Why Bank of America Corp Could Take Customers From TD Ameritrade, E-Trade, and Charles Schwab

Bank of America (NYSE: BAC  ) is no stranger to the brokerage business, as its Merrill Lynch division has been a big player on Wall Street for about 100 years. The company's discount brokerage, Merrill Edge, offers some of the best pricing in the industry, and the bank is now giving customers extra incentive to move their investment dollars over.

Here's why competitors like TD Ameritrade (NYSE: AMTD  ) , E*Trade (NASDAQ: ETFC  ) , and Charles Schwab (NYSE: SCHW  ) should be worried, and why even Wells Fargo (NYSE: WFC  ) might have a new challenger. And, why is Bank of America so eager to sign up customers for its brokerage?

The pricing is better
Bank of America's Merrill Edge offers a very simple flat-rate commission of $6.95 of stock and ETF trades.

The competition simply can't match this. TD Ameritrade and E*Trade both charge $9.99, and Schwab's commission is $8.95. E*Trade even offers a discounted rate of $7.99 to those who make more than 150 trades per quarter, and to qualify for a $6.99 commission, you'd need to make more than 1500 trades per quarter – an average of about 24 trades every single trading day.

Sure, Wells Fargo offers $6.95 commissions, but only to those customers who also have a "PMA package" which is the bank's premium checking account that comes with its own $30 monthly fee. Standard commissions at Wells are $8.95.

Extra incentive for Bank of America's account holders
Bank of America is also offering special incentives through its recently announced "preferred rewards" program for customers with over $20,000 in combined account balances.

Customers who have at least $25,000 in investing accounts or $50,000 in all combined accounts with the bank get 30 free trades per month, a value of over $200 for active traders. And, for customers with more than $100,000, the amount of free trades jumps to 100 per month.

There are a ton of other benefits to using Bank of America for brokerage services, especially for the bank's existing customers, who are the main targets of the new efforts.

For those customers over the $20,000 in combined accounts threshold, monthly fees are waived on up to four checking and savings accounts, B of A credit cards earn rewards faster, and interest-bearing accounts pay better. You can even link up to 15 investment accounts to your existing Bank of America ATM card.

 

Why the big push?
Cross-selling of products and services to existing customers is one of the best ways to increase revenue while keeping expenses low. According to one report by Fiserv, it costs 8-10 times more for a bank to sell to a new customer than to an existing one, on average.

And, brokerage customers are some of the best ones to go after. Wells Fargo has long been considered the master of cross-selling, and its statistics make it very clear why Bank of America is going after other firms' brokerage customers.

The average household that banks with Wells Fargo has about six different products with the bank, including checking, savings, money market, brokerage, mortgage, credit cards, and other accounts. Pretty impressive, but Wells' average brokerage customer has ten different products with the company. So, a brokerage customer is 67% more "valuable" to the bank than a non-brokerage customer, on average.

Bank of America's CEO Brian Moynihan has said numerous times that cross-selling needs to be a big priority for the bank, and now it seems like he's putting his money where his mouth is. He's giving unprecedented incentives for the discount brokerages' customers to combine their investing activities with everyday banking, and is undercutting Bank of America's biggest rival, who has so far been very successful at attracting brokerage customers.

It's too early to tell, but I applaud these efforts by Bank of America. And, Wells Fargo's "king of cross-selling" title may be a little less safe than it used to be.

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  • Report this Comment On July 03, 2014, at 9:53 AM, retrobeast wrote:

    Wrong on Wells PNA. I get 100 free trades a year and no prem checking fee. Do your research correct idiots.

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