The Wall Street Journal just reported that a syndicate of the world’s biggest banks and brokers are engaging in an unprecedented undertaking:
They’re forming a new stock market to compete directly with The New York Stock Exchange and the Nasdaq.
It’s called MEMX, and it says that its primary goal is to lower trading fees and commissions for investors like you.
This is good news, right?
Here Comes Low-Cost Trading
The announcement about MEMX comes amid growing anger about the NYSE’s and the Nasdaq’s exorbitant fees.
In October, for example, the SEC hosted a roundtable discussion on exchange trading fees — and as Fortune reported, “tensions went on full display” as participants tore into each other loudly and publicly.
So nine financial institutions (including Charles Schwab, E*TRADE, TD Ameritrade, Morgan Stanley, and Fidelity) decided to fight back…
Simply put, they’re going to band together and create a new, lower-cost alternative.
In a joint statement on Monday, these companies said they were looking to increase competition, improve transparency, and most importantly, reduce costs. Steve Quirk, an executive with TD Ameritrade, spoke about putting “the needs of investors first.”
At first blush, this might sound like great news — after all, for investors like you, this should lead to lower-cost trading.
But when you dig a little deeper, we think you’ll see why switching to MEMX might not be such a good idea after all…
There’s Always Strings Attached
Let’s face it, Wall Street banks aren’t charitable organizations. As these guys have proven time and again, they’ll do anything to make a buck.
Take the 2008 financial crisis, for example. The banks made billions of dollars by “graciously” loaning people money to buy their own homes — and then took billions more in bailouts when many of these unqualified borrowers defaulted on their loans.
To top it off, they almost toppled the global financial system in the process.
So whenever the big banks and brokers tell you they’re acting in your best interests, you should hide your wallet — because you can be sure they have an ulterior motive.
And that’s exactly what we believe is happening with MEMX.
Wall Street’s Profit Playbook
Let’s quickly look at what the banks are proposing with MEMX.
Essentially, they’re claiming that their goal is to create a more technologically advanced and efficient stock exchange…
In theory, this will lower MEMX’s costs, which they’ll pass down to investors like you in the form of lower trading fees and commissions.
But given what we know about Wall Street banks and their obsession with generating profits, why on earth would they do something like this?
In other words, why would they intentionally make less money?
Well, the truth is, the only time Wall Street will give up $1 is to make $5 somewhere else.
And that’s precisely what we believe is happening with MEMX…
We believe the big banks and brokers are using MEMX as a “Trojan horse.”
Essentially, they’ll use their new exchange and its lower trading fees to get investors like you in the door…
Then, they’ll make their money back (and then some) by pushing you to buy their proprietary investment products…
In other words, they’ll push you to buy mutual funds, REITs and ETFs that are owned by the very banks and brokers that founded MEMX.
You see, these products are virtual “cash cows” for the Wall Street banks. They generate billions of dollars each year in management fees and sales commissions from these funds.
Fidelity alone manages over 500 individual mutual funds with over $2.4 trillion in assets under management.
And while, on the surface, having your assets pushed into Fidelity mutual funds might not sound so bad, keep this in mind:
According to a 2014 study by Certified Financial Analyst Simon Lack, fund managers “capture 84% of the profits and fees” generated by these funds.
Meaning, investors like you — the people who are actually putting up the investment capital — capture just 16% of a fund’s profits.
Don’t Fall for This “Bait & Switch” Routine Again
Even though MEMX is a new endeavor for these banks, this “bait & switch” routine is one of the oldest tricks in the book…
For instance, back in 2015, JPMorgan was fined over $300 million by the SEC for pushing clients to invest in its proprietary funds, costing investors like you millions of dollars in lost profits.
So, be sure to keep all of this in mind as MEMX begins its national roll-out in the coming months…
Wall Street will always look out for its own bottom line, not yours.
Never forget that no one cares more about your money than you do.