We outlined three points in 2006 on why Zecco’s free trading model raised some red flags. Unsurprisingly, the discount online brokerage firm has been forced to change its pricing structure due to the economic crisis.
Over the years, the zero commission brokerage service increased the minimum asset balance to $2,500 and decreased free trades from 40 to 10. Now the company is putting further restrictions on trades. In a letter to customers, CEO Jeroen Veth says that as of March 1 customers will be required to have $25,000 in assets to qualify for free trades. The full letter is below.
Why? Zecco is no longer making money thanks to the now low interest rates on customers accounts. And revenue from discounted commissions are amounting to very little.
We saw the writing on the wall for the trouble this company could face in an unstable market. Although Zecco was able to secure $25 million in funding late last year, the company has been hit hard by a decline in trading due to the economic downturn. In an effort to boost trading, Zecco is allowing customers who make at least 25 total trades per month to also qualify for 10 free trades. In early January, Goldman Sachs forecasted a 28 percent decline in daily average revenue for discount brokers.
Even the premier brokerages like Charles Schwab are not immune to the current economic crisis so its of no surprise that Zecco, whose pricing structure raised some red flags in 2006, is being forced readjust its pricing model. Last week, Charles Schwab warned that revenues could drop as much as 20 percent this year and said it will cut between 500 and 600 jobs, or 5 percent of its staff in the current quarter due to low interest rates and a decrease in trading.
Here’s the entire version of the letter Veth sent out:
Dear Zecco Trading client,
I’m writing to tell you that as of March 1st, 2009, we’re increasing
the minimum level of assets needed to earn 10 free trades per month to
$25,000. We’re also adding a new way to get free trades: customers who
make at least 25 total trades per month will also qualify for 10 free
stock trades per month.Additionally, as of March 1st, 2009, you’ll be able to earn $75 for
each friend referred to Zecco Trading through our Zecco Friends
program. You can use that cash to offset trade commissions or make new
investments.Why was this necessary now? Anyone who’s read a newspaper lately knows
that the US and world economies have been hit hard over the past 4
months. As a result, some of the largest corporations in the world
have had to cut costs and adjust to new business realities. With
reduced retail trading volumes and lower interest rates, we at Zecco
Trading simply could no longer provide free trades to as many people
as we would like.Many customers will not be affected by this change. For those of you
who are impacted, I want you to know that I understand this is
disappointing news. Since our founding, our goal has always been to
provide a great value to online investors, and we’ve always made free
stock trading part of that. And while we continue to provide some of
the lowest trade commissions of all leading online brokerages at $4.50
each, we understand that nobody likes to pay for something that was
previously free.I’d like to emphasize that we are continuing to invest in our customer
service and trading platform. You may have already noticed the
improvements within our customer service team. We’ll also be upgrading
to an entirely new trading platform later in 2009. This new platform
will improve reliability as well as introduce advanced order types,
enhanced options trading capabilities, online bond trading, better
account management, single-step login, and a faster website.So how can you qualify for free stock trades? There are two simple
ways to do it:
1. Keep $25,000 in net assets in your account. This doesn’t have to be
cash — it can be stocks, ETFs, mutual funds, options, or other
assets.OR
2. Make 25 total trades in a calendar month. These can be stock, ETF,
or options trades. And yes, free trades count.*For more qualification details, visit:
http://www.zecco.com/trading/newpricing.aspxAs mentioned above, as of March 1st, 2009 you’ll also be able to earn
$75 for each friend referred to Zecco Trading. You must refer your
friend through our Zecco Friends Program, and your friend must open
and fund their Zecco Trading account with at least $500. See program
details here.Thank you for your loyalty to Zecco Trading. We intend to continue
earning your business as the best value for online investors.Jeroen Veth
That is a very substantial increase to the minimum for free trades. Their decrease in volume traded may start to snowball.
Frankly, I think this presents quite an opportunity for Zecoo. Assuming they can manage the burn rate.
Zecco should develop a site similar to Mint.com and StockTwits.
The fact Zecco is a broker/dealer and has customers that have deposited “real” assets with them is a huge barrier to entry. Mint doesn’t have the DNA or know how to go down this path and StockTwits type would be an extension of their community platform.
The Mint type platform is an easy affiliate revenue stream for Zecco.
Further development with integration to Intuit Tax would give Intuit a very nice opportunity and acquisition target. Oh yeah, Intuit is currently looking for acquisitions.
