Brokerage Costs are Down. Are Yours?

Generally brokerage fees have been dropping steadily over the past two decades. But how have your costs fared? According a piece by Felix Salmon, brokers often charge as much in fees as they can get away with, applying different rules to different clients.

Which raises this important question for any investor: how much are you paying in brokerage fees and charges?

Driving Down Fees

Smart Money magazine has published its 2011 broker survey, and in its write up notes that in aggregate fees have come down tremendously in recent years. In 1997, the author notes, Charles Schwab charged $29.95 per online trade. Today that’s dropped to $8.95. Lower prices have not brought loyalty. According to Smart Moneymore than 8 percent of online brokerage customers switched companies in the past year searching for lower fees and commissions. Another 14 percent are considering the same move.

Full service brokers like Merrill Lynch and Morgan Stanley Smith Barney, which charge more than online brokerages, have been hit hard. According to the story, “Americans have moved more than $100 billion into online brokerage accounts in the past two years, with much of that coming from full-service brokerages.”

Full Service Brokerages Charge What the Customer Will Bear

Salmon’s post sheds some light on one reason why investors might be leaving the old-line firms: the fact that their fees aren’t just higher, they’re wildly inconsistent. Salmon’s piece is based on information from Wikinvest , a site which (among other things) will gather your investing information together and tell you whether you’re paying more than average for the brokerage services you’re getting.

One Wikinvest member with $2.3 million in his Merrill Lynch account was paying more than $40,000 a year to his broker as an annual membership fee (1.75% of the customer’s assets under management). The average Merrill client on Wikinvest, according to Salmon, pays less than half that rate, 0.85%.

According to Wikinvest, Merrill charged this client an additional 5,763 to make 24 trades last year,  $240 per trade, and put this client in some expensive load funds to boot.

Lack of Trust

According to the Smart Money poll, Merrill ranks five out of six full-cost brokers. The reason according to the poll: though its research is the best of any of those ranked, customers don’t trust their brokers. According to the magazine, “In a poll by Forrester Research, two out of three Merrill Lynch customers disagreed with the statement “My financial provider does what’s best for me, not just its own bottom line.””

John Thiel, the co-head of private wealth management, told the magazine that internal surveys show greater customer satisfaction. But he might do well to take a look at the inconsistencies Wikivest is turning up, if he wants customers to be happier.

How about you? Have you enjoyed the downdraft in investing fees, or are you worried you’re still paying too much?

(photo: Paul Sapiano)

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