For the 18th annual ranking of brokers�itself top-ranked by the Web site ConsumerSearch�Smart Money scrutinized a wide range of factors, from trading commissions and account fees to the cost of certain banking services and margin rates. In addition to parsing survey responses from the brokerages, we consulted with research firms and put brokers through our usual litany of customer-service tests.
General Ranking of discount brokers
The top ten (of seventeen) are (list) with fees per trade:
- Fidelity � $7.95
- E*Trade � $9.99
- TD Ameritrade � $9.99
- Charles Schwab � $8.95
- TradeKing � $4.95
- Scottrade � $7.00
- WallStreet-E � $7.99
- Firstrade- $6.95
- Just2Trade � $2.50
- Muriel Siebert � $14.95
The top five winners this year are the same top five last year (2009 Smart Money Broker rankings) with a few shifts. E*Trade lost the top spot to Fidelity while TD Ameritrade shot ahead two spots to take third. It's interesting to note that in the top five, only TradeKing charges less than $5 a trade.
Individual Awards
Commissions and Fees
Best: Just2Trade
Worst: Banc of America
If you trade online, you might be spending less this year on commissions. A wave of price-cutting by the firms sliced the average commission for a 100-share trade to $8.47, down 8 percent from last year. But while brokers are quick to highlight that online prices keep falling, some of their under-the-radar fees aren't changing. Getting help from a live broker to trade a stock can more than triple the cost of a trade. Some brokerages charge fees of up to $100 a year if customers don't trade frequently enough. Even closing account costs money at some firms.
The winner in this category is Just2Trade. The company's stock trades costs $2.50. Commissions for options trading is also among the lowest, although like majority of the competitors, Just2Trade charges additional fee for paper statement.
At the bottom of the rankings is Banc of America, the discount-brokerage arm of Bank of America. Unless you keep a hefty $25,000 at the bank, online stock trades can cost $14 a pop, with broker-assisted trades costing as much as $54. Marc Wood, director of the Banc of America online brokerage, says some bank customers with less than $25,000 and certain types of checking accounts can qualify for cheaper trades.
Customer Service
Best: TradeKing
Worst: ShareBuilder
Steve Brorby was stuck. The retiree was reviewing his Fidelity online account but had trouble including an account from another brokerage. He says he sent an e-mail to Fidelity and made three separate phone calls, but still couldn't resolve the issue. Finally, he contacted Fidelity's branch manager near his home in Pasadena, Calif., and found the solution: switch to a different Web browser. "She stepped up to bat," says Brorby. Discount brokers are finding that good customer service matters more than ever at a time when many investors are nervous about their future. That helps explain why six of the firms in the survey added branches in the past year and why laggards are trying to catch up. Last year Wallstreet-e didn't respond to one of the e-mails. The company says it has staffed up its e-mail and phone centers. The result: a speedy response to the queries helped the firm improve on its dead-last ranking from a year ago.
The category winner, TradeKing, had swift and courteous answers to all e-mails and phone calls. But ShareBuilder took three and a half minutes, on average, to answer the calls during the testing period, a performance the company blames on an upgrade to its phone system under way at the time.
Trading Tools
Best: Fidelity
Worst: WellsTrade
New arms race has broken out among discount brokers. The must-have tool: applications for the iPhone, Blackberry and other smartphones. Matthew Poepsel, vice president of performance strategies at Gomez, a Web site�monitoring company, says the new smartphone applications are much more useful than the older mobile versions of sites. "Ten years ago you were just glad when your broker had a Web site," says Poepsel. The top-ranked brokers also have a full suite of trading tools, from stock screeners to streaming quotes. Fidelity has before-hours and after-hours trading and a free app for the iPhone and iPod touch. Online investors also want speed, and the differences can be a lot more than clients realize. In tests conducted by Gomez, Fidelity clocked in at an average of four seconds to sign in and place a trade, while Wellstrade's Web site took more than four times as long. Wellstrade says part of the delay is due to stringent security measures, but that it's looking at ways to speed up the process.
Mutual Funds and Investment Products
Best: Charles Schwab
Worst: SogoTrade
We look for discount brokers that offer a wide array of investment products. But when do they risk information overload? TD Ameritrade, which offers more than 15,000 mutual funds, says a recent survey of its customers found that nearly half who invest in these products think there are too many.
Sandy Motusesky, TD Ameritrade's director of mutual funds and ETFs, says that to help investors narrow the choices, the firm recently updated its list of recommended funds, focusing it on specific investment strategies, such as generating income or hedging against inflation.TD Ameritrade is among a trio of five-star brokers in the investment-products category, which also includes Charles Schwab and Fidelity. This year Schwab edged out last year's winner, Fidelity, in a photo finish. Schwab has all the investment products we were looking for, including a Coverdell account�an education-savings account similar to a 529 plan�something that Fidelity does not offer. (Fidelity says its customers are more interested in 529 plans than in Coverdell accounts.) Like Ameritrade, both firms sell about 15,000 mutual funds. But about half the funds on Fidelity's site come with a sales charge, while fewer than 4 percent of the funds on Schwab's site are load funds. A Fidelity spokesperson says the company wants to give investors a wide range of choices.
Of course, some brokers don't want to be all things to all people. Dave Whitmore, Sogotrade's president, says he has no intention of offering CDs, bonds or mutual funds anytime soon. "Our strategy is to remain price competitive for the active trader," he says.
Banking Services
Best: E-Trade and Fidelity
Worst: OptionsXpress
More investors are looking for one-stop shopping in financial services, and many discount brokers are happy to help�especially if they can profit from the trend. "As prices continually drive down, firms have to find other ways to make money," says David Lo, director of investment services at J.D. Power and associates. Sure, lots of brokers will pay you interest on any cash in a brokerage account; they just won't pay you much. The highest amount any of the 17 brokers in our survey pay is a paltry 0.80 percent, and some pay zero. Nevertheless, the highest-ranked brokers�Fidelity and e-trade�offered a variety of bank-like options, including online bill payment, debit cards and even a storage service for precious metals.
Not all firms want to be one-stop financial shops, however. "We've decided not to compete with the banks," says OptionsXpress CEO David Fisher.
Research
Best: Charles Schwab
Worst: Wallstreet-E
When it comes to research, self-directed investors are getting harder to please. More than ever, they want a robust suite of news, data and education to help them make investing decisions. The survey found that 16 percent of investors say having access to research is the most valuable part of being a customer at an online brokerage, up from 4 percent in our previous survey. Many discount brokers are happy to oblige: Investors who use the research, planning tools or educational seminars on brokerage Web sites are much more satisfied customers, says Lo, of J.D. Power. The biggest area of growth is social media, as more adults jump into an arena once thought the province of the young. Most of our firms are on both Facebook and Twitter. Of course, social media can work both ways. E-Trade, for example, has more than 40,000 "fans" on Facebook, but not all seem happy. "The platform has been real buggy lately," one wrote recently.
Schwab wins in our research category again this year. It was also among the fastest Web sites to navigate and provides research reports from many outside firms, including Argus research, Ned Davis research and standard & Poor's. Zecco, which tied with Wallstreet-E for last place a year ago, earns a second star in this category after adding real-time quotes, detailed sector- and industry-performance analysis, and technical charting.
Wallstreet-e gets the lowest marks for research. The site was also among the slowest to navigate, and our Web testers never found the commission price list. (The company says the list is on its publicly available site and that it will add it to the customer site.) Also in the works at Wallstreet-E: a new mutual fund screener and a social-media presence. "We always have plans," says CEO Francisco Otalvaro.
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