Why Your Capital One Investing Brokerage Account is Switching to E*Trade

If you use Capital One Investing to trade stocks, your account will transition to E*Trade later in 2018. Here’s why more mergers and acquisitions are planned for the online discount brokerage industry.

If you use Capital One Investing to trade stocks, your account will transition to E*Trade later in 2018. Here’s why more mergers and acquisitions are planned for the online discount brokerage industry.

Investors who use Capital oneThe brokerage firm of (NYSE:COF) for placing trades will soon find its accounts on E*Commerce (NASDAQ: ETFC). It’s the latest deal in the discount brokerage industry, where companies come together with the aim of surviving and thriving in a world where commissions are hurtling to zero and upstarts like Robinhood are threatening business. profitable stock market transactions.

What’s going on?

E*Trade buys over 1 million self-directed brokerage accounts from Capital One Investing, meaning taxable accounts or IRAs that clients manage themselves, for example. Notably, the deal does not involve 401(k) plans for small businesses administered by Capital One.

On his conference call, E*Trade CEO Karl Roessner described it as “essentially an account beating”. In short, if you are currently using Capital One Investing, you will probably go to bed one night as a Capital One Investing client and wake up the next day as an E*Trade client.

Your assets (cash, stocks, etc.) will move automatically, as will certain account histories and other information, according to a notice issued by Capital One. The official move will take place later in 2018, although no specific timetable is in place at this time. Until then, clients can continue to use Capital One Investing as they always have.

If you want to transfer your account to another broker before switching to E*Trade, keep in mind that Capital One Investing charges a fee of up to $75 to transfer your account. (For what it’s worth, a full transfer of an account out of E*Trade also incurs a $75 ACAT fee, so there’s no reason to rush to find a new home for your account.)

Why Capital One Customers Move

Realistically, brokerage has never really been a big deal for Capital One. Prior to being Capital One Investing, the brokerage service operated as ShareBuilder, which emerged when Capital One acquired online bank ING Direct in 2012.

Capital One’s brokerage has a lot of accounts, but its clients tend to have fewer assets and trade less frequently than clients of competing brokerage services. The average Capital One Investing account makes about one trade per quarter, while E*Trade brokerage accounts make about four trades per quarter. Similarly, the average Capital One Investing account has no more than $18,000 in assets, while the average E*Trade account has more than five times as much, or about $93,600 at the end of the fourth quarter.

The deal makes sense for both E*Trade and Capital One. E*Trade will acquire more than a million customers in one fell swoop for less than it typically spends to sign up a new customer, according to comments from the conference call. Capital One will spin off an ancillary business that is just a rounding error from its credit card and commercial banking units.

The rapidly shrinking brokerage industry

Over the past few years, we have seen a number of mergers and acquisitions among online discount brokers. Smaller brokers are selling off as commissions fall and rivals seek to move up in a bid to generate better margins at lower prices. Some of the biggest transactions are included in the table below.

Charles Schwab and Fidelity really upped the ante on competitors last year when, in a series of back-and-forth commission cuts, they finally lowered commissions to $4.95 per online stock trade. As their rivals made noise by cutting commissions, TD Ameritrade and E*Trade had no recourse but to join in, cutting standard stock commissions to $6.95 per trade.

Over a long enough period, it looks like the commission prices will eventually drop to zero. Some brokers can afford aggressive price competition, including Schwab and Fidelity, which derive most of their revenue and profits from fee-based services and traditional banking. TD Ameritrade has taken steps to shift to products and services that generate recurring revenue in light of commission cuts, most recently revamping its list of commission-free ETFs.

Many believe that the brokerage industry is only in the early stages of a wave of mergers and acquisitions. The the wall street journal reported last year that E*Trade executives were given an ultimatum: meet growth targets or the board will consider strategic alternatives, including selling the brokerage firm.

During its fourth quarter conference call, an analyst asked E*Trade management whether recent deal announcements could stand in the way of a possible sale of the company. Roessner responded that they wouldn’t, saying, “I like those two deals, and I think, you know, whoever the ultimate shareholders of this company are, they’re going to like them too.”

Should you stay with E*Trade or find a new brokerage?

Whether or not E*Trade is right for you is largely a personal decision. We recommend that you at least read the pros and cons of the different brokerages before making a decision. Our experts have compiled comprehensive reviews of all major brokers and ranked them based on all important criteria. Visit our Best Online Stock Brokers page for more information.