The race to zero commissions, which escalated this week, shouldn’t alarm financial advisors as long as they have effectively explained the value of the fees they charge clients, according to Louis Cannataro, founder and partner at Cannataro Park Avenue Financial.
All three brokerages eliminated the commissions on online trades of U.S.-listed stocks, ETFs and options. For Charles Schwab and TD Ameritrade, commissions are also eliminated on stocks, ETFs and options listed in Canadian exchanges.
But the race to zero commissions was actually kicked off last week by Interactive Brokers' announcement of the launch of its IBKR Lite, which provides commission-free, unlimited trades on U.S.-listed stocks and ETFS.
Wall Street analysts attribute the price war in part to the disruption caused by Robinhood Financial, a Silicon Valley startup.
Robinhood, a Finra-registered broker-dealer since 2013, has been providing free trades on U.S.-listed stocks on its smart phone app since it launched.
Cannataro — who has been a Finra-registered broker since 1992 — has a bring-it-on attitude towards these zero-commission online brokerages.
“The low-commission or no-commission marketing/maneuvering is aimed at those who do their own investment management and execution. We are not in the business of garnishing commissions on trade executions,” Cannataro says.
“Anybody working with a good, very engaged financial advisor — not only credentialed in all aspects of planning but with years of planning experience and more importantly life experience — already knows how valuable that relationship has become to them,” he adds.
Cannataro says he’s been advising clients on their finances at various stages in their lives for nearly three decades and asserts that’s a value proposition that can’t be matched by online brokerages.
“Once somebody gets to about the age of 30, they begin to appreciate and truly value an advisor relationship. Most people want and need financial guidance and are actually looking for that one person,” he says.
Cannataro provides clients with wealth management, estate planning and business planning advisory services. His firm has a minimum account requirement of $250,000. It currently has around 2,000 client accounts with around $825 million in assets in total.
You can't Google your fears
Cannataro acknowledges that online brokerages appeal to millennials, as seen by the reported popularity of Robinhood among that age group. But that doesn’t necessarily mean online brokerages are going to cut into the targeted clientele of financial advisors, he says.
“The younger generations, in my opinion, have been brought up in what I feel is a time of disconnect — even though they are connected 24/7 — information overload, and mistrust of the financial world and government. Often, they feel all advisors do not have their best interests in mind,” he says.
Cannataro says everyone — especially millennials — is empowered by the internet with the assumption that everything can be done online, and all the answers can be found online. But someone still has to sift through all that information and make sense of it, he says.
“You can call up every piece of information about investing, insurance, will/trust planning, taxes, etc.,” Cannataro says. “What you cannot pull up is your personal planning. What you cannot Google is your personal greatest obstacles and opportunities in life."
"You cannot search your greatest fears and what holds you back, or the cause for your success. The problem becomes: ‘How do we efficiently/effectively now and in the future boil all of this information down into a personal financial plan, execute and monitor/adjust along the way?’” he adds.
Computers versus humans
Cannataro says it takes much longer for younger investors to realize the value of a personal connection with an advisor with years of experience, but they eventually come around.
“Once the light goes on for our younger clients and they realize they may have found a trusted human master Google, if you will, they become clients of our firm for life,” he says.
Cannataro says the younger investors who are attracted to online brokerages will eventually realize they need financial planning services.
“One cannot input their personal goals, greatest fears, greatest obstacles and individual circumstances into an algorithm that handles all aspects of their life and planning,” he says.
When investors can have a “conversation with a computer that can truly think as a human being … when that happens, then we all can be replaced,” he adds.