Commissions paid to brokers are falling. Partly, this is a result of falling trading volumes. Partly it is a consequence of the separation between payment for research and for trade execution, which historically have been bundled together. The upshot is that trading no longer pays the bills and some brokers are reviewing its status as a core function of their business.
"Over the years, the average commission rate has gone down from 25 basis points (bps) to between 8bps and 12bps,” says Adrian Fitzpatrick, head of Investment Dealing at Kames Capital, a buy-side firm with £53bn ($88.05bn) in assets under management. “Brokers can't make money in equities because it is so transparent. There are huge regulatory and compliance obligations that they have got. Maybe the only way forward is to take the equity market to net commission [as used for fixed-income and foreign exchange where asset prices include commission].”
