BrokerSense reader Tony posted the following comment in response to my page on Zecco:
While everything you said about Zecco is true, I am quite miffed at them for their “bait and switch” tactic that lured a lot of small investors to them before they “changed their model.” Zecco started out with unlimited no-commission trades. Too good to be true? Apparently, because then they switched to 25 free trades per month. This did not bother me as I don’t trade enought for that to be an issue. Then they changed again to 25 free trades for accounts over $25,000. This kinda pi**ed me off.
While $4.50 per trade plus .50 per options contract is certainly a good price. They did not treat their customers very thoughtfully. In addition, you do get what you pay for. Their execution and platform is also less desirable than others like Tradeking. I did not close my account since there is no inactivity fee. I just can’t help but believe that another shoe will soon drop as their model apparently is not working for them.
Tony makes a good point about Zecco changing its model. With the benefit of 20/20 hindsight, it seems obvious that Zecco’s original strategy of offering unlimited free trades just wasn’t meant to last. And I think that in some cases, people wouldn’t trust something that seemed too good to be true.
But are Zecco’s actions unethical? Nope, not one bit. Business models of most companies are bound to change over time, and what makes sense at launch may not make sense five or ten years later. And if Zecco’s plan all along was to pull a “bait and switch,” I doubt they’d survive for very long anyway. There are just way too many online brokers doing things right these days.
Ultimately, I don’t see Zecco being able to change their current commission structure all that much. People are attracted to Zecco specifically for cheap trades, and that’s a customer base that won’t stand for higher prices – especially since commission rates are still heading downward, albeit at a seemingly slow rate. (hint hint Thinkorswim – can you cut us low-volume options traders a break? Just checking…)
Higher prices would represent a complete breakdown of Zecco’s business model. And besides, for most traders, commissions are not everything. Unless you’re really active, you’re better off paying more money for better customer service. That’s why I’m with Thinkorswim, and if I had to switch, I’d most likely sign up with TradeKing.
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