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

Bank of America's "Merrill Edge" brokerage business is cheaper than the competition, and the company is now giving its existing customers new incentives to invest with the bank.

Jun 30, 2014 at 6:00AM

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.

Merrill Photostream

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.

Bank Of America Atm Photostream

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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Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Bank of America, TD Ameritrade, and Wells Fargo. The Motley Fool owns shares of Bank of America, TD Ameritrade, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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