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Financial Products & Services / BuyandHold.com
|Subject: MY Opinion of the new fee structure||Date: 6/12/2001 2:13 PM|
|Author: slaramee||Number: 3275 of 4956|
Having read through the last month or so of posts here, it seems that I am not alone in my disdain for BuyandHold.com's new fee structure. I am liquidating my account today, and will request a check of the proceeds and cancellation of my account as soon as possible. My response is posted below for anyone interested in my opinion on these fees and their impact on my account.
Since there seem to be two views expressed here:
1. Why the fees/tactics/advertising/etc. are not worth keeping or fair, and
2.why we shouldn't complain over a company trying to make money),
I will tell you now that my response is along the lines of #1. For those that don't care for this opinion, I recommend you don't bother reading on. I am not interesting in starting or continuing this debate. I am posting my response to let others know how I dealt with B&H and of my disappointment with the change in their service.
I will be looking for new options as a beginning, small investor and have enjoyed to resources shared on this board. I am still chewing on this for now- maybe real DRIPs, maybe saving more money until I can afford a real index fund, or maybe saving enough to use my other discount broker and keep my transaction costs low.
Here's my response...
To whom it may concern:
I am very displeased with the change in policy at BuyandHold.com (B&H) regarding the monthly activity fee of $6.99. I opened my account with B&H because of your low fees and the ability to purchase fractional shares. As a beginning investor, the prior per-trade fee was superior to any other discount brokerage within my purchasing ability.
With this change in your fee structure I can no longer justify keeping my account open. Essentially, the $6.99 monthly fee translates to $84/year. In order to keep my transaction costs low (under 5% annually), this would require investing approximately $1,680 per year.
As a beginning investor, the appeal of B&H WAS that I could purchase stock in low dollar amounts within MY budget. This monthly fee will eat into any good returns unless you purchase stock of greater than ~$1,680, since it will result in rather high transaction costs. For instance, if I invest in $50 increments (greater than your well-advertised $20 minimum), my total cost for stocks in a year is $600. Using the $6.99/month fee ($84 a year), this results in a trasnaction rate of a whopping 14% ($84/$600)! In simple terms, this means for me to make money investing this small amount, I would need to see after-tax returns of greater than 14% to see ANY profit. As a frame of reference, this is a very high rate of return to expect without taxes. Adding taxes in would require an even greater return, thus making the likelihood of achieving ANY gains even more improbable.
I am presenting you this example to illustrate that the current fee structure does not make good economic sense to beginning investors that do not have a lot of money to invest. Investors at B&H who do not invest a fair amount of money are NOT getting a good deal that you advertise because their returns are being eroded by this monthly fee structure. My example of $1,680 per year is based on a minimum needed to maintain a 5% annual transaction cost- this is not even a very cost transaction according to many financial sources I have consulted. I find this fact ASTOUNDING, since beginning investors have been prime targets in your advertisements and marketing. You profess that B&H is the answer to getting into the market at low cost. Under your previous fee structure, I agreed. But I think that any marketing and/or advertising aimed at attracting new or beginning investors that touts the "economic sense" of this monthly fee structure is SERIOUSLY UNETHICAL, if not simply DISHONEST.
Your stance may be that the current economic climate makes this fee structure necessary for your own financial survival. This may indeed be the case, and I am aware of the tough economic times the past year has seen. However, I think you are making a serious error in judgement by passing along this new fee structure to your beginning investors. They are the reason why your business was founded and the reason for its initial growth and success. I believe you will find over time that numerous new or beginning investors will come to the same realization as I have: that there is no longer any real advantage to using BuyandHold.com versus a more typical discount broker. Several discount brokers offer no minimum balance for an account. Several also offer low transaction fees ($7-10), NO fees for account inactivity, and the option of dividend reinvestment without fee. Since I have just named most of the reasons why someone might use B&H versus a discount broker, that only remaining advantage I can see is the ability to purchase fractional shares. However, I may purchase as little as ONE share using a discount broker. With this all being said, I find NO reason to continue to hold an account with B&H. Even if I continue to purchase low dollar amounts of stocks, I would still give the advantage to the discount broker because I only get charged WHEN I make a trade, not every month regardless of my account activity.
As a final point, I am very discouraged by the lack of notice regarding this fee change. I DID NOT receive notification of this change, and I question the legality of springing this change on your customers without notification. Given the low dollar amount of my account, I will not pursue this issue further as I want our working relationship to be ended as quickly as possible, given my growing disdain for your new fee structure and business practices.
For the record, I WISH TO CLOSE MY ACCOUNT EFFECTIVE IMMEDIATELY. I am using the June $6.99 fee to liquidate my positions, and will cancel the account as soon as the trades are made. I wish to receive the proceeds by check or electronically to my bank account of record. Please contact me to confirm receipt of my correspondence, and provide WRITTEN confirmation of the closing of my account.
I am very disappointed in the direction taken by B&H regarding the new fee structures and I hope that you will realize the error of your judgement and remedy this. If not, I am sure that many other beginning and small investors like myself will take similar actions. Perhaps B&H does not see our small amounts of investing capital as significant individually. I believe that you will see the significance of the small investor's capital on your bottom line if others act the way that I have en masse. Maybe then you will realize the importance of keeping ALL of your customers happy and not just the customers with the largest investment accounts.
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