Can Fidelity cultivate budding day traders into loyal investors?

Brokerage firm hopes success will turn on users transitioning to long-term investing

Can Fidelity cultivate budding day traders into loyal investors?

A little less than four years ago, Fidelity kicked off a race to the bottom among brokerages by cutting its trading commissions significantly; in 2019, the platform doubled down on that move as it followed U.S. online investing giant Charles Schwab’s decision to cut trading commissions for online U.S. stock, ETF, and option trades to zero. That set the stage for a tsunami of retail consumers, many of with reduced employment income due to the COVID-19 pandemic, to enter the online trading space in 2020.

For Fidelity, that has resulted in some impressive Q3 2020 numbers: a rise from US$8.32 trillion in December 2019 to S$8.8 trillion in assets under administration; 2.2 million trades processed daily on the Fidelity platform through September 2020, nearly double the level for the year prior; and over 3.5 million new accounts added since the end of 2019. Even more new accounts were reportedly created on the platform in the fourth quarter.

But as reported by the Wall Street Journal, that growth has yet to pay off significantly for the firm, as a substantial proportion of the new accounts are subscribed to the low- to no-commission shelf of its services. Whether newly minted traders will become loyal enough to develop into captive, higher-value investors is a looming question mark for the firm and others like it.

Many have seen early inflows into popular products reverse, or account balances wane as users’ initial enthusiasm for the stock market faded. Locking in customers is tougher than ever as well, as the barriers preventing lateral movement of money across firms and strategies have gotten more permeable.

So far, Fidelity is optimistic. Executives at the firm, according to the Journal, cite increases in the number of customers asking for financial advice, connecting with call centres, visiting the company website, and using their mobile devices to access their accounts. The company’s full-service wealth management unit, they added, is now overseeing US$1.4 trillion in assets. The fact that it is privately held was also held out as an advantage, as competitors face more pressure to squeeze out short-term profits.

Of course, there’s also a path to victory open for the brokerage giant’s rivals. 2020 was a tide that lifted all boats across the individual-investing world, as the market soared to record highs and a new, younger crop of investors was introduced to the excitement of day trading by startup online broker Robinhood. Individual trading volume reached an all-time high last year, according to JMP Securities analyst Devin Ryan, as many brokers and wealth managers creating two to three times as many new accounts as they did in 2019.

Ryan noted that the latest wave of newcomers is more diverse and has leaned younger than the clientele normally attracted by wealth managers. That gives upstart firms an opportunity to snatch business away from incumbent firms, such as the nearly-75-year-old Fidelity, whose sustainability depends on their ability to crack the intergenerational wealth code.

“Younger investors are, on balance, going to have smaller accounts,” Ryan told the Journal. “But the earlier investors start, clearly the greater the potential for substantial income growth.”


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