Broker Consolidation: Fewer Choices Than Ever
A decade ago, there were dozens of major brokers. Today, a few giants dominate. Here's how consolidation is reshaping the industry.
Major Broker Mergers (Recent)
The New Brokerage Landscape
Today's major brokers fall into a few categories:
The Giants
- Fidelity: ~$11.5 trillion AUM, privately held
- Schwab: ~$8.5 trillion AUM (includes TD Ameritrade)
- Vanguard: ~$8.6 trillion AUM
Wall Street Banks
- Morgan Stanley: Owns E*TRADE
- Bank of America: Owns Merrill Edge
- JPMorgan Chase: J.P. Morgan Self-Directed
Disruptors
- Robinhood: ~$150B AUM, mobile-first
- Webull/Moomoo: Chinese-owned challengers
- Public: No PFOF alternative
Why Consolidation Happened
Commission Compression
When Schwab eliminated commissions in October 2019, other brokers followed within days. Without trading revenue, scale became essential for profitability. Smaller brokers couldn't compete.
Technology Costs
Building and maintaining trading platforms, mobile apps, and cybersecurity requires massive investment. Larger firms spread these costs across more customers.
Regulatory Burden
Compliance costs keep rising. SEC, FINRA, state regulators—the paperwork never stops. Bigger firms can absorb these costs more easily.
What Consolidation Means for Investors
Pros
- Lower fees: Scale enables $0 commissions
- More features: Combined resources fund better tools
- Financial stability: Larger brokers are safer
- Integration: Better banking + brokerage combinations
Cons
- Less competition: Fewer choices = less pressure to innovate
- Cash sweep abuse: Giants like Schwab pay 0.45% on cash while earning 4%+
- Integration pain: TD customers faced migration headaches
- Customer service: Mass market focus can reduce service quality
The Cash Sweep Problem
Consolidation has enabled a hidden profit center: low cash sweep rates. With less competition, major brokers can pay customers almost nothing on uninvested cash:
| Broker | Cash Sweep APY | What They Earn | Your Loss on $50K |
|---|---|---|---|
| Schwab | ~0.45% | ~4.5% | ~$2,025/yr |
| E*TRADE | ~0.55% | ~4.5% | ~$1,975/yr |
| Fidelity | ~2.7% | ~4.5% | ~$900/yr |
| Robinhood Gold | 3.25% | ~4.5% | ~$625/yr |
Could There Be More Consolidation?
Possibly. Potential scenarios:
- Robinhood acquired by a major bank
- Smaller players (Ally, SoFi) merging
- Vanguard becoming more aggressive in retail
- International players entering US market
The Bottom Line
Broker consolidation has brought lower explicit costs (no commissions) but enabled higher hidden costs (cash sweep spreads). The remaining major players have less incentive to compete aggressively on pricing.
For investors, this means:
- Don't leave significant cash in sweep accounts
- Compare features beyond just commissions
- Consider newer players (Robinhood, Public) for competitive pressure
- Understand that "free" trading has real costs elsewhere