• by Thom Forbes  @tforbes, August 22, 2018

JPMorgan Chase roiled the already churning waters of online trading yesterday by announcing it will let everyday investors make up to 100 free trades of stocks or exchange-traded funds for a year. 

“The move by the nation's largest bank -- in the works for three years -- is just the latest development in the dynamic online investing landscape that includes apps such as Robinhood, which offers commission-free trades,” writes Mike Snider for USA Today. “Current JPMorgan Chase customers, 47 million of whom bank online or on the mobile app, will automatically get access to the new service You Invest next week within the Chase mobile app and on the bank’s website.”

And that’s not all. “As part of the You Invest offering the bank also plans to launch online managed portfolios early next year,” according to Reuters.

“The industry had been anticipating some sort of dramatic move by JPMorgan for several years. In April 2017 CEO Jamie Dimon said in his annual letter that an ‘inexpensive’ self-directed online tool was coming by the end of that year. He also has talked [about] adding free services as part of a bigger consumer package, much like he has seen Amazon.com do with its Prime service,” the Reuters report continues.

“The bank is trying to bring in more first-time investors, including millennials, as well as customers of the bank who invest elsewhere. JPMorgan’s move could accelerate the pricing war buffeting rivals such as TD Ameritrade Holding Corp. and Charles Schwab Corp., which have been cutting fees in a fierce competition for customers. Fintech startups offering low-fee or discounted trading have accelerated that competition,” write Emily Glazer and Lisa Beilfuss for the Wall Street Journal.

Indeed, shares of competitors took a big hit after the announcement yesterday. TD Ameritrade posted its “single worst day on Wall Street since Feb. 28, 2017, falling 7.1% while E-Trade notched its steepest loss since March, falling 4.3%. Charles Schwab’s stock fell 2.4%,” reports CNBC’s Thomas Franck.

“Schwab charges $4.95 a trade, and TD Ameritrade and E*Trade charge $6.95, according to their websites. Bank of America Corp. launched Merrill Edge, its lower-cost online brokerage platform, in 2010. It costs $6.95 a trade, with certain trades free for clients with balances of at least $20,000,” the WSJ’s Glazer and Beilfuss report.

“TD Ameritrade is very well positioned to compete and win in a low-cost environment. However, the competitive environment will likely continue to shift, and we will remain nimble,” a company spokesperson tellsMarketWatch’s Tomi Kilgore. “We continually evaluate our offerings and pricing, taking into account recent competitive changes and enhancements.”

Charles Schwab and E-Trade did not immediately respond to Kilgore’s requests for comment.

“But JPMorgan, the biggest U.S. bank, has a distinct advantage over many competitors: It already has financial ties with half of American households,” points out CNBC’s Hugh Son. 

“There are customers out there who may not want to trust their credentials or their money to an app of the month. We're thinking about what’s right for our customers, helping them get invested, and stay invested and diversified,” Jed Laskowitz, who runs You Invest, tells Son. 

Kelli Keough, the bank’s global head of digital wealth management, tells Son that in early trials, You Invest users are 15 years younger on average than clients of the bank’s human financial advisors. And 90% haven't invested with JPMorgan before.

“This is the latest push from JPMorgan to retain customers with free incentives. Two years ago, it offered the Sapphire Reserve credit card, which gave customers a 100,000-point sign-on bonus, a move that sparked a rewards battle in the credit industry,” writes Chris Morris for Fortune.

“You Invest will result in a similar reaction among trading companies. All customers will get free trades the first year. After that, though, the offer will become permanent for those with $15,000 in combined savings. Customers with $100,000 or more in combined savings at the bank will get unlimited free trades,” Morris adds.

As enticing as the deal may seem, it’s not necessarily a smart play for the uninformed consumer. 

“Interactive Broker’s VP of marketing, Steve Sanders, criticized JPMorgan’s move” in a statement, reports Ben Walsh for Barron’s. 

“Banks and brokers that give away so-called free or cheap trades make their money by paying next to nothing on idle balances, executing trades at inferior prices, and charging exorbitant borrowing fees, which is costly to those that don’t do their homework,” Sanders points out.

You mean free isn’t free?