Fee-based business at retail brokerage firms is booming. The percentage of retail brokerage firms moving from per-trade commissions into new fee-based arrangements has almost doubled in the past two years, going from 28.7% in 1999 to 50.2% today, according to a broker survey by Weiss Ratings, Inc.
Of the 341 retail brokerage firms surveyed by the Florida-based firm, 171 offer fee-based accounts with the fees ranging from 0.33% to 2.25% of account assets. According to Weiss Ratings, Inc., here are examples of fees charged at some of the top retail firms:
Fee-Based Equity | $100,000 Account | $1 Million Account | ||
Fee | As a % | Fee | As a % | |
| Morgan Stanley Dean Witter Choice | $2,250 | 2.25% | $16,250 | 1.63% |
| Merrill Lynch Unlimited Advantage | $1,500 | 1.50% | $15,000 | 1.50% |
| UBS PaineWebber Insight I | $1,250 | 1.25% | $7,500 | 0.75% |
| Prudential Advisor | $1,000 | 1.00% | $3,250 | 0.33% |
Moving to a fee-based business has become an industry wide trend. Firms are not only rewarding fee-based reps with higher payouts, but they’re penalizing transactional brokers by slashing their payouts.
With trading volume having dropped dramatically from its frenzied pitch in 1999, brokers have been promoting fixed fees in an attempt to ensure steady revenue. Many brokers have even reduced their fees for larger accounts, and many are willing to negotiate rates lower than their published fixed fees.
Tracy Webb, the financial analyst who conducted the survey for Weiss Ratings, says she was surprised that "only 171 retail firms have converted to fee-based business. I expected more." She says she expects the numbers to continue to rise this year. "There will be a continued push from the firms to have brokers convert to fee-based accounts," Webb says. "Brokers need to maintain revenue, and this is the way to do it since daily trading is down." Brokers interviewed for this article were also surprised that only 50% of the 341 retail firms have fee-based programs.
Like Webb, brokers also say they expect the number fee-based brokers and firms to continue to rise. "That’s the way to go these days," says a Merrill Lynch producer. "The environment has changed. If you want to make money and stay in the game, you have to be fee-based. There’s no two ways about it."