Zecoo should leverage the information they have, maybe create a host of free tools to manage and analyse trading activity. Use the 10 free trades as a loss-leader to make money elsewhere, like marketing to users, cross selling more profitable financial products and maybe charging a monthly subscription for pro versions of their tools.
I tried Zecco. It was awful from the moment I registered and waited countless days for support to respond and fail to address even basic problems with their site.
Advice: E-trade.
Anyone interested in investing should switch to E-trade IMMEDIATELY. It’s superior. Seriously. You may pay a couple bucks more to trade (after any $5/trade promotional deal you may have wears after 12 months) but it’s *actually worth it*: fast, first-class/unbreakable platform, global trading, excellent support… and, get this, your trades will actually execute ASAP. Yeah, amazing concept.
E-trade is also much better than Ameritrade (which has had constant uptime/stability issues).
…And then don’t look back.
Whether you are genuine or not, your cheerleading sounds pretty darn biased. I haven’t looked at comparing the different providers in a while, but if I remember correctly, when I last compared, E-trade had expensive trades. They may offer far more advanced tools and graphing capabilities, but for the majority of people other than the day-trader wanna-be, the tools are going to seem useless.
Zecco has always been a low cost provider of a service that shouldn’t cost anything close to what some of the other brokerage houses charge. There is too much old status quo mentality in many sectors of the economy, especially in the financial sector, because people haven’t come to terms with computers and the internet having changed realities. Zecco seems to have adapted to the reality of the true cost of financial transactions and is providing a great service without ripping you off to shovel money down some exec’s throat.
Are you kidding?
I’ve used E-trade, Zecco, and Ameritrade. E-trade is superior. The majority of “small investors” aren’t going to get very far if they can’t get their trades executed well and can’t get stellar support. The times I’ve actually needed support and questions answered, Etrade came through quickly and politely, whereas Zecco was AWFUL + waiting for many days, and Ameritrade suffered (and still does) from serious site problems at some inopportune moments.
If you’re actually a do-it-yourself investor then you should want to possibly pay a couple bucks more because it’s even more important that you get a quality platform w/ great support. Thinking that small investors should only go for the cheapest, flimsiest solutions is backward thinking. If Zecco works for you, great. I’m speaking about my own experience and other stuff I’ve heard from other people that got a bad first, second, third impression. About the only thing that Zecco had going for it was a forum. That’s it. I gave them several chances and the benefit of the doubt the first couple times, and actually like the “community” aspect but then I saw it was meaningless w/ the millions of other investor communities out there. I came to appreciate that the only thing that matters is the actual platform & support. And I transferred completely into E-trade and haven’t looked back. Yeah, I’m “genuine.” How ’bout whether YOU are genuine or not… dun dun dun (scary music).
Also, since when did it become bad for someone who’s tried these services and finds one to be much better to want to help others? I’m not a shill if that’s what you’re suggesting. I’ve been a TC reader since 2005. Ever had a bad experience or recommended anything to anyone (i.e. “cheerleading” as you say)?
Anyway, I’m the type of person where it’s hard for a site/service to earn my customer loyalty, because I’m a very unbiased, objective user… but those that deserve my word-of-mouth will get it.
uh, right. or for the majority of the population that simply wants to buy some stock every once in a while and doesn’t need to graph anything or buy anything on the Guatemalan exchange, they can just go use Scottrade or something like that for half the price.
Etrade has screwed up countless times. And they have their inactivity fees, trading fees, etc… Sure they seem to have lots of features, but for the core stuff, they are still not a whole lot better.
Hello Leena,
You forgot to mention that TechCrunch listed Zecco as one of the companies best positioned to weather a downturn
http://www.tech...her-a-downturn/
All kidding aside, let me give you a little insight here.
Yes, we are raising our minimums for free trading. The economy is a total mess, and as Goldman Sachs points out, trading volumes are down across the board. Hence, we needed to tighten our criteria. That’s what every business in this country is doing as we speak. We wish it were otherwise, but it was necessary.
Meanwhile, since October 2006 we have opened over 127,000 trading accounts and have given away over 2.5 million free trades (with many more to come). We continue to offer one of the best deals in the industry. In addition to giving away 10 free stock trades every month to customers with $25K+ or 25+ trades per month, our base commission of $4.50 is among the lowest out there.
At the same time, we don’t believe our offer has to come at a cost. We continue to invest in improving our product and customer service. In fact, we’ve increased customer service staffing by 68% year over year to serve our demanding customers.
