The Growth of Web-Based Investment

Notes

• Even though the full-service brokers may like nothing more than to have more trades from their client's account (since there is an economic incentive to do so), they still are liable to uphold their fiduciary duties and are subject to security laws such as those prohibiting “churning” an account. These regulations make it more difficult to generate trades than the broker may like and consequently change the business model of full-service firms to one that maximizes revenues by maximizing price rather than quantity sold (volume). The online brokers are not subject to same regulations as the invidual investor makes the trading decisions and therefore is not subject to the same laws as the full-service brokers
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• Both the full-service and online brokerage firms charge the trading fees on a “pay-as-executed” basis. That is, once the trade is executed, the transaction fee is immediately subtracted from the investor's account
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