Pioneering no-commission broker Zecco.com slashes free trades, citing a need to improve features and services
Online brokerage firm Zecco.com took flight in July, 2006, promising all of its customers 40 free stocks trades a month, with other fees and Web advertising producing its revenue. But a little more than a year later, Zecco is backtracking, adding a minimum balance of $2,500 for free trade eligibility and cutting free trades to 10 a month. After that, each trade will cost $4.50, up from $3.50 previously.
Existing accounts will still get 40 free trades a month until the end of the year. Accounts opened starting Oct. 1 get the reduced new deal.
Although a few other online brokers including Bank of America (BAC) and Wells Fargo (WFC) offer free stock trading, those programs are reserved for customers with high balances, notes Matt Bienfang, a research director at TowerGroup, a Needham (Mass.) analysis firm. Zecco's model, which attracted low-balance frequent traders, was unsustainable, he says. "You can't make much on the zero commission model unless you're making up the money somewhere else."
Hundreds of Angry Comments
The change in terms has, not surprisingly, sparked outrage among Zecco's most trade-happy customers. "They were supposed to help out the small-time investor, but now they've stabbed us in the back," says Robert Hansen, a Los Angeles Zecco customer who makes 30 to 40 trades a month on his account. The new policy will eat up most of the Hansen's profits, the day trader says.
Hundreds have also posted comments on the company's online forums complaining about the cutback. "A lot of money will be withdrawn and I think the walls [will] come crumbling down," a poster going by the label Zmmrmn wrote. "I'm definitely spreading this horrible decision [by] word of mouth to tell people to stay away, because who knows what else will change whenever Zecco pleases," a poster called joeym4130 wrote, noting he typically used all 40 free trades a month.
Closer to the Big Boys
Founder Jeroen Veth defended the move in a live chat with customers on Monday. The cutback will allow Zecco to enhance features of the site such as options trading and to improve customer service. "A lot of our customers have been screaming for better service, options tools, and an advanced trading platform," Veth said. "We tried to tailor the offer so we could still bring what we believe [is] the best deal in the business to the broadest swathe of self-directed investors while taking care of active traders."
Zecco's director of marketing, Jeana Wong, says the majority of the firm's customers trade less than 10 times per month. "Our customers have been asking us for better service and more functionality, so we're adjusting our offer to get them more of [what] they need," she said in an e-mail. "With the new offer, we believe we're still the best deal in the market."
The changes bring Zecco's rates closer to some of the larger brokerage firms that offer more restrictive free trade offers. Bank of America offers customers with at least $25,000 in deposit accounts 30 commission-free trades a month. After that, trades cost $5 to $10 each. Wells Fargo offers 100 free trades a year to customers with at least $25,000 in a variety of accounts with the bank, including credit-card balances and 10% of a home mortgage loan. Fidelity is running a promotion offering up to 100 free trades over a one-year period for customers who transfer at least $100,000 to a 401(k) or IRA rollover.