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Charles Schwab Goes Early Black Friday Shopping

Although 2019 has generally been a fun ride for investors, this Thanksgiving I am thankful for continued economic growth, record market highs, and not being on the receiving end of Charles Schwab’s checkmate! Volatility, political concerns, an impending US-China trade war, and a Twittersphere of uncertainties has created unease where either fear sets in, or one capitalizes. Despite concerns, the US economy and markets are relatively healthy, and competition is in full swing – a competition that has just reared its head in a manner that may go down as one of the best bargain shopping events in recent history.

Chuck couldn’t wait for Black Friday to snatch his good deal. Garnering press and goodwill, the mastermind behind bank and brokerage firm Charles Schwab Corporation made a big move to acquire rival TD Ameritrade. As fee compression and a never-ending race to the bottom has resulted in firms with shrinking margins, they have been struggling to demonstrate their value propositions. Bargain shopping, aka Black Friday, begins this week. Its historical significance stems from the September 24, 1869 stock market crash that led to a sell-off after a period of rampant speculation and gold plummeting. Fast-forward to present day, when Black Friday refers to the day after Thanksgiving, where big discounts and opportunities are offered to consumers to take advantage of the hottest sales for the upcoming holiday. Well ‘tis the season! In an effort to provide increased services, firms like Fidelity have launched zero-expense index funds, SoFi announced zero-cost ETF’s, and after Charles Schwab discussed the benefits of cutting commissions to zero. He strategically slashed Schwab’s commissions and competitors followed suit, witnessing the market value of its competitor TD Ameritrade, who relies heavily on commission trading, tank from $27 billion to less than $20 billion. Voila! Just like that, Chuck swoops in with a plan to purchase the Omaha-based firm for an all-stock transaction valued at $26 billion. Perhaps that was Chuck’s Machiavellian plan behind slashing commissions all along?

What does this mean for the RIA industry in general? Will the Federal Trade Commission (FTC) allow this merger to take place? As we have seen in the multi-yearlong attempt by T-Mobile to acquire Sprint, mergers of this magnitude can be an uphill battle. Yet, the union between Charles Schwab and TD Ameritrade may just be the start of more consolidation throughout the industry. Happy shopping!

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The preceding commentary is (1) the opinion of Chris Osmond and not necessarily the opinion of PCIA, (2) is for informational purposes only, and (3) should not be construed or acted upon as individualized investment advice. Past performance is no guarantee of future results. Seek advice of a tax professional.

Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).

Chris Osmond
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