Charles Schwab & Co. is by far the largest online broker, but it's far from the cheapest. The $29.95 commission it charges is a turnoff to active traders, who make up less than 1% of Schwab's 3.3 million online customers. On Feb. 2, San Francisco-based Schwab announced it is cutting charges as much as 50%.
The move could help Schwab compete with Web-based rivals that charge dirt-cheap fees. Schwab has been feeling the pinch from competitors such as E*Trade Group Inc., which charges as little as $4.95 a trade for its most active customers. Schwab Co-Chief Executive David S. Pottruck says that some of the firm's customers "are placing second accounts with competitors, and we aren't getting the growth in trading activity" that competitors are getting. Schwab's share of daily online trading dropped to 23.3% last year from 27.6% at the end of 1998, according to U.S. Bancorp Piper Jaffray.
ENDLESS QUOTES. Schwab's rate cut comes in two stages. The commission drops to $19.95 after an account's 30th trade in a quarter, and to $14.95 after the 60th trade. In addition, clients will also need to have at least $50,000 in assets at Schwab to get the lower rates.
The commission cut comes hand-in-hand with Schwab's plan to acquire CyBerCorp Inc., a closely held brokerage firm catering to active traders, for about $488 million in stock. Schwab plans to incorporate some CyBerCorp features, such as streaming stock quotations, into its existing services.
Outsiders say Schwab's moves are wise. "This lets Schwab say, "we're not conceding anything,"' says Robert Burgoyne, technology strategist at Monument Funds Group. Indeed, Schwab didn't become the largest online broker by letting its competitors call the shots.