JPMorgan offer of free trades hits discount brokerages

The biggest U.S. bank is joining an escalating battle for retail investors, and the news hit discount brokerages hard.

JPMorgan Chase & Co.’s plan to roll out a mobile brokerage platform next week that includes free research and some free trading to its millions of retail customers drove shares of discount brokerages lower Tuesday.

JPMorgan’s move comes after Fidelity Investments cut fees to zero on two new index funds earlier this month and Vanguard Group said in July it would offer almost 1,800 exchange-traded funds commission-free to online customers.

Fintech start-ups, technology-assisted robo-advisers and increased competition from established players have driven a dramatic drop in brokerage fees across the industry. Many firms are now using cheap or free trading to attract clients to more profitable businesses such as financial advice and higher-priced investments.

At JPMorgan, the idea for the disruption has been in the works since 2016, when CEO Jamie Dimon told investors the bank was working on a way to offer free robo-investing. The bank is hoping to lure retail customers from competitors, encourage existing clients to start trading more on their own and appeal to millennials, Jed Laskowitz, the CEO of the new product known as You Invest, said in an interview.

“We were hearing from clients that they wanted to invest with us as they digitally banked with us,” Kelli Keough, the bank’s global head of digital wealth management, said in an interview. “It really came from clients and was a concerted focus across the organization to make this happen.”

The service gives clients 100 free trades in the first year, free equity research and the ability to earn unlimited free trading, Darin Oduyoye, a spokesman for JPMorgan, said Tuesday in an emailed statement.

Clients can get the 100 free trades every year if they maintain an account balance above $15,000, Mr. Oduyoye said in response to questions. Chase Private Client customers, or those with at least $250,000 in balances, get unlimited free trades, he said.

JPMorgan is also giving retail clients access to equity reports published by its investment bank research team at the same time that institutional investors get access, Mr. Laskowitz said.

News of the digital investing service drove shares of discount brokerages lower. TD Ameritrade Holding Corp. was down 5.5% at 10:07 a.m. in New York, while Charles Schwab Corp. dropped 3.2% and ETrade Financial Corp. declined 3.9%. JPMorgan shares were up 1.1%.

Clients will see an option to access self-directed trading within their Chase mobile banking apps when the company officially rolls out You Invest next week. CNBC reported details of the new product Tuesday.

“JPM’s aggressive push into the e-broker space could make competition more intense,” Craig Siegenthaler, an analyst at Credit Suisse Group, said in a note, referring to JPMorgan by its ticker symbol. “Its free trading option could trigger a response” from Schwab or Fidelity, he said.

The offering will only be available for customers who live in the U.S., Ms. Keough said. JPMorgan told clients earlier this month that it plans to exit its brokerage business for non-U.S. retail investors, people briefed on the matter said.

Other brokerages have sought to draw customers with free trades. Startup online brokerage Robinhood Markets Inc. offers no-commission stock trades and said earlier this year it surpassed 4 million clients. Bank of America Corp.’s Merrill Edge offers 30 free trades a month for customers who have $50,000 in relevant accounts, while ETrade gives 500 free trades in the first 60 days to investors who deposit $10,000, according to the firms’ websites.

(More: Jamie Dimon of JPMorgan Chase sees opportunity to increase share of wealth management market)​

Related Topics: Charles Schwab & Co., JPMorgan Chase & Co., TD Ameritrade Institutional