NEW YORK -- Following the example of numerous other brokerage firms and banks, Baltimore-based Alex. Brown & Sons will begin charging infrequent customers April 1.
The charge, $30 every three months, will be only for clients who have left their securities with the firm and have generated less than $200 in commissions during the past 12 months.
Last year, Legg Mason & Co., the other large Baltimore-based retail broker, began charging account holders an annual fee of $50 if they had conducted no business during the previous two years. Most of the major New York-based investment firms have instituted similar rules during the past two or three years.
"Prior to that," said Perrin Long, a securities industry analyst at Lipper
Analytical Services, "the idea was that as long as you held the securities of a customer, they would trade, but it [a brokerage firm] is not like a laundry, where they have to hold your furs to hold your business."
Traditionally, brokerage firms have been content to earn profits through fixed commissions and various other hidden charges, and little effort was made to precisely identify costs. But deregulation and a period of lackluster revenues have prompted intense examinations of operations.
"The theory is costs are what they are, and if someone receives services for nothing, someone else has to pay for it," said Adrian Banky, executive vice president of the Securities Industry Association, the trade group for investment banks and brokerages.
The move to add fees has spread throughout the financial-services in
dustry. As the year began, most of the large commercial banks, including Citibank, Manufacturers Hanover and First Chicago, raised charges for certain services to certain holders of small accounts.
Executives in the finance departments of industrial companies say they, too, have been hit with stiff increases for banking services.
Alex. Brown began discussing the imposition of fees last fall, said Tim Schweizer, managing director and head of retail division. Only 20 percent of the firm's 86,000 accounts stand to be affected by the policy shift, but the savings might nonetheless be substantial.
Postage alone amounts to almost $80,000 annually for statements on inactive account, Mr. Schweizer said.
Unlike many brokerage companies, Alex. Brown encourages its clients to leave their securities with the firm, and most do. Consequently, the firm has substantial operations for functions such as receiving and immediately redepositing dividends, and other custody services.
If customers choose to hold securities themselves while maintaining accounts with Alex. Brown merely for transactions, there will be no fee, Mr. Schweizer said.
Efforts by financial firms to charge customers has drawn some criticism, since it tends to most affect the least affluent. "It does suggest that for an individual investor, a no-load mutual fund may be the most effective way to invest," said Maria Scott, editor of the American Association of Individual Investors, a Chicago-based trade group for small investors.
At Legg Mason, company spokesman W. Talbot Daley said that "a small minority of people" complained about the new charges.