So, we continue to believe in our free trading model and look forward to continuing coverage here on TechCrunch.
Jeroen Veth,
CEO
Zecco Holdings, Inc.
I feel the hard part about having a 25K balance is that I could change my account over to a bank. Such as BofA or Wells and get the same deal. I can consolidate my platform and have one touch point.
Lastly, I understand Zecco is still a cheap solution, but by increasing the balance, you are increase the discrepancy between who can trade for free and who can not. Those with less money are getting punished.
Welcome to life right?
Jeroen,
We just opened 2 IRA accounts in Zecco, one in Jan and the other in last Dec and we just payed 2 $30 IRA annual fees. Now there will no be free trades anymore given our IRA acct sizes are not that large. and closing the IRA account and tranferring out is expensive at Zecco. that means we are trapped here! we are very disappointed with this decision and we feel the whole thing was well planned. we want to file a complain at BBB
Pls adivse. thanks.
alvinxw@yahoo.com
Can any website replace Ameritrade’s commander interface????
It’s worth paying the fee just for the UI.
“Stocks and Exchange-Traded Funds (ETFs)
Trade Unlimited Shares (market or limit) Price
Internet $9.99″
In case anybody’s wondering. That’s Ameritrade’s take on trades.
Isn’t the company copying the same stupid business model from some Web 1.0 startups? I clearly remembered several 1.0 startups were offering zero trading fees and went out of business after the internet 1.0 bubble crashed. These people and VCs never leanred. What a joke.
http://picasawe...422250263415970
This is Ameritrade Commander 2.0 for those that don’t know. It has like 10 million tools in it to help you win at the internets.
I don’t usually use the tools. It’s a java applet that expands to full screen and takes over your computer monitor.
Trades are 9.99 no matter the share or monetary amount.
I dunno. I would be so weary of using some unknown service.
As somebody who trades, it would take the following to get me to switch.
A. Free trades forever
B. A name brand like Google doing the interface and brokerage
C. A better interface than AT Commander or the Web UI.
The only company that could make such a tool would be Google. Google reader, Google Trader, ect…
Perhaps they could mash it up with Google checkout so we could use our money market funds to buy online also.
I don’t see anything else making a dent in this space.
Zecco: Please think in usability / speed! give us at least one reason to stay with you!
For me, the best alternative to Zecco is TradeKing. I’ve always wondered if Zecco’s deal was essentially a “bait and switch”, and indeed it seems like the last two pricing changes prove that it is. TradeKing has been around for a few years, gets top reviews from SmartMoney and Barrons (all their advertising points this out), and is only $4.95 a trade. They haven’t changed their pricing since they started, at least to my knowledge. And I just read that they reimburse account transfer fees. Wish I’d known that when I moved there from ETrade 2 years ago and got dinged! In my opinion, they really are the best combo of price and service/tools.
I don’t think Zecco is the real deal fro trading. I did give them a try and they somehow disclosed my info to a customer. Also, the tools they have aren’t that impressive.
wtf does that mean?? if you’re going to slam a company at least give some details.
Chris – do you usually get your check from Ameritrade direct deposited?
Desiree – next time you post for your company use less details, pretty transparent
I bet there are no fewer than 5 different trading firms using fake names on this comment thread right now. Weak.
Hey John, just because I am informed and write well doesn’t mean that I work for tradeking. Sorry that my intelligent post (yes, with details, instead of just gross inaccuracies like some) made you suspicious!
that account minimum fee is absurd. i was absolutely livid after i read the e-mail announcement last week, and instantly started looking for ways around it.
i totally forgot big names like bofa let you trade free with $25k+ assets. i’m definitely going to switch over asap.
if the minimum was pushed to $10k or something, i’d be fine with it. but a 1000% increase without advance warning? AWFUL customer experience.
Honestly, I am pretty disappointed. I went out of my way to get people to join Zecco because they only had a few grand to invest at most while in college and it was free. First they raised it to 2500, which knocked some new guys out. Now they make it 25,000? This is worse than it appears because they only give you one month to adjust your portfolio. If you want to go cash you only have 10 trades to liquefy your portfolio. You can’t actually “trade” with zecco. I’m a professional securities trader who used zecco for my personal money. I’m getting out of my position this month at as good prices as I can and moving to Interactive Brokers. I check this security site to keep up to date with how secure sites are.
I’m a Zecco customer and only put-up with their poor tools and poorer customer support because of the free trades. I’m leaving because there are so many other online brokers out there with superior tools, better customer service and now: Better pricing!
