Introduction
One of the strategies for increasing equity capital is financial investment, which in the classical sense implies investing funds with a return on their value. As a rule, private investors do not have direct access to the assets of a public company and have to use the services of an intermediary. As an intermediary is supposed to take a commission for his services, which means that a particular share of the investor’s real profit is always withheld to ensure the intermediary’s functioning. Online brokers, which are digital platforms that help investors buy securities, function as a provider in the field of financial investing. There are a fair number of online brokers offering their services in the virtual marketplace; as classical economics postulates, when there is increased competition in an industry, there is an improvement in the end-user environment (The White House, 2021). It is for this reason that online brokers create the most favorable offers for cooperation with investors, including discounts and promotions. As a consequence, private investors always have multiple choices depending on their interests, needs, and desires for an intermediary. The purpose of this paper is to explore three collaborative offers from major online brokerage platforms from the perspective of the average investor.
Three Online Brokers: Comparison and Benchmarking
One of the best-known and largest platforms is American Fidelity, which works with clients from many different countries. Unlike most competitors, Fidelity charges zero commissions for trading stocks, securities, options, and funds, with the broker charging $0.65 per options contract (Fidelity, 2022). Margin rates are also among the lowest — when an investor borrows money from a broker to buy securities, the margin rate is as low as 6.25% for balances of USD 1,000,000 or more. In addition, Fidelity has no minimum to open an account. The second popular platform is Charles Schwab, which makes up to 5.3 million trades every day (Charles Schwab, 2022). Charles Schwab commissions are much the same as Fidelity: $0 for servicing stocks and other securities, $0.65 for options contracts, and no trading minimums. At the same time, Charles Schwab reports premium service packages for individual investors, with fees (up to $30 per month) depending on the amount in their account. Finally, the third most popular online broker is TD Ameritrade, which, like its competitors, serves clients from various countries. As with this one, TD Ameritrade does not charge service fees or additional fees for expenses. The asset offerings at TD Ameritrade are significantly broader: unlike Charles Schwab or Fidelity, TD Ameritrade uses FOREX and futures trading. Consulting professional brokers on this platform may seem more lucrative in the short term than Charles Schwab: only $25 per month instead of $300 in a one-time payment (Ameritrade, 2022). Thus, it is noticeable that all three online brokers provide identical terms of service to individual investors. This seems like a sensible strategy since increasing the cost of cooperation leads to customers switching to competitors. For this reason, online brokers try to increase customer loyalty through additional services, as was shown for TD Ameritrade and Charles Schwab.
Special and discount offers from brokers vary greatly. Fidelity offers a TurboTax discount of up to $20 to create a tax return and a reward of up to $100 when one deposits $25 into a Fidelity Bloom account. Charles Schwab’s offerings are a little more decadent, with a referral system offering users up to $1,000 and $50 for opening a new account. Finally, TD Ameritrade also offers $1000 for a referral, as well as up to $2500 when opening a brokerage account, depending on the amount deposited. Thus, it can be seen that brokers are trying to create the most attractive and profitable conditions for clients, but they do not repeat themselves in the loyalty system with their competitors. Notably, the conditions for opening an account may also differ, making some brokers more attractive to individual investors. While some brokers require only taxpayer ID and proof of citizenship, others may require financial and employment information.
Conclusion
To summarize, it is worth first of all emphasizing that the offers of online brokers in the investment market are plentiful. The user does not need to be permanently tied to one intermediary, as the benefits of switching for individual investors are growing in a dynamic market. In this paper, only three of the many online brokers were considered: TD Ameritrade, Fidelity, and Charles Schwab. Each was shown to have similar customer service terms; they promise near-zero commissions and minimal contract costs. At the same time, the accompanying offers with which online brokers attract users differ significantly. Discount systems include referral fees, initial account opening incentives, or discounts on tax returns. For the three online brokers discussed, discount and loyalty systems are the only tools that allow you to attract new customers and retain current ones. For this reason, one cannot pick one best online brokers in a moment, as their offerings change and adapt in the face of fierce business competition.
References
Ameritrade. (2022). Our award-winning investing experience, now commission-free. TD Ameritrade. Web.
Charles Schwab. (2022). Schwab offers a better, more modern way to build and manage wealth. CSC. Web.
Fidelity. (2022). Commissions, margin rates, and fees. Fidelity. Web.
The White House. (2021). The importance of competition for the American economy. The WH. Web.