Charles Schwab Acquiring OptionsXpress

I’m not surprised that smaller trading firms attract the attention of the larger brokerages and banks. ING Direct acquired ShareBuilder (see my ShareBuilder review) in 2007. Today, OptionsXpress (see my OptionsXpress review) has announced that it will be acquired by Charles Schwab for $1 billion.

OptionsXpress is one of the best discount brokerages, offering low fees, particularly for trading options, the obvious focus of the brand. Schwab and OptionsXpress will continue to operate under their own brands as they do today, and I expect the integration for the time being will be similar to that between ING Direct and ShareBuilder, with linked accounts and immediate transfers, but separate platforms.

From the press release:

“The combination of optionsXpress and Schwab will offer active investors an unparalleled level of service and platform capabilities. optionsXpress’ industry-leading and award-winning client tools will be well received by our existing active investor clients who are increasingly using options and other trading strategies as a key part of their total approach to investing,” said Walt Bettinger, Schwab President and Chief Executive Officer.

There’s quite a bit of marketingspeak in the press release, but the bottom line is that each company see this as a way to take advantage of the other company’s strengths and cut back their expenses at the same time.

I don’t believe this will be the last acquisition we’ll see in this space. Larger brokerages — even those that consider themselves “discount brokerages” — see the advantage that online-only small brokerages offer. It may be a different type of customer, perhaps younger, who prefer using online tools and doing their own research. While that has been the model of larger discount brokerages, their institutional type of brand hasn’t translated well to the needs and preferences of Generation Y and younger investors.