When you compare what this Veth guy says now compared to what he was saying in the past, it’s easy to see this guy is a hack who didn’t have the foresight to prepare for and weather a storm.
they are out of business and they don’t even know it. its sad, I just sent my accounts to them for the free trades, now I have to move after they sucked 30 dollars out per IRA account. Write to them and tell them you think their new name LEECO sucks, what kind of a company tames themselves LEECO??? I mean I understand maybe they think Like everyone else commissions has a nice ring to it, but frankly its just bad business sense. They need to take the name Zecco off the site immediately and start using their real name as this is just false advertising.
I agree, the Zecco platform does everything I want to do but losing the free trades will force me to part. Firefox 3 took months for support, and this hurt my ability to trade too. E-mail Support was always pretty good at Zecco, and the interface, while not quite up to par with competition surely gets the job done.
Zecco only sells their product on price, it will surely hurt their growth to drop the free trades. Now there almost in the same boat as Wells Fargo with its 24k limit for free trades.
I have already submitted an application for Just2Trade.com.
I have tried Zecco b/c of price and now I will go to them where they kept the “price same” since they opened up. Not to mention they charge $2.50 per trade Vs. $4.50 almost half what I have to pay here. Zecco was crappy when started. As long my trades get filed I will save more money on trade. If I have $25,000 after losing 35% or so in 2008 (as the case with DOW and S&P) Why would I keep it in “Zecco – Zero Care for Customers”
I’m switching to OptionsHouse from Zecco. They’re trades aren’t as low as Just2Trade, but at $2.95, they are close. I’ve liked their interface and customer service so far. They are cleared by the same company (Penson) and supposedly moving from Zecco is a snap. You have to call them and get help with a “Cash Journal Transfer” or something like that which should be easier (and maybe cheaper) than an ACAT transfer.
I figure they have actually made trading cheaper in the last 6 months, they must be doing better than Zecco who has made trading MORE expensive. BTW, I would have had a $2500 balance with Zecco for the first time this very month, which makes me particularly bitter about the timing of this change.
I too am very disappointed with this huge hike in funds necessary to qualify for free trades.
A few times I’ve encountered difficulty to log-in (can take too long), but, for the most part, I have been very satisfied so far with the clean interface and speed of transactions (very fast). Certainly nothing to cause me to look elsewhere.
However for sure I would not have joined Zecco in the first place with the $25,000 requirement for free trades. It was the 10 free trades for AN ATTAINABLE $2,500 that attracted me.
Had they adjusted the costing structure to 5 free trades for $5,000 balance or something possible to most newbies, they would probably continue to attract new customers like me. But $25,000 is way beyond what the majority of potential new-to-trading customers would be prepared to risk investing (especially in today’s volatile market).
TO ATTRACT NEW CUSTOMERS (especially newbies to trading), they need to keep a certain quantity of free trades (say 5 per month) at an attainable balance for most people, say $3,000 or $5,000 max.
They will still get revenue from commissions as many will make more than 5 trades/month especially when the market is so volatile, BUT without this FREE TRADE/ATTAINABLE BALANCE (and $25,000 certainly isn’t), they will struggle to attract new customers.
For this reason alone (ie, fear they will go out of business soon) I will now look into alternative highly-rated competitors to Zecco and not because I’ve been dissatisfied with their service or tools (which I don’t need/use anyhow).
I know that they simply wouldn’t have people like me as customers with their new free trade package and somewhat mixed reviews.
Hello i joined because only 2 weeks ago they had an ad that said 5 free trades with a $2500 balance. Today that ad is gone. I have funded my acct. I called customer service and he pretended like they have always only had $25K balance required for free trades. I said “not true”. Now i foun d this site and see that Zecco is full of crap.
Zecco is a bait and switch scheme
I’ve been a Zecco customer since 2006 and they’ve been making incremental improvements in their trading platform and customer service. What matters to me is how much does my trades cost and my account values are accurate. Zecco is top notch in both of these aspects. On occasion I would only have to call them to rectify account related issues, the hold time is almost always less than 2 min, usually there is no hold time. Zecco is pretty clear about what it costs to get free trades and the policy change that happened earlier this year and the reason why it had to change was clearly communicated to Zecco account holders at that time. The 25k requirement to get free trades is still unbeatable across the industry, with BoA making you have 25k of deposits to get free trades and Wells making you link your brokerage account to their other services. Besides the website slowness I’ve been pretty satisfied with Zecco.