The Secret Online Brokers Don’t Want You to Know

If you were to do an Internet search for “online brokers”, you’d come back with somewhere north of 31 million results. There’s not quite that many online brokerage firms, but there are certain a lot of them to choose from. And there is one secret thing each and every discount broker has in common. Unfortunately for most consumers, that one secret is that most of the best discount brokers online are willing to negotiate their commission.

Why Would Online Brokers Want To Keep A Secret?

There is a little-known fact in the discount brokerage space. That fact is many brokers pay very little to execute your trades. In fact, many of the larger firms are paying as low as $2 to place your trade. If you’re paying $10 per trade, then I’ll let you do the math. This difference might not seem much to some, but if you’re doing a fair amount of trading each year that amount will add up over time.

Looking at it from their perspective, commissions are a major moneymaker for brokerages. Some are placing hundreds of thousands of trades each business day for their clients. That can add up to a significant amount of cash for the broker. Outside of whatever measly amount they’re earning on their excess cash, this is one of their biggest income earners, which is why it makes sense that so many discount brokers want to keep this a secret.

But you must remember that choosing the best discount broker doesn’t depend solely on price. You should consider and review other factors such as services offered, investment options, platform, research, and customer service. While price does play a role, it isn’t the end all be all. Negotiating a lower commission, on the other hand, can only help you in the long run.

Which Online Brokers Will Negotiate Commissions?

Are you mad now after learning you’re overpaying TD Ameritrade, E*Trade, Scottrade or Fidelity? If you’re an active trader, you should be! There is no reason you need to pay that much to execute trades. Yes, you can choose lower priced discount brokers like OptionsHouse or TradeKing, but they may not have the tools you want.

Below are some of the discount brokers that will negotiate commission rates:

  • TD Ameritrade
  • Etrade
  • Fidelity
  • Schwab
  • OptionsXpress
  • Scottrade (in some instances)

It is important to note that each discount broker is going to handle commission negotiation differently. In some instance, they might have a tiered commission structure offering lower rates the more you trade. They might offer to lower you to that tier or offer some sort of alternative solution.

How To Negotiate A Commission

Now that we know some online brokers will negotiate their commissions, the question is how to be successful at getting a lower rate. Let me first warn you that if your account has been dormant for three years or you place one trade a year then it’s not realistic to get cheaper rates.

Assuming you’re not in one of those categories, it’s entirely possible you can get a lower commission with a 15 minute call to a customer representative. You will want to do the following to accomplish it:

Call your discount brokerage. This is the first step. You want to contact someone over the phone, or in person, to ask for a lower commission.

Explain your situation. Are you an active trader? Are you looking at another broker and willing to switch platforms? Are you looking to rollover a 401(k)? Do you have a sizable portfolio with them currently? These are all valid situations to consider a commission reduction. Make sure to give as many details as possible to plead your case.

Be courteous. You’re asking for a lower price, so be nice. Don’t be a jerk about it or the agent/advisor is not going to want to help you save money. The nicer you are to the rep, the more they’ll work with you.

Be patient. Some discount brokers empower their phone representatives to make a decision on the phone. Others require a manager to approve. In some instances, the rep can only go to a certain level and then bring in a manager. In some instances, they might need to call you back later in the day. Whatever the scenario brings, be patient and let the process play out. Demanding a discount that second will only get your request denied.

Be open. Depending on the brokerage and your situation, they may not be willing to lower your commission. For some, that means it’s time to open a new account with a low-cost online broker. Don’t be so quick to move, though. If your brokerage firm is not open to lowering your commission, it’s very possible they will offer you a promotion to bring in additional cash or investments.

Take Advantage of Promotions

Each discount broker has public promotions, but many also have private or targeted promotions they empower reps to offer. These promotions can range from anything like airline miles to golf clubs to iPads. Nevertheless, price should not be the sole determinant in deciding on a discount brokerage. However, it’s entirely possible to get a negotiated commission to save a little more on your investing fees.