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To keep pace with rivals, Wells Fargo goes to zero

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Stiff competition pushed Wells Fargo into dropping ETF and stock trading commissions for its DIY investing clients.

“You don’t want to be in a place where you’re going to lose a client because they want to do zero-commission trades and you don’t have that option,” says Joe Nadreau, head of independent brokerage & platform services at Wells Fargo.

Two months after discount brokerages started eliminating the cost to trade, Wells Fargo is following suit. The change happened just a day after Merrill Edge officially dropped its own trading costs for its self-directed clients. The commission changes only apply to clients of WellsTrade, the bank’s self-directed investing platform, and do not include penny stock and options trading.

“I commend them for hanging on as long as they have,” says Frank Bonanno, managing director of StoneCastle Cash Management, which offers RIAs high-yield returns and FDIC insurance for client cash. “Maybe they milked it as best they could until it was time to stop charging on those,” he says.

Nadreau wouldn’t specify the exact amount of quarterly revenue Wells Fargo will miss out on due to the changes, but said that it was “pretty small” and made up only a single-digit percentage of revenue in its digital and automated investing division. As part of Wells Fargo Advisors, the digital and automated investing division makes up about eight to 10% of total revenue, he says.

Charles Schwab, TD Ameritrade and E-Trade projected they would take multi-million dollar revenue cuts after they dropped commissions, according to the companies.

“While not insignificant to us, [this move] is not something we would need to change our strategy to make up for,” Nadreau says.

The company will continue to make money off of things such as cash in client accounts, mutual fund trades and revenue sharing, Nadreau says.

“We don’t have a lot of expenses for doing transactions … It doesn’t take a lot for [the WellsTrade platform] to be profitable in and of itself,” he says, noting that most of the clients on the do-it-yourself platform were already Wells Fargo bank clients when they opened an account. The company declined to provide the specific number of clients on the platform.

Wells Fargo is more focused on its offerings that give clients a diversified portfolio and financial advice. These include its robo advisor (which has a hybrid option) and full-service wealth management division.

The firm’s revenue is increasingly drawn from recurring rather than transactional sources, Nadreau says. He notes that diversified portfolios are a better solution for most investors than stock picking and the “gamble of buying individual securities and making money from it.”

Wells Fargo uses educational tools on its website to encourage clients to use the company’s advice alternatives.

Bonanno says this push to advice is consistent with the rest of the industry right now. “The advice model — there's a spotlight on it right now. Everybody's going towards that,” he says.

Wells Fargo’s decision to drop commissions will not impact how advisory clients are charged. Advisors at Wells Fargo’s employee brokerage, the independent broker-dealer FiNet and RIAs with Wells Fargo Clearing and TradePMR choose their own pricing models, which may include trading commissions.

While Wells Fargo may be increasing its focus on diversified portfolios and its advice alternatives, it intends to keep its self-directed platform up to par with rivals, according to Nadreau.

“Let's be honest — all the [companies] that followed suit knew that they can't be competitive. If 90% of the volume of trades is at zero, you can't not be,” he says.

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