Fidelity Investments Inc and Charles Schwab Corp made moves in quick succession on Tuesday to slash trade commissions, accelerating the race to zero and foreshadowing a more important battle to win clients for potentially more lucrative services.
Fidelity cut its commissions to trade stocks and exchange-traded funds to $4.95 from $7.95 a trade, a 38 percent reduction for its retail brokerage clients.
Rival Schwab swiftly followed by slicing its own fees on standard online trades to $4.95, from $6.95. Both companies also reduced pricing on options.
TD Ameritrade also said late Tuesday it would reduce its online equity and ETF trade commissions to $6.95, from $9.99.
The deep cuts intensified an already fierce competition to lower fees in the investment industry, and the shares of Schwab and several other brokerages fell as markets weighed the potential for profits to be strained by discounts.
But the announcements also indicated the ambitions of brokers to win over clients to digital investment advice and other fee-based offerings. Mergers and acquisitions could be the next frontier for that battle.
"There's this race to zero," said Noah Hamman, chief executive of AdvisorShares, a provider of ETFs, who earlier in his career worked in Fidelity's trading business. "To be in that business you've got to have other services."
The industry's top players are "seemingly locked in a price war," with the goal of attracting clients to other services, Citigroup analyst William Katz said in a note.
That pricing pressure raises concerns about the companies' earnings power, he said, as M&A comes into focus as a potential strategy to add clients.
Shares of TD Ameritrade fell by nearly 10.5 percent on Tuesday, its largest one-day percentage drop since the 2008 financial crisis.