What Online Brokers Don’t Want You to Know (Their Secret)

Online brokers have a secret.

What if I told you that the general commissions and fees aren’t that general and you can negotiate your way down.

Investing is a practice of preparing for the future. Making sacrifices now to better your future financially. 

If you don’t watch out, you can spend hundreds of thousands of dollars on commissions and fees.

In this article, we are going to walk you through the steps of how to negotiate your commissions and pay lower trading fees.

If this sounds interesting to you, let’s dive in!

What is The Purpose of a Broker?

If you want to buy and sell securities you’ll need a broker. A broker can be a licensed agent or a brokerage firm like Betterment, Wealthfront, TD Ameritrade, or E*TRADE.  

The most basic assignment that brokers carry out are trades. Brokers help investors buy and sell stocks. On the flip side, they take a fee for the mediation.

Simply put, a broker is a person or an investment firm that connects buyers and sellers. For this service they usually take commissions.

The issue is that even a small brokerage fee will add up. For example, if your investment portfolio was up 7% but you pay 2% in commissions and fees you will walk away with a 5% gain.

Why Would Online Brokers Keep a Secret?

At the end of the day, online brokers are businesses. Their main goal is to provide investment management while making a profit.

Many brokers offer different features and services, but the main business model is the same. 

In the discount brokerage space, commissions are slightly overlooked. Let’s zoom in on them.

That fact is many brokers pay a very small amount to execute your trades. In fact, many of the larger firms are paying as low as $2 to place your trade. If you’re paying $10 per trade, they’re making a pretty nice profit (I’ll let you do the math). 

$10 might not seem like a lot of money for a trade, but if your trading often, that number sure adds up. Over a lifetime of investing and trading, you can reach hundreds of thousands of dollars in commissions. 

Now, from a brokerage perspective, commissions are a major moneymaker. A brokerage that focuses heavily on trading can place hundreds of thousands of trades each business day for their clients. 

That can add up to a large revenue for the brokers.

Outside of whatever measly amount they’re earning on their excess cash, this is one of their biggest income earners. Because of that brokerages don’t “expose” how much weight they put on commissions. 

This is why it makes sense that so many discount brokers want to keep “the commission money maker” a secret.

Low Commissions Aren’t Everything

But you must remember that choosing the best discount broker doesn’t depend solely on price. Negotiating a lower commission can help save a lot of money in the future, but if you have a horrible broker it might be worth it.

You should consider and review other factors such as services and features, investment options, platform, research, and customer service. 

While price does play a role, it shouldn’t be the decision-maker. 

Which Online Broker Will Negotiate Commissions?

As a frequent trader, I was very annoyed finding this out. I’ve been investing for years and I have definitely been overpaying.

If you’re an active trader there is no reason you need to pay that much to execute trades. 

There are very low commissions with discount brokers like Ally Invest or TD Ameritrade, but they might not have the tool and features you’re looking for.

If you still aren’t sure, let me make it clear,  there are ways to negotiate commissions with your broker. Before we get into the how, check out a few online brokers that are willing to negotiate commission rates:

  • TD Ameritrade
  • Fidelity
  • Schwab

It is important to note that each discount broker is going to handle commission negotiation differently. 

Negotiate Commissions With a Broker 

Online brokers won’t lower commissions to just anyone. That wouldn’t make sense for them. At the end of the day, they are a business and they’re interested in making money.

If you can offer them a win-win situation, they might just help you out.

The Ideal Situation

As a trader, you might be able to leverage your position if you fit into one of the three positions below:

  1. High volume trader
  2. High equity client (large account)
  3. Both high volume trader and high equity client

If you are a high volume trader that makes numerous trades a month, you are a valuable client to brokers. At the end of the day, they make money on every trade through commissions. If you make hundreds of trades, you can negotiate your commission costs.

As a high equity client, you are looked at as a “premium customer”. Aside from commissions per trade, most brokers also charge an annual fee on your total assets. If you have a lot of assets, you’re passing them a lot of money and you can leverage that in a commission negotiation.

Being both a high volume trader and a high equity client, you are at the top of the list. Look at this through the eyes of the broker. You are worth a lot to them. All you have to do is talk it out. 

How to Negotiate Commissions With a Broker 

Assuming you’re a high volume trader, a high equity client, or both, it’s entirely possible to lower commission with a 15-minute call to a customer representative.

Below is a quick checklist of what you will want to do:

  • Call your discount brokerage- This is the first step. You want to contact someone over the phone or in person. Just ask for a lower commission. We would not recommend sending snail mail or an email. You will not be taken seriously. 
  • Explain your situation- Are you a high volume trader? Are you a high equity client? Are you looking at another broker and willing to switch platforms? Are you looking to rollover a 401(k)? These are all valid situations to consider a commission reduction. Make sure to give as many details as possible to plead your case.
  • Be courteous- At the end of the day, the person on the other end of the line is a human being just like you and me. If you’re being honest and kind, the broker agent is much more inclined to help save you money. The nicer you are to the rep, the more they’ll work with you.
  • Be patient- Some discount brokers empower their phone representatives to make a decision on the phone. Others require a manager to approve. In some instances, the rep can only go to a certain level and then bring in a manager. In some instances, they might need to call you back later in the day. Whatever the scenario brings, be patient and let the process play out. Demanding a discount that second will only get your request denied.
  • Be open-  Depending on the brokerage and your situation, they may not be willing to lower your commission. For some, that means it’s time to open a new account with a low-cost online broker. Don’t be so quick to move. If your brokerage firm is not open to lowering your commission, it’s very possible they will offer you a promotion to bring in additional cash or investments.