Redrick Terry:
It’s now time for 4 Your Money, we’re joined by Nate Kreinbrink with the NelsonCorp Wealth Management. Welcome back, Nate.
Nate Kreinbrink:
Thanks Redrick, thanks for having me again.
Redrick Terry:
Absolutely. So it seems like every week we’re hearing announcements with different financial service providers, lowering costs, trying to undercut each other. What’s going on here?
Nate Kreinbrink:
What we’re talking about is the commission charge that is charged to consumers when they make trades. And most, specifically we’re talking about mutual funds and ETFs. Now the term free trades is not a new term. Larger firms have used this quite frequently over the years, but it’s usually been for like a select investments or it’s been for account sizes above a certain amount. However, we’ve seen a lot more firms trying to be competitive in this asset class where they’re trying to get into the market share on this trading. So in sense driving the commission charges down to zero, make it a little bit more affordable for consumers.
Redrick Terry:
And what’s driving that train? What do you think?
Nate Kreinbrink:
Well, a lot of it has to do I think with this chart that we have here. If you can look at consumer spending on securities over the past, say 30, 40 years, we can see that the consumer price on the commissions peaked in the year 2000 and has since dropped nearly 65%. Now, what is driving that? A lot of things, the competition, as I mentioned before, and technology. The infrastructure that these firms are using for trading, once it’s built out, there’s really not a lot of ongoing costs going on, so in a sense they’re passing on that savings on to the consumers then.
Redrick Terry:
Yeah, and speaking to other consumers, with all of that in mind, what should people be paying particular attention to?
Nate Kreinbrink:
Well, obviously, I mean it’s good when they can make some savings, but they need to understand that these large firms aren’t charities, so they’re still going to look to to make it up elsewhere. One big thing is they’re charging the interest rate that individuals hold in their cash balance plans inside of there, where they’re charging a lower interest rate than what the market is going. So people need to be sure of how they’re trading, how much cash they’re holding on hand, because these have been seen to be larger drivers on the commission rather than the commission on to it.
Redrick Terry:
All right Nate, thanks so much. We appreciate the information.
Nate Kreinbrink:
Thank you.
Redrick Terry:
And if you missed any part of our conversation, we’ll make it available to you or on OurQuadCities.com.