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Bank of America stepped up the price war in US online broking sector on Tuesday by announcing free trades for any customer with at least $25,000 in deposits.

Calling it a “fundamental change” in the brokerage industry, Liam McGee, head of consumer banking, said it was part of BofA’s strategy to persuade customers to give more of their business to America’s biggest bank.

“It would be very difficult for any competitor to match this,” he said.

Shares in specialist online brokers fell sharply on fears they would lose business or feel forced to respond. E Trade and Ameritrade were down about 10 per cent in New York, with Charles Schwab down 5 per cent.

David Trone, analyst at Fox-Pitt, Kelton, said the industry had seen free trade offers in the past, most of which had come and gone with little effect, although Bank of America’s move was more significant.

“Prior free trade offers were by unknown, typically online-only entities, while Bank of America is a well-known and respected brand,” he said.

“Trust is important in the retail brokerage industry, where customers often are committing the majority of their life savings to an institution.”

However, he said the $25,000 minimum deposit balance was relatively high and that large scale defections to BofA were unlikely given the “hassle and switching costs”.

BofA has a history of building its on-line business through aggressive pricing. In 2002, it dropped fees for on-line banking and bill paying.

It now has 20m active on-line banking customers and 10m on-line bill payers, or more than half of the US total.

Mr McGee declined to say how much revenue BofA would lose initially from the dropped charges but said it was confident this would be more than made up by increased deposit revenue.

He pointed out that its on-line bill payers were 30 per cent more profitable than other customers.

He said that 40 per cent of BofA’s customers would qualify for the free trades and he hoped that those taking up the offer would be more likely to consider BofA for other products, such as mortgages.

BofA’s investment services arm, which provides full-service and on-line broking, currently has 1.6m client accounts and charges between $5 and $10 for on-line trades depending on the type of deposit account customers maintain.

Under the new offer, qualifying customers will get up to 30 free trades a month.

The offer is available immediately in the north-east and is expected to be rolled out nationwide by the spring of next year.

Analysts said the move would have little impact on full-service brokers such as Merrill Lynch which offer a wider range of services and have moved from a commission-based model to one based on annual fees.

Copyright The Financial Times Limited 2017. All rights reserved.
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