the response of course is that only certain clients make ETFC or AMTD any real money
a client who has a sizeable account but keeps most of his money in cash and only trades occasionally would still make ETFC a decent return, because having those assets in hand allows them to loan them out and earn an interest rate margin on them...however, that client isn't likely to have the bulk of his money at a brokerage if he seldom trades...enter the etrade bank, which as you say, is competing for those assets with other banks, and they seem to be doing quite well at it
a client who has a sizeable account and trades quite often is the ideal etrade profit generator...they earn commissions from his trades, plus they can loan out his free capital to earn margin interest or other interest spreads...they may also be able to get mortgage, insurance, or other business from this client...this client may end up going to IB or some other firm, for equally good executions and better commissions, but this client is unlikely to go to BAC or WFC for the reasons already noted
a client who has a smaller account but trades often anyway, still generates some pretty good income for etrade, and he may often use margin himself, helping etrade to make money on all that cash they have...chances are this client doesn't have the assets to set aside in a non-brokerage account to qualify for the BAC offer, and even if they have a mortgage with WFC, to allow them to qualify there, they are going to run out of free trades pretty quickly
a client who has a smaller account and trades infrequently is not very profitable for ETFC...this is similar to all of us who use our credit cards only to aggregate our purchases and earn rewards, and then pay them off at the end of the month...the credit card companies will give us a card, and they do make a few bucks on the fees they charge the merchants, but they don't make any real money on us, and if we went elsewhere, they really wouldn't care much
as such, i don't see these offers hurting ETFC or AMTD, and the real world seems to bear this out, as ETFC has seen basically zero effect on their business from the BAC offer, which has now been in place for quite a while
i agree that ETFC is less reliant on commission revenue, and thus is the "wider moat" play as compared to AMTD
JMHO, time will tell
p.s. by the way, it wasn't my contention that there is a tradeoff between commissions and execution...IB has about the best executions you can find, at their low rates...my contention is that companies like ETFC, AMTD and IB have trading platforms that are excellent and are being improved almost on a daily basis, to allow for quality executions...from what i have heard, BAC has no such platform...i have no idea about WFC...again, a little slippage probably doesn't matter at all to you or jurgis, because you are making transactions here and there, as your investing style dictates, and that's great...the difference is that for the people that ETFC or AMTD make the bulk of its commissions from, the platform and the executions are paramount, and therein lies their advantage |
