6 ms·

> A discount brokerage is not a full-service brokerage, which used to charge several hundred 1970s dollars to place a single stock trade and which used to call

by gist 7y ago

> A discount brokerage is not a full-service brokerage, which used to charge several hundred 1970s dollars to place a single stock trade and which used to call you to convince you of the desirability of paying them several hundred dollars to place a single stock trade. The implication (by the choice of words here) 'call you to convince you of the desirability of paying them several hundred dollars to place a single stock trade' implies incorrectly that retail brokers were not in some way able to earn that money by providing value. If that were the case they would not exist and money would flow elsewhere. That is if in the end the client did not feel they were getting value. Not everything out there is better DIY or even close to that. Some people actually don't want to search for hours figuring out the best place to travel or which airline flight to take or city to go to. They'd rather pay a travel agent or someone else to do that for them. Just because the masses do not have money to pay for advice does not mean that that advice is not of clear value to someone else who is situation differently financially. This is actually a problem in the computer business. People (en masse) free advice at no charge what others used to get paid to do. Some people actually just want a solution to a problem. They are not interested in doing it themselves, following tutorials or having to depend on some person being nice and not charging them for a solution.

jdminhbg 7y ago
> The implication (by the choice of words here) 'call you to convince you of the desirability of paying them several hundred dollars to place a single stock trade' implies incorrectly that retail brokers were not in some way able to earn that money by providing value. If that were the case they would not exist and money would flow elsewhere. The market doesn't correct itself overnight. In fact the market share of retail brokers has plummeted since the invention of index funds and now discount brokerages, suggesting that they were not providing that value.
- bluGill 7y ago
  I would change that to not providing enough value. If good advice saves you $70 was it worth $700?
  - jdminhbg 7y ago
    That's basically where I'm going with "not providing that value." Much like if I charge you $20 for a McDonald's cheeseburger, you're not getting nothing in return, but you're not getting $20 of value.
- gist 7y ago
  It suggests that there are not enough people to make it worth the while of someone to be in that business. In that sense it is not like the market for horses (for specifically) transportation. For that your statement would be true. For stocks I would argue that you need a certain critical mass of customers to make it worthwhile to be a stock broker. Let's use the travel agent example. There are people that would like to use a travel agent located at their local shopping center. Back in the day there were enough of those people that a agent could be busy and therefore afford the overhead of a business to service them. Now there are not enough people so the agent is not in business. However that is not because the travel agent does not provide value (what you are claiming for the stock broker). It's because there are not enough people that the agent can earn a living doing so. So it's not the value in this case (although it might be in other cases or for other things).
jldugger 7y ago
> brokers were not in some way able to earn that money by providing value. If that were the case they would not exist and money would flow elsewhere. Plenty of people use phones to scam money. I would not say calling up grandma and looting her account counts as 'providing value' so much as taking it. It probably helps if free market types recall that trading fees were set by the exchanges themselves until 1975: https://www.investopedia.com/terms/m/mayday.asp https://www.investopedia.com/terms/m/mayday.asp. Competition in this space did not meaningfully exist.
- Scoundreller 7y ago
  > Competition in this space did not meaningfully exist. Sorta. I think direct reinvestment of dividends and direct purchase of shares from the corporate treasury were more common. Some companies still run them. I know I bought and sold GE shares with cheques to/from their share agent.
jacobr1 7y ago
The value they are selling isn't actually something like a better return. They are selling Trust and a Handshake. You aren't turning over your whole nest egg to the big impersonal forces of the market, you are turning it over to Tom, and our kids go to school together so he won't screw me, etc ...
alasdair_ 7y ago
>If that were the case they would not exist This certainly isn't true. All that is true is that eventually they will fade away, not that it will instantly occur. The fact that these full-service brokers HAVE faded away suggests that perhaps they were not providing much value.

by gist 7y ago

jdminhbg 7y ago

> The implication (by the choice of words here) 'call you to convince you of the desirability of paying them several hundred dollars to place a single stock trade' implies incorrectly that retail brokers were not in some way able to earn that money by providing value. If that were the case they would not exist and money would flow elsewhere. The market doesn't correct itself overnight. In fact the market share of retail brokers has plummeted since the invention of index funds and now discount brokerages, suggesting that they were not providing that value.

bluGill 7y ago
I would change that to not providing enough value. If good advice saves you $70 was it worth $700?
- jdminhbg 7y ago
  That's basically where I'm going with "not providing that value." Much like if I charge you $20 for a McDonald's cheeseburger, you're not getting nothing in return, but you're not getting $20 of value.
gist 7y ago
It suggests that there are not enough people to make it worth the while of someone to be in that business. In that sense it is not like the market for horses (for specifically) transportation. For that your statement would be true. For stocks I would argue that you need a certain critical mass of customers to make it worthwhile to be a stock broker. Let's use the travel agent example. There are people that would like to use a travel agent located at their local shopping center. Back in the day there were enough of those people that a agent could be busy and therefore afford the overhead of a business to service them. Now there are not enough people so the agent is not in business. However that is not because the travel agent does not provide value (what you are claiming for the stock broker). It's because there are not enough people that the agent can earn a living doing so. So it's not the value in this case (although it might be in other cases or for other things).

jldugger 7y ago

> brokers were not in some way able to earn that money by providing value. If that were the case they would not exist and money would flow elsewhere. Plenty of people use phones to scam money. I would not say calling up grandma and looting her account counts as 'providing value' so much as taking it. It probably helps if free market types recall that trading fees were set by the exchanges themselves until 1975: https://www.investopedia.com/terms/m/mayday.asp https://www.investopedia.com/terms/m/mayday.asp. Competition in this space did not meaningfully exist.

Scoundreller 7y ago
> Competition in this space did not meaningfully exist. Sorta. I think direct reinvestment of dividends and direct purchase of shares from the corporate treasury were more common. Some companies still run them. I know I bought and sold GE shares with cheques to/from their share agent.

jacobr1 7y ago

The value they are selling isn't actually something like a better return. They are selling Trust and a Handshake. You aren't turning over your whole nest egg to the big impersonal forces of the market, you are turning it over to Tom, and our kids go to school together so he won't screw me, etc ...

alasdair_ 7y ago

>If that were the case they would not exist This certainly isn't true. All that is true is that eventually they will fade away, not that it will instantly occur. The fact that these full-service brokers HAVE faded away suggests that perhaps they were not providing much value.