Fed up with his brokerage statements, Paul Entin got out of it -- not the market, just his broker.

Back in 1999, the president of a marketing and communications firm opened an E*Trade ( ET) account because the online broker had fewer fees and restrictions than bricks-and-mortar rivals. As the stock bubble burst, Entin sold his losers but saw nothing he wanted to buy. So he held steady. But then a $25-per-quarter inactivity fee, used to eke profits from customers who rack up little in transaction fees and have balances less than $5,000, began appearing on his statements.

"I was livid," says Entin. "I closed the account a month ago. I didn't want to buy or sell something this quarter just so I could avoid some fee. I don't like being pressured into doing something."

What Price Buy and Hold?

Brokerages have been levying inactivity fees on stagnant accounts with small balances for more than two years now to recoup the cost of managing them. In recent weeks, firms such as Charles Schwab ( SCH) are raising the cost of holding pat, giving individual investors another reason to fear those monthly statements.

"A lot of people aren't opening monthly statements right now, because they're worried about what they're going to see," says Jeff Infusino, vice president of the financial services practice at Mercer, a management consulting firm. "But companies have started to find ways to make sure customers who aren't carrying the weight are paying their share."

Trading volumes have plummeted since the demise of the daytrader, forcing brokerages to new ways of turning a profit on once-active customers -- like fees. In 2001, average gross commissions and fees booked by registered representatives fell 17.5% from the previous year, according to the Securities Industry Association. After peaking in the first quarter of 2000, industry pretax profits and gross revenue fell more than 40% through the second quarter of 2002.

Today, with Ameritrade ( AMTD), E*Trade, Charles Schwab and American Express ( AXP) all levying inactivity fees, it can be hard to find a brokerage that doesn't charge one. But there are some.


The Cost of Holding On
Many brokerages now charge inactivity fees ranging from $40 to $180 a year for dormant accounts with low balances
Brokerage Inactivity Fee No fee charged ...
American Express $10/quarter ... if you trade once a quarter or have a minimum balance of $25,000.
Ameritrade $15/quarter ... if you trade four times every six months or have a minimum balance of $2,000.
Brown & Co. None ... at all.
Charles Schwab $45/quarter ... if you trade eight times a year or have a minimum balance of $50,000. $30 quarterly fee charged to accounts with balances between $5,000 and $50,000. This October, $45 quarterly fee will be levied on accounts with balances under $10,000.
E*Trade $25/quarter ... if you trade two times every six months or have a minimum balance of $5,000.
Fidelity $50/year ... if you make two trades a year or have a minimum balance of $30,000.
HarrisDirect $15/quarter ... if you make four trades a year or have a minimum balance of $10,000.
Merrill Lynch Direct None ... at all.
Morgan Stanley Online None ... at all.
Muriel Siebert None ... at all.
Quick and Reilly $35/year ... if you make one trade a year or have a minimum balance of $5,000.
Scottrade None ... at all.
TD Waterhouse $20/quarter ...if you trade two times every six months or have a minimum balance of $10,000.
Source: Company Web sites, TSC research

Starting in October, Charles Schwab will begin charging $45 a quarter for customers with balances under $10,000 or those who trade less than eight times a year. Previously, only customers with account balances under $5,000 were charged the highest fee. Those with balances between $5,000 and $50,000 were charged $30 a quarter.

"When trading was hot and heavy, there was so much going on that it covered our expenses," explains Sondra Harris, a Schwab spokesperson. "But there's a cost attached to our services. Our branches are open. We have 24/7 phone support and a Web site with the latest features. Maintaining that costs money."

The No-Fee Route

Buy-and-hold investors with smaller accounts might want to steer their attention toward online brokers, which have lower overhead costs and tend not to charge fees.

"We don't charge any fees," says Rodger Riney, president and CEO of Scottrade. "It doesn't send the right message to our customers that now that you're not giving us as much money, we're going to charge you a fee."

There is a trade-off, or course. Many online firms, such as Scottrade, don't offer the depth of research and service provided by a full-service broker.

And these fees, while annoying, aren't the biggest concern for many investors. Ellen Guion, senior research manager of financial services with J.D. Power & Associates, points out that in the industry tracker's annual survey of brokerage customers, security and privacy are what customers are most concerned about. Cost usually ranks lower down on the list.

But while consumers appreciate good service, they may balk at paying for it -- and that may be the whole point of the fees.

"Most of these firms are strategizing to keep their higher-end portfolios after the low-end portfolios dropped out of the market," says Guion. "They're not very concerned about losing these low-balance people, to be honest. A dormant account is almost not worth it to them."

If the brokers aren't concerned about losing the little guys, maybe the little guys should get "active" again once more: Revisit the account with an eye on getting out of it. If it's inactive, perhaps the account could be consolidated with another account or shifted to a broker that doesn't charge inactivity fees.

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