 82 percent of Gen X and 60 percent of Boomers.

“It’s reasonable to assume investors will follow through on the notion they’ll seek out a new firm for better trade executions when you consider that almost half (47 percent) of all respondents changed brokerage firms at one time, with 63 percent doing it in the past five years,” said Ram Subramaniam, president of Fidelity’s retail brokerage business.

Investors may find meaningful savings through price improvement – for example, at Fidelity, customers placing eligible online equity orders of 1,000 shares or more often receive price improvement that can exceed the $4.95 online commission4.

Value Over Price

“Investors can benefit not only from low costs, but also being with a firm that provides strong overall value to its clients through extensive resources such as award-winning research, customer service, education and trading tools to help them navigate today’s often complicated markets, “said Subramaniam.

In fact, when asked what they care more about in today’s often confusing and complex markets, three quarters (74 percent) say a firm’s resources are more important than cost.

Additionally, the following reasons why investors chose their primary brokerage firm received double-digit support in the study5, demonstrating that beyond costs, investors are looking for broader value, including:

  • Ability to consolidate all investments (20 percent)
  • Ability to meet my changing investment needs as they evolve and grow (19 percent)
  • Access to online banking options (17 percent)
  • Access to 24-hour customer service (17 percent)
  • Ability to visit local branches (12 percent)

Bond Trading Is Fertile Ground To Find Significant Savings

Another critical area investors should clearly understand is how their brokerage firm charges for bond trades. While some firms have “hidden” markup fees for bonds, others provide transparency by charging only an up-front fee. A Corporate Insight study6 found online bond prices from brokers who bundled their markups and fees into a single online bond price were on average $13.65 higher per bond than Fidelity, which charges a fully disclosed online bond trading fee of $1 per bond and zero concession for U.S. Treasury bonds.

How to Evaluate a Brokerage Firm

To help customers make informed decisions and get the most value for their money, Fidelity suggests investors ask the following questions across six categories that encompass a total value assessment including the right mix of price, service, tools and investments:

1. What are the commissions and fees for stock, mutual fund, options, bond and ETF trades?

2. Is the firm in good financial standing and a trusted brand? Can it meet my evolving needs through every life stage?

3. What criteria are used to route my stock trades, and what level of price improvement does it provide?

4. Does the firm offer the selection of investments I need to achieve my investing and cash management goals?

5. Does it have robust education and research offerings that fit my needs and experience level to help me be a better investor?

6. What options do I have for customer service (e.g. phone, chat, email, in person) and is it available when I need it?

Fidelity Viewpoints® recently launched a web page dedicated to helping investors find the best value from their brokerage firm, including a primer on how to choose a brokerage firm, focusing on total value, including low costs and the right services: “How to Pick Your Brokerage Firm.” To research Fidelity’s brokerage offering and fees, visit www.fidelity.com/trading/overview, or see a comparison table based on price, execution and analysis benchmarks.

About the Survey
ORC International conducted interviews with a total of 1,000 investors. To qualify, investors had to be 25 years old or older, have investable assets of at least $10,000, trade stocks, mutual funds, ETFs, options or bonds, be the sole or primary investment decision-maker, and not delegate all decisions to an investment professional. Interviewing took place May 1 -10, 2017. Fidelity and ORC International are not affiliated.

About Fidelity Investments
Fidelity’s mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $6.2 trillion, including managed assets of $2.3 trillion as of June 30, 2017, we focus on meeting the unique needs of a diverse set of customers: helping more than 26 million people invest their own life savings, 23,000 businesses manage employee benefit programs, as well as providing more than 12,500 financial advisory firms with investment and technology solutions to invest their own clients’ money. Privately held for 70 years, Fidelity employs more than 40,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.

Investing involves risk, including the risk of loss.

Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Prior to trading options, please read Characteristics and Risks of Standardized Options, and call 800-343-3548 to be approved for options trading. Supporting documentation for any claims, if applicable, will be furnished upon request.

Generations’ date of birth ranges: Millennial 1981-1999, Gen X 1965-1980, Boomers 1946-1964

Fidelity Investments, Fidelity and Fidelity Viewpoints are registered service marks of FMR LLC.

Fidelity Brokerage Services LLC, Member NYSE, SIPC
900 Salem Street, Smithfield, RI 02917

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© 2017 FMR LLC. All rights reserved.

1 Percentages reflect answers that appeared in respondents’ top 3 reasons for choosing their primary brokerage firm.
2 Only respondents who identified owning a particular investment type were asked what they paid to trade that investment.
3 Price improvement is when a client secures a better price than what the quote showed at the time of order entry.
4 Customers executing a 1,000 share order at Fidelity.com saved on average 1.125 cents per share, or $11.25 on that transaction. Industry average savings was $1.66 during this timeframe for 1,000 share orders. Based on data from IHS Markit for SEC Rule 605 eligible orders executed at Fidelity from April 1, 2016, to March 31, 2017. The comparison is based on an analysis of price statistics that include market orders and marketable limit orders of 100–1,999 shares. Price improvement examples are based on averages, and any price improvement amounts related to a customer’s trades will depend on the particulars of their specific trade. Fidelity’s average retail order size for SEC Rule 605 eligible orders (100–9999 shares) during this time period was 1,093.
5 The answers highlighted appeared in respondents’ top 3 reasons for choosing their primary brokerage firm.
6 Fidelity commissioned Corporate Insight to study bond pricing, available online, for self-directed retail investors from five brokers that offer corporate and municipal bonds. The study compared online bond prices for over 20,000 municipal and corporate inventory matches between September 2nd and October 6th, 2015. It compared municipal and corporate inventories offered online. The study found on average that four competitors that bundled their markups or fees into their online bond prices were asking an average of $13.65 more per bond. Corporate Insight determined the average cost differential by calculating the difference between the costs of matching corporate and municipal bond inventory at Fidelity vs. these markup-based firms in the study, then averaging the differences across all of the competitor firms. For the table, the example competitor trade costs range of $240 – $510 is based on an average size order of $22,000 face or par value bonds and average cost differential between Fidelity and the four selected competitors displayed in the table. Year to date, through September 2015, Fidelity’s retail brokerage account holders who purchased individual municipal or corporate bonds, purchased an average of 22 bonds per transaction.

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