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Fidelity Cuts Fees for Bond Trades

From Bloomberg News

Fidelity Investments, the world’s biggest mutual fund company, reduced online bond trading fees by 50% to attract more individual investors to its brokerage business.

The price of trading bonds over the Internet will be as low as 50 cents for each U.S. Treasury, the Boston-based company said Thursday. Fidelity said it also would allow individuals to sell as well as buy bonds online.

“If the client is willing to do the research themselves and place the trade online, they should be entitled to a part of the savings,” said Sanjiv Mirchandani, executive vice president of brokerage and asset management products.

Fidelity has been cutting customer costs this year to win market share from rivals. The closely held company lowered fees on online stock trades to challenge E-Trade Financial Corp., Ameritrade Holding Corp. and Charles Schwab Corp., and reduced management fees on five index-tracking funds, undercutting Vanguard Group’s pricing.

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In September, Fidelity slashed bond-trading fees by as much as 75%, expanded its inventory of investment-grade bonds to 5,000 and introduced new online tools and information for individual investors.

Fidelity estimates that there are $3 trillion in bonds owned by individual investors.

Mirchandani said 45% of individual customers’ bond trades at Fidelity were made over the Internet, including 90% of Treasury trades and 75% of corporate bond transactions.

“What we’re simply doing is saying if you want to do this online, we’ll give you a better rate because it costs us less that way,” Mirchandani said.

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Jim Lowell, chief investment strategist for Adviser Investment Management Inc. in Watertown, Mass., said Fidelity had carved out its own market in retail online bond trading. The fee cuts will drive more investors online, improving Fidelity’s cost efficiency and profitability, he said.

“They continue to ramp up their aggressive pursuit of market share across all boards,” Lowell said. “It’s extraordinary for investors, but it’s also going to be extraordinarily difficult for any of its competitors to compete at those price levels.”

Fidelity will charge $1 per bond for online trades of government agency bonds or certificates of deposit; $1.50 each for municipal bonds; $2 apiece for corporate bonds; and $2.50 each for mortgage-backed securities.

Fidelity introduced caps for individual bond traders, setting a maximum price of $500 to buy or sell a bond. The price applies to all types of bonds and to trades made online, by telephone or at a Fidelity branch office. The minimum charge for a trade is $19.95.

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The price ceiling is important because the average bond trade tends to be larger than a typical stock transaction, Mirchandani said. Many affluent investors hold large amounts of individual bonds to diversify their portfolios and could otherwise run up thousands of dollars in fees, he said.


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