Published in: Research | June 19, 2020
By: Lyle Daly
The online brokerage space has become very competitive. The best online stock brokers have no account minimums or commissions, making it easier for everyone to start investing. That ease has helped some of these brokers accrue millions of clients and trillions of dollars in assets under management.
Want to know which online broker has the most clients? Which has the most assets under management, or the most trades per year? How the coronavirus affected online stock trading?
Statistics on online trading can be hard to come by, so we've compiled them here for you.
One indicator of a broker's success is its total client assets. Some brokers have different terms for this, and calculation methods vary. But "assets under management" statistics generally refer to the market value of all the assets a broker's clients have in their accounts.
Here are the total client assets at the end of the year for most of the major online brokers over the last five years. The exception is Ally Invest, which bought TradeKing in 2016 and launched its Ally Invest platform in 2017.
There's no doubt about it -- online brokers have a massive amount of client assets. The total combined client assets for all these brokers was roughly $18.4 trillion at the end of 2019.
Vanguard consistently ranks at the top in terms of client assets, and that's in large part due to its mutual funds. Even though Vanguard doesn't have the best trading platform for frequent traders, its mutual funds have some of the lowest expense ratios you'll find.
Charles Schwab came in second with just over $4 trillion in total client assets. It also bought TD Ameritrade in November 2019. The two brokers operate as separate entities, but they're expected to go through an integration over the coming years. Even after they've merged, however, Schwab likely won't take the top spot from Vanguard.
The novel coronavirus pandemic is having a worldwide impact, and that extends to the stock market. Stocks began falling in February and suffered even more in March, resulting in record drops.
Not every broker on our list releases monthly statistics, but fortunately, three do. With this data, we can see how much their total client assets fell from January to March.
Combined, client assets across these brokers dropped $862.4 billion, for a loss of 13.96%.
There was a sizable rebound in April. In total, client assets rose $493.4 billion for gains of 9.28%.
Almost one-third of American adults have investments outside of their retirement accounts. Here are the exact numbers over the years:
The FINRA Foundation has also found that adults with higher incomes and levels of education are more likely to invest.
Client numbers are another area where the amount of data available varies by broker. Here are the end-of-year numbers for the brokers that released this information:
Although we don't have that level of detail for Fidelity or Vanguard, each broker gives some idea of its number of clients on their About pages:
There are a couple of instances where brokers had large jumps in their client numbers from one year to the next. When this happens, it's usually because one broker acquired another. That was the case for TD Ameritrade, which acquired Scottrade in 2017, and E*TRADE, which acquired OptionsHouse in 2016.
When you compare each broker's assets under management to its number of clients, you'll find that certain brokers have much larger average client accounts than others. To better illustrate this, here are four brokers' average assets per client at the end of the last five years:
These numbers make sense, given that E*TRADE and Ally Invest were both considered discount brokers, at least until most major brokers got rid of trade fees in 2019. This made them a popular choice for investors who had less money and thus prioritized saving on fees.
It's surprising how much higher Charles Schwab's average is, though. It's clearly a favorite among clients with a higher net worth.
How active are brokerage clients, and just how often are they making trades? In 2015 and 2018, investors were asked how many times they had bought or sold investments in non-retirement accounts over the previous 12 months. Here were the results:
Most investors trade only a handful of times at most throughout the year. If we go further back, that pattern holds. In a 2015 U.S. Department of Labor study that tracked trading frequency at three-year intervals from 2001 to 2013, at least 58% of households with brokerage accounts reported making between zero and three trades per year in every year they were surveyed.
While the data above gives us an idea of how often investors trade, we can go more in-depth with average trades per day, which we have for four brokers: Charles Schwab, TD Ameritrade, E*TRADE, and Ally Invest. But first we need to clarify the two metrics brokers can use for this:
It seems simple enough, but as with total client assets, not every broker uses the same terminology or calculation method. Some brokers, such as E*TRADE, use the term "DARTs" while including all trades in their calculations. Charles Schwab was the only broker we found that included both DATs and DARTs in its SEC filings.
The table below has broker DATs (as well as Charles Schwab's DARTs) for the end of each year listed.
Based on that information, we can calculate each broker's average number of annual trades per client. Here are the averages for each broker in 2019:
These numbers may seem high, but that's because the most active traders raise the numbers considerably. The U.S. Department of Labor's 2015 study reported that "trade frequencies are heavily skewed with a relatively small number of people responsible for the majority of trades."
That study also compared total trade numbers per year with and without trades made by high-frequency traders, meaning those who made at least 250 trades. To use the most recent example, in 2013, there were 370 million total trades. If you exclude high-frequency traders, that number drops to 138 million.
With the advent of zero-commission trading, it's likely that trade numbers will rise. However, that doesn't mean everyone will become a day trader. Most investors have jobs and other commitments, so they can't spend every day looking for new investment opportunities.
In 2019, the biggest online brokers made the unprecedented decision to eliminate trade fees. Many also reduced their account minimums, in some cases to $0, and those two changes have made investing in the stock market much more accessible for everyone.
While wealthier Americans have traditionally held brokerage accounts, those with less savings and disposable income now have the opportunity to get in on the action. Online brokers already hold trillions of dollars in assets, but we could see both their assets and their number of clients increase dramatically in the years to come.
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