For all those that have a Capital One Brokerage account, you will soon find yourself having an account with E*Trade instead. This transfer is a continuation of what’s been happening lately in the brokerage industry. Many companies are starting to pair up and combine their resources to survive in this era. This is due to the fact that many aren’t making commissions like they used to, and companies like Robinhood and Stash began encroaching on the Brokerage industry, threatening the business of paid-for-stock trades all together.
The Switch:
E*Trade is buying more than 1 million self-directed brokerage accounts from Capital One Investing, meaning taxable accounts or IRAs that clients manage on their own, for example. Notably, the deal doesn’t involve small-business 401(k) plans administered by Capital One. Your assets (cash, stocks, etc.) will move automatically, as will certain account history and other information, according to a notice issued by Capital One. The official move will happen later in 2018, though no firm timeline is in place right now. Until then, customers can continue to use Capital One Investing just as they always have.
If you want to move your account to a different broker before the move 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 carries a $75 ACAT fee, so there’s no reason to rush to find a new home for your account.)
Why Customers are Transferring:
Capital One’s brokerage has a lot of accounts, but its clients tend to have less in assets and trade less frequently than clients of competing brokerage services. The average Capital One Investing account makes roughly one trade per quarter, whereas E*Trade’s brokerage accounts place about four trades per quarter. Likewise, the average Capital One Investing account has no more than $18,000 of assets, whereas the average E*Trade account has more than five times as much, or about $93,600 at the end of the fourth quarter.
On a conference call to discuss the deal and fourth quarter earnings results, Roessner said that opportunities to add a large number of customers don’t come often – even if the clients in the accounts tend to trade less frequently than E*TRADE’s customers. He noted that, when the acquisition price is broken down by accounts, it was lower than what the company typically pays in client acquisition expenses. “The price was right, and we went after scale,” Roessner said, according to Reuters, which covered the call.
The deal makes sense for both E*Trade and Capital One. E*Trade will acquire more than 1 million customers in one fell swoop at a price less than what it typically spends to sign up a new customer, according to conference call commentary. Capital One will part with an ancillary business that is a mere rounding error compared to its credit card and commercial banking units.
Past Brokerage Acquisitions:
Seeing brokers and brokerage services pair up is no an uncommon event. As a matter of fact, in the past recent years, there have been a number of mergers and acquisitions among online discount brokers. Smaller brokers are quickly selling out as commissions decline and rivals generate better margins at lower price points. Some recent deals are listed on the table below:
| Acquiring Broker | What it Bought | Deal Closing Date |
|---|---|---|
| E*trade | Capital One Investing accounts | TBD |
| TD Ameritrade | Scottrade | Sept. 2017 |
| E*trade | OptionsHouse | Sept. 2016 |
| Ally Financial | TradeKing | June 2016 |
| Charles Schwab | OptionsXpress | Aug. 2011 |
On a long enough timeline, commission prices will ultimately go to zero. Some brokers are able to compete on prices or shift towards products and services that generate recurring revenue to make up for the commission declines. It can be determine that this merger and acquisition spree is still in its early stages. In the prior year, E*trade was given and ultimatum to meet growth targets or the board will consider strategic alternatives, including selling the brokerage.
Conclusion:
The merging of Capital One Investing Account and E*trade is something to take note of especially if you are an avid Capital One Investing customer. Since Capital One’s Investing Accounts on average has less assets and lower trading activity, it makes sense why they are merging with E*trade. Make sure if an E*trade account is the one for you! Or face a hefty $75 fee to transfer to a different broker. Interested in more brokerage accounts and reviews? Check out our list of Brokerage Account Bonuses!
