Online financial portal Zecco.com will launch zero commission IRA accounts on Monday, internetnews.com has learned. One industry watcher calls the move a “no-brainer” and expects the competition to soon follow suit.
The zero commission IRAs come just as the online financial industry finished responding from Zecco’s last splashy move when the site announced free online stock trading.
Following that news, Bank of America joined the fray and offered free commissions.
Zecco said it would earn money from interest on margin and cash balances in brokerage accounts and also from premium services, such as options trading. The company also said it would supplement its revenue stream with online advertising.
Jeroen Veth, CEO of Zecco told internetnews.com his customers have been asking for zero commission IRA accounts for some time.
Avivah Litan, an online banking analyst for the Gartner Group, said Veth was “wise” to heed their call. IRA account holders rarely draw down their accounts, so Zecco should be able to collect interest on their funds for years if it can convince new investors to join.
That’s where free comes in, Litan said. Consumers like it and it should help Zecco with customer acquisition.
According to Litan, free is a relatively inexpensive way to attract new customers since the cost of customer acquisition is usually much higher than the $20 Zecco would charge for am IRA fee, sometimes reaching several hundred dollars per customer.
“Giving away a $10 or $20 trade in an account that’s likely to stay with you is a no brainer,” Litan said. “I bet you there will be a lot of copy cats.”