Farewell, Fees? How Zero-Cost Investing Caught On

Investors have gotten used to paying lower fees to buy and hold stocks and funds. But the trend entered a whole new phase this past year as U.S. brokers and fund managers began offering stock trades and investments at zero cost. Any suspicion that zero-cost investing was a gimmick was quashed in October when industry titan Charles Schwab Corp. announced plans to eliminate commissions for U.S. stocks, exchange-traded funds and options. Its competitors soon followed suit -- but it soon turned out that the trend could have some limits.

It all began when the U.S. Securities Acts Amendments of 1975 ended fixed-trade commissions. Some brokerages took that opportunity to increase their fees, but a former newsletter writer named Charles Schwab charged a comparatively affordable $70 a trade. The discount brokerage business was born, and as technology got better and competition grew more fierce, the common price points kept falling — to about $13 a trade in 2005, then $5 by this year.