Last year, discount brokers experienced something of a price war. The first mover was Schwab (NYSE: SCHW), which reduced commissions from $12.95 to a flat rate of $8.95. Privately held Fidelity outdid Schwab by slashing costs from as much as $19.95 per trade all the way to a flat rate of $7.95.
After Fidelity's commission reduction in February 2010, my colleague Rick Munarriz predicted dire things for the major players in the industry: "Fidelity's move is a bigger blow. It smacks down Schwab, and all but forces E*TRADE [(Nasdaq: ETFC)] and TD AMERITRADE [(Nasdaq: AMTD)] to respond."
E*TRADE did indeed follow suit shortly thereafter, reducing commissions from $12.99 to $9.99 (or $7.99 for frequent traders). But more than a year later, TD AMERITRADE has remained steady at $9.99 per trade.
Will it continue to buck the trend?
During a visit to Motley Fool headquarters earlier this month, TD AMERITRADE Executive Vice President Peter Sidebottom made it clear that he was watching the commission cuts and paying attention to the effect on the industry. But when an industry is solely competing on price, Sidebottom said, "it's dangerous."
Why hasn't TD AMERITRADE followed suit? According to Sidebottom, it's because the company is getting feedback from clients and the market that that price point is holding. Sidebottom called TD AMERITRADE customers economically rational: "If they weren't getting value for their dollars, they would take those dollars elsewhere."
TD AMERITRADE looks a lot at client satisfaction, brand, and experience. My view is that the company would rather bolster its products and platforms (like its commission-free ETFs and research tools) than compete on price alone. Thus, I'm not expecting the broker to drop its trading commissions anytime soon.
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