Will freight brokerage pricing evolve toward a discounted, transparent fee model like stock brokerage pricing?
To answer that question, let’s examine some of the similarities between the two industries.
The Evolution from Full-Service to Discount Stock Brokers
Back in the 70’s and 80’s full-service stock brokerages dominated the industry. The industry leaders, like Merrill Lynch, E.F Hutton, etc. were household names and even though most people didn’t invest through stock brokers, we all knew who they were.
Being a stock broker seemed liked a pretty good gig – prestigious, clubby atmosphere, nice big office, great pay, expensive suits and a bottle a scotch in the bottom drawer to celebrate all the money being made.
At the time, if you wanted to buy an individual stock, you bought it through a broker. Wealthy investors used stock brokers because the brokerage transaction fees didn’t dent large portfolios. If you were a small investor like yours truly, you bought the far less glamourous mutual fund which had lower transaction costs.
Stock brokers couldn’t lose because they had the following:
- Operational infrastructure, technology and licenses required to buy and sell stocks
- Connections with exchanges, public companies, investment banks, etc.
- Relationships with investors who wanted to buy and sell stocks
- Stock research that was not readily available to investors
- Expertise and experience that enabled them to provide service and advice to investors
- Regulated pricing which meant they didn’t have to worry about disruptive competition
First, Deregulation, and then Schwab Happened…
In 1975, the SEC deregulated brokerage commissions, which enabled stock brokerages to negotiate brokerage fees. Many thought the deregulation wouldn’t have much effect on the market, but they couldn’t be more wrong.
Seizing on the opportunity brought about by the deregulation, Charles Schwab Company launched a discount brokerage offering that drastically reduced the cost of trading stocks. The full-service stock brokers developed less expensive offe
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