E*Trades decision to rebate back to customers half of the 12b-1 fees it receives from funds could very well boost its account base, TheStreet.com reports. It could also inspire other online discount brokers to cut their fees.
Online brokers pass along fees to investors only when the broker doesnt receive a fee from a fund. When funds pay these brokers a fee, they generally make the funds available to investors without a commission.
By paying half of these commissions back to investors, E*Trade will not only become one of the cheapest places to buy funds, but it could even be less expensive for investors to buy a fund through E*Trade than directly from the fund company, according to TheStreet.com.
Then again, E*Trade and other discount brokers have only gained a small market share compared to the fund supermarkets of Schwab and Fidelity. And fund supermarket fees are already complicated, so investors might not take too readily to this new discount.
Thus, it remains to be seen how much of an increase in assets and customers this rebate brings E*Trade. Furthermore, whats good for investors might not be good for fund companies, and if they see their own fees decrease, they might leave the E*Trade family.