Fidelity Eliminates Commissions, Scoffs at Competitors’ Low-Yielding Cash Default Options

The company matched Schwab, TD Ameritrade, and E*Trade on trading costs and raised an old question: What about the cash?

(JB Reed/ Bloomberg News)

(JB Reed/ Bloomberg News)

On Thursday, Fidelity Investments became the latest brokerage to cut trading commissions to zero. It also posed an old question to its competitors: What about clients’ cash?

In bold lettering at the top of an announcement, the money manager made it clear that it thinks anything Schwab and others can do, Fidelity can do better.

In addition to eliminating commission on trades, Fidelity boasted that cash in new client accounts is automatically defaulted to a higher-yielding option (a Fidelity money market fund). Fidelity also said it executes trades better than competitors because it doesn’t accept payment for order flow, or money to send trades to certain market makers.

To be clear, similar funds are available at other investment firms. But Fidelity likes to point out out that it is the only firm that automatically directs retail cash in new accounts to a low-risk fund. The default at others are lower-yielding, so-called bank sweep accounts that earn pitiful interest income.

The Fidelity Government Money Market Fund’s 7-day yield was 1.58% on Thursday, down from 1.91% Aug. 5.

“With this decision, Fidelity is taking a different path from the industry. We are providing customers unmatched value while challenging industry practices that appear to give value in one place when they are actually having customers pay in other ways,” said Kathleen Murphy, president of Fidelity’s personal investing business, in a statement Thursday.

“This combination is something that no other firm offers.”

The industry’s price-slashing, which extends to RIAs that custody with Fidelity, Schwab, TD Ameritrade, and E*Trade, began in earnest two weeks ago when Interactive Brokers Group unveiled IBKR Lite, a simpler, commission-free version of its discount trading platform for retail investors.

Interactive Brokers, which might be in a commission quagmire because of its focus on institutions, including hedge funds and mutual funds, is still charging trading commissions to RIAs who custody with the firm. But others have since also eliminated that cost.

After Schwab eliminated fees for individuals, TD Ameritrade and E*Trade did the same in the following days.

Fidelity said that zero commissions take effect today for individual investors and will be available for RIAs on November 4.

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