Skip to Content
US Videos

Online Brokers Worth a Look Amid Pricing Battle

We explain our latest views on Charles Schwab, TD Ameritrade, and E-Trade.

Mentioned: , ,

Michael Wong: Investment services firms, such as wide-moat Charles Schwab, narrow-moat TD Ameritrade, and narrow-moat E-Trade, have recently been in the headlines after many of the leading firms decreased their pricing on multiple types of online trade orders to $0. When Charles Schwab made its pricing-change announcement, the share prices of major online brokerages decreased between 10% to around 25%. After adjusting our models for the loss of commission revenue, our fair value estimates generally decreased less than the share prices had fallen--about 5% to 15%. The main reason that our fair value estimates didn’t decrease as much as their share prices is because the market seemed to be pricing the stocks off of the change to near-term earnings, while our fair value estimates are based more on long-term earnings. We had also already been forecasting a decline in commission-trading revenue as a percentage of total revenue before the announcements.

After the commission-pricing cuts, leading online brokerages are still highly profitable with operating margins likely to remain in the mid-30s to 40s, even as the companies face likely earnings headwinds related to interest rates and further competition.

Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.