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Why TD Ameritrade and Charles Schwab Now Have $0 Commissions - YouTube
Channel: Arvabelle
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Hey guys welcome back to the channel I'm
Suzanne with Arvabelle so this week we've
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had some interesting things happen in
the financial space a few days ago
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Charles Schwab announced that they are
going to start offering $0 Commissions
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and as of when this video is being
posted today October 3rd TD Ameritrade
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is also starting to offer $0 commissions
so how did this happen in the first
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place? what does this mean for you? and
what does this mean for both large
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brokerages and small brokerages moving
forward? If you're not already subscribed
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to the channel remember to hit the
subscribe button and hit the like button
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for more videos on money investing and
business. First we're going to look at
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why these large brokerages are now going
to $0 commissions when historically
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they're pretty notorious for charging
pretty high commissions to use their
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services and to execute trades on their
platforms. Their transition to $0
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commissions is largely because of
smaller platforms like M1 Finance and
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Robinhood and Webull that had been
gaining traction in the last few years.
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If you've been following the news or the
financial space at all
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you've seen that platforms like Robinhood have really picked up traction
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especially among Millennials within the
last year or so. They run very effective
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influencer and affiliate marketing
campaigns a lot of their marketing
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tactic has simply just been based on the
fact that they have low or no fees and
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$0 commissions and that has attracted a
lot of Millennials to use their
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platforms. Until apps like Robin Hood
that was pretty much unheard of to have
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$0 commissions and no fees because way
back in the day to execute a trade you
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had to pick up the phone call a stock
broker tell them what you want and they
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would hang up the phone call someone
else put in your order put down the
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phone call you back tell you what they
got it for like it was a whole process
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and it was expensive so they had really
high commissions then enter the age of
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more the digital world and these
brokerages started having options online
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but they also had brick-and-mortar
locations that you could physically go
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into
execute orders if you wanted to do it
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that way it wasn't until more recently
that you could execute all of your
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trades online without having to
physically talk to a person or interact
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with a person at all but the
Commission's still stayed there and
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people got used to paying $10 and that
was lowered down to like $7
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$6 $5 as the
companies got more and more competitive
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but then enter Robinhood and M1 Finance
and Webull who were offering $0
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Commission's and that totally disrupted
the entire industry. Definitely when
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these newer platforms started emerging
people were like is this a scam? Like how
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are these companies making money and
that is a several part answer so one
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reason that they are largely able to
offer $0 commission's is because they
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don't have any physical locations and
their customer service is not quite up
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to par with the larger companies. So if
you've ever tried to call TD Ameritrade
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they like answer your question
before you can even ask it, but if you've
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ever tried to contact
Robinhood M1 Finance or Webull you know
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that it takes a while for them to get
back to you it's not an immediate answer
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and you can't really get real-time help.
But for a lot of people that really
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wasn't a major factor because they
weren't interacting with anyone unless
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they had a minor problem another way
that these smaller companies have been
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able to make money instead of through
commissions is through the ask and bid
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spread so without getting too much into
it when you buy or sell a stock there
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are people that are willing to sell at a
certain price and there are people
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willing to buy at a certain price and
the the gap in between there is called
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the spread so they would make a little
bit of their money through that gap. Once
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people started to understand how these
smaller companies were making money
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people started signing up and especially
Millennials because there is a very very
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low barrier to entry compared to larger
companies you didn't have to have a
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minimum balance so you didn't have to
have thousands of dollars saved up and
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there were no fees so with the larger
brokerages if you only had $1,000 to
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trade with but you were paying $10 per
trade like that it made the barrier
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to entry a little bit more difficult
whereas with a smaller company like
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Robinhood you could just get started
with any amount that you had. So now that
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larger companies like Charles Schwab and
like TD Ameritrade are starting to adopt
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this $0 commission thing that's great
for you basically what that means for
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you is that you have a lot more options
for where you want to open your
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retirement accounts where you want to
invest in your normal standard brokerage
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accounts you just have a lot more
options available to you now. But I'm not
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entirely sure what that's going to mean
for the larger brokerages or for the
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smaller brokerages going forward and
this is entirely me speculating but
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they're losing a lot of revenue by going
from five or six or seven dollar
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commissions down to zero. So I think
they are going to have to make that up
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in other areas of their business I'm
just not sure how they're going to do it
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yet. I think that I could definitely see
them raising fees in other areas or for
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certain services that their platforms
offer I could see them shutting down
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physical locations or maybe cutting back
a little bit on customer service I think
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we'll kind of just have to wait and see
what happens and what these larger
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brokerages choose to do. So potential
areas that I could see them potentially
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adding on fees and again this is just me
speculating but if you choose to get a
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financial advisor through one of these
brokerages I could see those fees going
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up even like with TD Ameritrade I feel
like a very large draw to the platform
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is actually for their thinkorswim
platform for technical traders. I could
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definitely see them like adding on a
subscription cost to use that platform
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I'm not sure that they would actually
do that but I feel like it would make
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sense because then they wouldn't be
making as much money but they wouldn't
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be losing that revenue entirely from day
traders they could also potentially make
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money from the ask bid spread as well
but with the larger companies I'm not
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sure that I see that as a way that they
would necessarily want to make money I
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don't know I think we'll just have to
wait and see but I definitely think that
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we can expect to see a change either in
these companies physical presence
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in the quality of their services or in
the pricing of some of their other
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services. Now as far as these smaller
brokerages go I'm not sure exactly what
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that's going to mean for them either
because before if their main marketing
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strategy and their main draw to the
companies was like hey look Millennials
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we're almost kind of like the big
companies but we have zero dollar
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commissions and no fees now that
marketing tactic is kind of gone so I'm
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interested to see what direction they'll
take that in. I also think that in order
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to be able to compete with the larger
brokerages these smaller brokerages are
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going to have to start making very big
advances in what they're doing and in
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their technology in order to be able to
compete. But you could also argue that
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the whole draw of these three companies
of Robinhood M1 finance and Webull is
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that they are so simple and so beginner
friendly and there's a very low barrier
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to entry but the platforms themselves
are just very simplified and that's
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something that I don't think the larger
brokerages are very interested in they
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in my opinion don't really have an
interest in getting beginner traders
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onto their platforms they kind of just
want the people that already have money
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and already sort of know maybe what
they're doing. I just think it's going to
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be really interesting to see what all of
these companies marketing strategies and
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growth strategies are going to be moving
forward because Gen Z and Millennials we
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are a very different demographic than
what the large brokerage is have dealt
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with before and I think these smaller
platforms M1 Finance Robinhood and
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Webull have all done a very good job of
marketing to us in the sense of being
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like hey you don't have a lot of money
that's okay
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coming invest with us don't invest with
big corporations and their
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marketing strategies with influencers
and with affiliate marketing has been
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really really effective for our
generations. So in a way they're kind of
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forging the way in the financial space
but I think we are going to see some
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very very interesting changes in the
next few months or the next few years. So
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let me know down in the comments what
changes
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you think that we'll see or if you think
that there are any other reasons behind
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why these companies are going to $0
commissions because honestly I don't
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know what's going to happen but I think
it'll be very interesting to watch. So as
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always remember to hit the subscribe
button for more videos on money
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investing and business and remember to
drop a like on this video. If you want to
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learn how to use a platform like M1
Finance I will link to my review video
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walking through the platform up here and
I guess now I'll have to make videos on
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all the other ones that are now starting
to offer $0 commissions. Thanks for
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watching and I will see you guys next
time.
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