◼ FINANCE Bloomberg Businessweek March 2, 202021● Retail traders may be back, but commissions
are down to zero. So brokers are racing to mergeSay Goodbye to the
Standalone Broker
THE BOTTOM LINE Electronic stock trading has become so
commoditized that big players are giving it away in hopes of
drawing in customers for other products.Throw dirt on it. The era of independent online
brokers is over.
It was Charles Schwab Corp. that plunged the
knife in, but the sale of ETrade Financial Corp. in
February was the last gasp. Schwab’s purchase of
TD Ameritrade Holding Corp. to create a $5 tril-
lion monster serving customers who trade stocks
in their pajamas for free made it impossible for
ETrade to continue as it was. Morgan Stanley
swooped in, and for $13 billion in stock it gets to
clothe itself in ETrade’s digital street cred, attract-
ing younger, tech-savvier clients to a bank whose
reputation is staid even by Wall Street standards.
Of course, newer trading platforms such as
Robinhood, which was charging zero commis-
sions before it was fashionable, have threatened
to render ETrade yesterday’s news. That doesn’t
seem to matter to Morgan Stanley. Its mission is to
absorb ETrade’s customers. Morgan Stanley Chief
Executive Officer James Gorman said in a confer-
ence call on Feb. 20 that he expects ETraders—
perhaps after they get better jobs, rack up some
debt, and put on a few pounds—to sign up for finan-
cial products geared toward the more standard
Morgan Stanley customer. That is to say, an older
and wealthier investor.
“It was an act of desperation by Morgan
Stanley,” says Jack Ablin, chief investment officer
of Cresset Capital Management, a Chicago-based
wealth-management firm. “Anyone who has a
Morgan Stanley account probably still has a full
cable-TV package.”
ETrade, founded in 1982, had its peak success
during the dot-com bubble of the late 1990s. At the
time it was among a group of upstarts rankling the
financial establishment, challenging the notion that
it should cost big bucks just to place a stock trade.
Its TV commercials, featuring dancing chimpan-
zees and toddlers trading on mobile phones, poked
fun at companies like Morgan Stanley, for whom
jacked-up fees were considered a divine right.
In the beginning, ETrade’s startup environ-
ment was as wacky as they get. Christos Cotsakos,
the CEO through 2003, used to say the compa-
ILLUSTRATION BY XAVIER LALANNE-TAUZIA; DATA: COMPILED BY BLOOMBERGny’s culture had “a lust for being different.” He’d
make employees carry around rubber chickens,
wear propeller beanies, or stand on a chair and
reveal something intimate about themselves
to colleagues.
But ETrade made a series of stumbles as the
industry shifted. In the early 2000s it charged
$14.95 per trade when competitors had dropped
the price to $8. In 2007 the hedge fund Citadel
bailed it out, injecting $2.5 billion in cash into its
balance sheet and purchasing its $3 billion in toxic
asset-backed securities for 27¢ on the dollar.
More recently, ETrade decided to tough it out
alone even as consolidation took hold among its
peers. As one of the smaller brokerages by market
value, it was long seen as a potential acquisition
target for a firm such as TD Ameritrade, which
bought Scottrade in 2017. When ETrade executives
wrapped up a detailed review of the company’s
business in October 2018, they surprised analysts
and investors by recommitting to remaining inde-
pendent. ETrade may have fetched a higher price
then, when its shares were trading higher. “They
missed an opportunity,” says Rich Repetto, an ana-
lyst at Piper Sandler & Co. ETrade didn’t immedi-
ately respond to a request for comment.Schwab changed everything a year later. The
pioneering online brokerage pushed trading com-
missions to zero, forcing ETrade and others to do
the same. Although commissions didn’t account
for quite as large a share of ETrade’s revenue
as they did at its competitors, the change still
came as a blow, eliminating a business line that
accounted for about 15% of its net revenue in 2019.
The Wall Street establishment was once the
enemy for ETrade and Morgan Stanley the worst
example that its chimps mocked in TV ads. But it’s
time to blow taps. That world is over. To ETrade,
the old-guard institution now looks like something
very different: a lifeline. �Annie Massa