In the recent few months, there have been three free trade offerings from three companies. The first came from Zecco; this was followed by Bank of America and then most recently by Wells Fargo (WellsTrade).
All the three offers are quite different. Here’s a summary of the information that are of concern to me:
Zecco — A “startup” that is supposedly funded by ads [link to related posts]. The taxable account only requires $2500 to start. The IRA account has an annual maintenance fee of $30. For outgoing transfers, Zecco charges an ACAT fee of $50, which applies for both the taxable or IRA account. Zecco’s long term business viability is a big unknown to me.
Bank of America — Their free trade offer requires you to have $25,000 or more in their low yield savings / checking account. This is a deal killer since the opportunity cost of say keeping $25,000 in a 0.25% savings account, compared to say a 5%-yield elsewhere is almost $1200 yearly (before tax). While there were reports of people opening high yield savings accounts using affiliated accounts, that still requires you to have a lot of money sitting in a savings account or CD. Depending on your circumstances, these funds are probably better invested in the investment portfolio.
WellsTrade — To get the free trades, Wells Fargo requires you to open a Portfolio Management Account (PMA) and keep at least $25,000 in the PMA and linked accounts to avoid fees. (Note: If you do not have $25,000, you will still have the free trades, but you will have to pay a $25 PMA monthly fee). Unlike the case of Bank of America’s offer, investments in the brokerage account are counted towards the $25,000. IRAs are fee-free when linked to the PMA. The ACAT fee for an outoing transfer is $50; in addition, there is a $50 termination fee for IRAs. WellsTrade is the most mutual fund friendly brokerage.
My Choice — The choice for me is really only between Zecco and WellsTrade since I quickly eliminated Bank of America’s lousy offer. Since in addition to a taxable account, I also wanted to set up an IRA for tax-advantaged investing into ETFs, I looked quite closely at the IRA fees. For Zecco and WellsTrade, they both have $50-ACAT fees, so I can take that out of the equation in the comparison.
The remaining main difference between the two offers is then the $50 termination fee from WellsTrade and the $30 annual fee from Zecco. To resolve this, consider this: When you open an IRA account with Zecco, they take out $30 immediately. What this means is that if you keep an IRA open at Zecco for one year and one day, you will be out $60. This is already more than the $50 termination fee from WellsTrade.
Furthermore, I still remain quite skeptical of the business viability of Zecco. All of the above reasons pushed me into taking up WellsTrade offer.
However, one major concern is whether WellsTrade will eliminate the free trade at some point in the future. I do not discount this possibility but it appears to me that what Wells Fargo has been trying to do is to sell an entire financial package. There will probably be amble opportunity for Wells Fargo to make money on the other parts of the package to subsidize the free trades. In addition, when Wells Fargo first reduced commissions in 2005, the same argument that this will be a “limited time offer” also holds. However, in 2007, Wells Fargo did not eliminate the low commissions; instead it reduced them to zero.
Signed Up — I signed up for the account online and would be receiving the account information shortly. Three short notes that could be useful to you if you are applying:
- Use the promotion link to get a $25 gift certificate when applying for the PMA. Read this post.
- Do not select “Overdraft Protection” unless you intend to also open a savings account. If you are in for the free trades, there is no reason to open this account.
- You can fund the PMA with a credit card by up to $500. The CSR confirmed that this will be coded as a purchase. I used my 2% Fidelity 529 Credit Card to fund the PMA with $500 and will be receiving a $10 rebate.
I sure hope everything will check out OK with WellsTrade. If so, I would probably also transfer all my holdings at Sogoinvest and Ameritrade Izone to WellsTrade some time in the future to consolidate my investments.