| 02 June 2010

If it's worth doing then it's worth doing right, we suppose. But it's now about six months since the first cannonballs were lobbed onto the battlefield in our little price war, the ground now steaming with the bloody remains of pricing impacts and lost accounts. All we can hear are the moans of wounded soldiers, the slow shifting of accounts and the dribbling of trading activity. So it seems a little odd that today ShareBuilder sends us an email saying they have decide now would be a great time to march onto the battlefield, swords drawn, ready to take on all comers! Price war here we come! Huzzah!

Now, for those of you not up to speed on all the troop formations and battle movements, here's a quick update: we heard first from Charles Schwab (SCHW) in January when they announced whopping 30% price cuts on trading commissions. Thirty days later Fidelity jumped on board cutting commissions to $7.95, or $1 less than rival Schwab. The price war was officially on.

E*TRADE (ETFC) couldn't resist the attention and lowered its pricing from $12.99 to $9.99. TD Ameritrade's (AMTD) CEO Fred Tomczyk, however, called the price war a "zero sum game" and refused to participate. And then as if trying to illustrate Tomczyk's very point, E*TRADE announced it would take a $50 million hit to revenue just because it dropped commissions by $3.

The final blow came when the low-price leader, Vanguard, jumped in with both feet last month, reducing commissions to ZERO on 46 of its in-house ETFs and down to $7 on everything else.
 
ShareBuilder has always been a unique bird. They focus on retirement accounts, automatic investing and a lot of white-labeling for retirement programs. We like their approach and their determiniation. But their position can lead to a confusing array of pricing decisions when they decide to offer more and more their clients or attract the non-retirement crowd.

Take, for example, the fact that in order to take advantage of these price reductions you have to become a 'member' of their "Advantage Program." To do this you pay a $12 per month subscription fee. The primary reason for the fee was this notion that your trades should be automatic and, as a result, very low cost.

What do you get for your twelve bucks? You get to make 12 "automatic" trades. These are trades you set up in advance to, essentially, add to positions and take advantage of dollar-cost averaging.

You also get the privilege of making additional 'on-demand' trades at $7.95 (or the same price as Fidelity, a little more than Vanguard). If you don't subscribe to the "advantage" package then trades are $9.95 and automatic investments are $4 a pop.

It seems to us that this is only an advantage to you (and we use that term liberally here) if you make at least 12 automatic trades per month. Even then, one could argue, you can accomplish the same thing, for less, by setting up an automatic trading program at Vanguard as long as you trade their ETFs, which we know to be quite good. We're just sayin'.

We have always appreciated ShareBuilder's no-nonsense approach to investing and we think of them as one of the good guys. Retirement account users and long-standing subscribers will benefit from this simplified approach. But we think the active investor looking to save on costs while still getting their fill of tools and widgets is likely to look elsewhere.

A bit about the company: we previously reported that ING had intended to sell Sharebuilder. But a month later company executives clarified that decision, saying they remained committed to building out ShareBuilder and that they only intended to sell a couple U.S.-based broker-dealers. Sharebuilder has over 7 million accounts and has seen 140% growth in recent years, thanks in large part to partnerships with large organizations like Costco and their 401(k) company retirement programs.