Unexpected ripples in Schwab aftershock

Unexpected ripples in Schwab aftershock
LPL Financial shares dipped 9.5% over that period.
NOV 04, 2019
It was a tough week for discount brokers after Charles Schwab Corp. announced on Oct. 1 that it was eliminating commissions on trades of stocks, exchange-traded funds and options. By that Friday, the share prices of Schwab and TD Ameritrade Corp. had fallen, respectively, 14% and 28%. [Recommended video:​ Mary Beth Franklin: Encourage shopping during Medicare open enrollment] But it was the fallout for brokerage houses with platforms for advisers but little or no direct-to-consumer business that caught at least one analyst by surprise. LPL Financial shares, for instance, dipped 9.5% over that period. [More: TD Ameritrade fires back at Schwab by cutting commissions to zero] "The biggest surprise following eBroker price cut announcements [last month] was the degree to which other stocks with less direct exposure to brokerage commissions (e.g., independent or regional brokers) lagged," Steven Chubak, senior analyst at Wolfe Research, wrote in a note to clients. "Disclosures from LPL Financial suggest that only a small portion of commissions would actually be at risk, 1% or less of overall gross profit [and/or revenues], we estimate." By the end of the month, however, the share prices of various broker-dealers recovered as investors absorbed the latest development in the securities industry's price war. Last Thursday at midday, Schwab was trading at $40.26 per share, down 4.8% for the month, and shares of LPL Financial were at $80.83, for a drop of 1% for the month. TD Ameritrade was trading at $38.38, down 18.2%. Investing in profitability, performance and people: Register for our Top Advisory Firm Summit.

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