A new NerdWallet study finds that investors overpaid for brokerage by over $1.8 billion last year. At least 17 million investors pay between $7.99 and $9.99 per trade even though comparable trade execution, research, and trading platforms can be accessed for far less at equally trustworthy institutions. By switching, investors could save an average of $110 annually.
The study also found that investors with accounts at the three largest brokerages mistakenly believed these high fees were being used for superior trade execution. However, these brokerages actually spent an average of only 12% of their expenses on trade execution. The majority of their budgets were spent on advertising, employee, physical, legal, and other overhead costs.
To help investors save money, NerdWallet has built a brokerage fee comparison tool. The tool allows users to input their trading habits and receive a customized list of the total cost of trading at every brokerage that fits their criteria. Unlike other comparison sites, NerdWallet’s tool is unbiased and comprehensive.
Trade Execution: Do higher fees get spent on better execution?
Schwab
Cost per trade: $8.95
% of Expenses Spent on Trade Execution: 7%
TD Ameritrade
Cost per trade: $9.99
% of Expenses Spent on Trade Execution: 12%
E-trade
Cost per trade: $9.99
% of Expenses Spent on Trade Execution: 17%
Interactive Brokers
Cost per trade: $1.00
% of Expenses Spent on Trade Execution: 49%
“With more than 70 online brokerage accounts available, it would be nearly impossible for investors to fully consider every cost when choosing a broker,” says Joanna Pratt, VP of Financial Markets at NerdWallet. “This tool allows investors to see their total cost at every broker in seconds and save real money.”
About the author: NerdWallet Financial Markets is designed to empower investors by providing unbiased and transparent access to financial markets information.
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