A price war between online brokerages earlier this year simply "destroyed economics" in the space, according to E*TRADE Financial Corp. CEO Karl Roessner.
Through February and March, discount broker/dealers like E*TRADE, Charles Schwab Corp., TD Ameritrade Holding Corp. and Fidelity Investments, among others, slashed how much they charge clients to trade on their platform.
At the time, E*TRADE lowered its base-rate commission to $6.95 from $9.99 per trade, while also offering a lower commission fee of $4.95 per trade for customers who perform at least 30 trades per quarter. But the online broker's chief executive still questions the industry's drive for lower costs.
"I don't understand the reason for it, or the rush to do it," Roessner said during a presentation at the Goldman Sachs Financial Services Conference.
Commission fees have historically accounted for a significant portion of e-brokers' revenues, but by lowering their prices, profitability plunged. In the months that have followed, Fidelity reportedly laid off hundreds of employees, and online brokers in general have been looking to diversify their business lines.
For E*TRADE, commission fees now account for about 15% of the company's overall revenues, which is "down quite a bit" from where the company once was, Roessner said. In the third quarter, E*TRADE reported $100 million in commissions revenue, down from $107 million a year earlier.
As the company looks ahead, Roessner said any additional price cuts could be "painful" for E*TRADE, as well as for many of its peers. But for the amount of advice, technology and capabilities, Roessner said he believes customers would be willing to pay more money.
"If they have the right service platform in front of them, and they know the people they talk to can give them good advice, they can drop a couple of dollars here and there," he said.