Following a month when it slashed online equity trade commissions and its new family of exchange-traded funds hit the ground running, Charles Schwab Corp. began to reap the benefits of its new initiatives in January as it attracted a slew of new assets and daily average trades rose.
Client daily average trades rose 8% from a year earlier and 23% from a month earlier to 354,700, according to Schwab’s [SCHW] monthly market activity report, which it released Friday. Net new assets brought to the company by new and existing clients totaled $6 billion in January.
Total client assets rose 27% from a year earlier to $1.401 trillion, but because of difficult market conditions, were down 2% from December.
Matt Snowling of FBR Capital Markets wrote in a research note that Schwab’s increase in daily average trading is “largely in line with expectations but positive nonetheless.” He wrote that trading this month is up another 4% to 5%.
Other analysts said Schwab’s decision to cut commission fees is already paying dividends. Effective Jan. 19, the San Francisco-based investment management company’s retail investors began to $8.95 per online trade in stocks or non-Schwab exchange traded funds.
Snowling wrote that net new client assets were less than anticipated “even after adjusting for $1 billion of net outflows related to retirement plan services clients. The 5% annualized organic growth rate remains strong on an absolute basis, although we note that there is nothing in the data to suggest any dramatic impact from the company's commission cuts. We continue to believe that this latest round of price cuts was driven by client retention goals rather than an attempt to grab market share.”
Schwab’s proprietary ETFs, which the company launched in November, feature commission-free online trading through Schwab accounts. Previously, investors with less than $1 million in household assets at Schwab or those that trade fewer than 120 times annually paid $12.95 per trade plus charges for trades larger than 1,000 shares.
Schwab’s exchange-traded funds have already attracted $570 million of assets, according to Greg Gable, a company spokesman.
Despite the early success of these products and the “great reception” the company has received from its new online pricing, he said it is difficult to break out how these moves impacted Schwab’s results in January.
After Schwab's move, Fidelity Investments followed suit by announcing it planned to cut commissions to $7.95 per trade as of March 15. Currently, Fidelity charges investors with more than $1 million in trades $8.00, plus one cent a share for every share over 3,000 shares. For investors with less than $1 million, it charges $17.95 for trades, plus $0.015 per share for every share over 1,000.
Schwab has 300 offices and 7.7 million client brokerage accounts, 1.5 million corporate retirement plan participants, 739,000 banking accounts, and $1.4 trillion in client assets under management as of Jan. 31.
In January, Schwab unseated Fidelity as the top distributor of mutual funds, according to a survey by Cogent Research.
Snowling said that though Schwab continues to gather client assets at a 5% to 7% annualized rate, “the cost of that growth is rising as the company invests in advertising and price cuts to maintain that growth.”