On May 1, 1975, there was no lightning, white calves or other omens to mark the moment when brokerages switched from fixed commissions to negotiated ones. In fact, most of Wall Street was convinced that the rule change would have very little effect. After all, each firm had a high opinion of the value of its advice and a feeling that a gentleman's agreement on rates, something laymen might call price fixing, could be reached. Fortunately for us, Charles Schwab wasn't a gentleman.

Schwab saw deregulation as a chance to drop rates and increase his client base, which ran against the common practice on Wall Street of firms laddering their fees in hopes of charging a premium for previously fixed-rate advice. Schwab believed that if he cut the costs on trades, a new class of investor would flock to him - the individual investor. The individual investor that Schwab pictured had never been seen on Wall Street before. He wasn't wealthy like most individual investors at the time, but a regular person who wanted to get more from his savings.

Schwab pioneered discount brokerages with his no-advice accounts. The fees that came with buying stocks dropped from hundreds of dollars to less than a hundred. The internet took over Schwab's work and discount brokerages appeared that charged an unthinkable $10. Thanks to May Day and pioneers like Schwab, the number of individual investors has exploded. Of course, the low fees have led some individual investors to overtrade, but this generally is a personal vice, and not a result of the increased accessibility to investing. Overall, most people are better off being able to invest, rather than being locked out of the market by high fees.

(For more on this topic, read Don't Let Brokerage Fees Undermine Your Returns.)

This question was answered by Andrew Beattie.

  1. Who are Charles Schwab's (SCHW) main competitors?

    Find out who Charles Schwab's main competitors are and how they stack up. Learn the information you need to make informed ... Read Answer >>
  2. How can I prevent commissions and fees from eating up my trading profits?

    First off, understand that there is no universal system regarding trading commissions charged by brokerage firms. Some charge ... Read Answer >>
  3. What is the smallest amount of shares I can buy?

    Understand the steps needed for an investor to open a brokerage account and make a trade. Learn what the smallest amount ... Read Answer >>
Related Articles
  1. Retirement

    Is Charles Schwab Right for Your Retirement?

    Charles Schwab has a solid reputation for retirement services, with something for everyone from beginners to those with half a million or more in assets.
  2. Trading

    Broker Summary: Charles Schwab Online Brokerage

    Learn how manage your portfolio through Charles Schwab's online trading and investing services.
  3. Trading

    Beginner's Guide To Charles Schwab Online Brokerage

    Learn how to navigate Charles Schwab Online Brokerage and access its many trading tools.
  4. Investing

    Charles Schwab Enjoys Strong Third Quarter (SCHW)

    Trending up, Charles Schwab announced its net income and revenues surpassed expectations during a strong third quarter.
  5. Personal Finance

    What to Look for in Charles Schwab Earnings (SCHW)

    The investment firm will have to find new ways to boost its bottom line since the low-interest rate environment has pressured its business.
  6. Retirement

    Charles Schwab’s Best Funds for Retirement Savings

    Here's a list of Schwab’s funds for retirement, intended to make planning, diversification and saving for later in life just a bit easier.
  1. May Day

    Refers to May 1, 1975, when brokerages changed from a fixed commission ...
  2. Brokerage Account

    An arrangement between an investor and a licensed brokerage firm ...
  3. Wall Street

    1. A street in lower Manhattan that is the original home of the ...
  4. Anti-Reciprocal Rule

    A rule created by the Financial Industry Regulatory Authority ...
  5. SEC Fee

    A nominal fee that was created by the Securities Exchange Act ...
  6. Block House

    A brokerage firm with the primary focus of locating potential ...
Hot Definitions
  1. Perkins Loan

    A loan program that provides low-interest student loans to undergraduate and graduate students who demonstrate exceptional ...
  2. Wealth Management

    A high-level professional service that combines financial/investment advice, accounting/tax services, retirement planning ...
  3. Assets Under Management - AUM

    The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked ...
  4. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit scores or limited credit histories. There is no official ...
  5. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  6. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
Trading Center