We get this question a tonne, and it makes sense. A lot of brokerage firms are ditching traditional brokerage fees (often referred to as "commissions") and moving to different cost structures where customers pay other fees to invest.
While we understand that this is a hot trend and are always looking at ways to keep our fee structure as competitive as possible, there are a few reasons we've chosen to keep our brokerage fees as is for the time being.
There's no such thing as free lunch
While brokerage firms with $0 commissions highlight their free trading in marketing campaigns, there is always a cost associated with trading through a brokerage platform - or else the business wouldn't survive. Some ways we see companies make up for the reduced or absent brokerage fees are:
- Making trades through third-party market makers instead of directly on the public exchange. This means investors aren't always getting the best price for the shares they are buying & selling; even if the price is only a few cents higher, those cents add up quickly and can easily cost you more than a transparent brokerage fee. Because the fees are hidden in the share price, you also have no visibility over the extra money you’re spending.
- Higher exchange fees (there’s a lot of smoke and mirrors in the FX industry!)
- Monthly and annual subscription costs
- Account maintenance fees
- Collecting interest on customer's uninvested account balances
We want complete transparency for our investors
All of Hatch's revenue comes from two places: our exchange fees and our brokerage fees. That's it - there's nothing else generating revenue for us.
Our exchange fees are as low as we can reasonably offer (you'll get a better deal transferring NZD to USD through Hatch than you would from banks, and often we're even cheaper than services like Transferwise).
Our brokerage fees are also an order of magnitude lower than our NZ competitors, who charge upwards of $90 a trade minimum. They are as low as we can make them while still keeping the office lights on.
We are small but mighty, and $0 commissions don't make sense for us at the moment
A lot of the large brokers switching to $0 trading have a business model that requires constantly broadening their service to new audiences to get more investors in the door, and more money moving through. These brokers can sustain themselves off lower fees or by collecting interest off uninvested funds because they have a massive amount of money moving through their platform every day.
Hatch serves Kiwis and has no intention of launching in other countries. Instead of spending valuable development time figuring out how to make Hatch generic enough to launch to wider audiences, we'll spend that time customising the platform to make it better and better for our Kiwi investors.
Our team is based in Wellington and is a fun blend of Kiwis and expats from around the world who were drawn to New Zealand to enrich their lives. Like New Zealand, Hatch aims to be small but mighty! As a result, we will always have a smaller market than large international brokers, so we have to approach revenue differently to them.
We’re using the money from brokerage fees to fuel a simpler investing experience
Since we wanted our fee structure to be as simple as possible, we opted to reduce the number of fees that our customers have to pay. Instead of having a long list of little fees, we cover certain charges behind the scenes. DriveWealth (and most US brokers) have maintenance fees and other charges that most brokers will pass onto their customers, but we opted to either negotiate those fees away or cover them ourselves so that we weren't nickel and diming customers with a lot of small fees.
We put overall investing experience ahead of following the latest trends
We know $0 brokerage fees are trendy, but we really think investors will realise over time that the costs are still there, just in different places. Where other brokerage companies have chosen to make money off of customers - such as collecting interest off invested money - we've instead opted to help our customers maximise their investment returns by sweeping uninvested funds into a money market fund that allows you to earn the dividends.
This doesn't mean our fee structure is set in stone and will never change, we're just unlikely to go the zero-brokerage route anytime soon. rest assured, we're committed to offering a service that works for as many Kiwis as possible and we're always working on improvements.