So how does Vanguard make it's money as it is not making money on clients' cash?Low or zero cost brokerages make their money off of interest on clients' cash. They don't really care that much about your stock or mutual fund assets. Where they make their money is that all clients have a certain amount in cash, either settlement funds or money market funds. They keep the difference between the interest they earn and the small amount of interest they pass on to you. That's why they pay those brokerage transfer bonuses -- to get a hold of your cash.
And this isn't a trivial amount. Schwab rakes in over $10 billion a year just on its cash. That's more money than Vanguard makes on all its trillions in mutual funds put together. Schwab makes more money on their cash than they do on all of their other revenue sources put together -- brokerage fees, mutual fund fees and adviser fees.
So it's no wonder there are no trading commissions. That's just the way they get you in the door where they make most of their money off of cash.
Fidelity works the same way, but as a private company they don't publish their figures like Schwab does.
Statistics: Posted by anagram — Mon Dec 25, 2023 3:48 pm — Replies 19 — Views 855