Discount Brokerage Firms: A Review of Scottrade, Firstrade, ShareBuilder, and QQQDirect

By Sun on Dec 18, 2006 in Investing
Post viewed 5077 times, 9 so far today

Currently, I am using four discount brokerage firms: Scottrade, Firstrade, ShareBuilder, and QQQDirect, with Scottrade being the first I ever use.

I used to have everything with Scottrade, stocks, mutual funds, and IRA. But when they restructured their fee schedules at the end of 2004, I started to move some of my assets out of Scottrade and into other discount brokerage firms. For the four I am using, none of them gives me all I want: low fee, real time execution, quick fund transfer, free dividend reinvestment, and free non-load mutual fund investment. As a result, I have to use four for different purposes.

Here’s a look of what I like and don’t like of each of them.

Scottrade

What I like

$7 flat fee for real time equity trading, including stocks and ETFs;
Windows based trading platform, ScottradeELITE (free for investors), makes trading easy;
Free Gainskeeper to track gains/loses, realized and unrealized;
Local branch offices for easy contact (so you won’t be put on hold for 10 minutes);
Improved website much easier to use and more functions;
No inactivity or account maintenance fees, no minimum;

What I don’t like

$7 commission per trade is not very low (extra fees for stocks below $1);
Most popular mutual funds are not free ($17 for no-load, transaction fee funds including funds from Vanguard, T. R. Price, and Dodge & Cox, etc. Fee reduced to $2 for systemic purchase plans);
Slow fund transfer that can take up to 3 business days (they used to have e-checking service for same day deposit, but canceled it after a security breach. The current method uses ACH. So it may be even faster if you send checks to their local office);
No dividend reinvestment for stocks/ETFs;
Can’t buy fractional shares;

Firstrade

What I like

$6.95 flat fee for real time trading, lower than Scottrade;
Free mutual fund investing (2 years ago when I was considering where to transfer my mutual fund holdings out of Scottrade, Firstrade was an option. Eventually, I sold all of them because I didn’t know how long Firstrade can maintain the commission free mutual fund investing option. Two years later, they are still offering it);
Free dividend reinvestment (a big plus if you have lots of dividend-pay stocks/ETFs);
No inactivity or account maintenance fees;

What I don’t like

$6.95 commission is not low enough, again;
No stand alone trading platform, web based only (they do have X-Stream for real time quotes);
Slow fund transfer (use ACH for deposit, and funds less than $5,000 available in 3 business days, any amount above $5,000 will be available 4 business days after deposit);
No systematic (periodic) investment plan yet;
Can’t buy fractional shares (except from dividend reinvestment);

Sharebuilder

What I like

$4 commission with no subscription fee (this is much cheaper than Scottrade and Firstrade and you can get even lower rate with their subscription services);
Discount on commissions (I used my Costco executive member to open my first account and I can get 20% rebate on quarterly commissions);
Periodic promotions (you can possibly make hundreds of dollars of free money);
Since Sharebuilder uses scheduled fund transfers, there’s no delay for scheduled purchase (changes can still be made on Monday 2:00 pm);
Free dividend reinvestment;
Can buy fractional shares (like buying mutual funds);
Use Express Funding option to fund account in the same day (good option for real time trading);

What I don’t like

$4 commission only available on Tuesdays and it’s not really that low for batch purchases (I’d love more flexibilities on this, but I probably won’t pay only $4 if I indeed get it);
Scheduled investments are only for weekly or monthly, no bi-monthly or quarterly automatic investment plan;
$15.95 per real time order is too high (this is too much, making it impossible to use);
No mutual fund investing (there are plenty of no-fee mutual fund options available);

QQQDirect

What I like

Commission free investment in QQQQ (this is the only option I am using);
No inactivity or account maintenance fees;

What I don’t like

QQQQ investment only available on Tuesday;
All other investments are not free (much like Sharebuilder plans);

In addition to the above four discount brokerages, Zecco seems to be a very attractive alternative as they offer commission free trading on every thing from stocks to ETFs, as well as free dividend reinvestments (you do, however, have to have $2,500 to open an account). The only reason I didn’t jump in is their relatively short history (only several months old). I’d like to see if they can keep the current fee structure for a little bit longer (a year, maybe) before making any decision on switching.

Featured Information: Zecco Promotion Code

Ready to buy stocks and ETFs with zero commission? Open a Zecco free trading account and get 10 commission free trades every month:

Promotion	Description
Buy Stocks Online for $0	Trade stocks for free on Zecco.com, the Free Trading Community.
Tread Stocks for Free	100% free stock trade. Open an account with $2,500 minimum and get 10 trades per month commission free.
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And be sure to check out my review of the broker and my first trading experience before opening your account.

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27 Comment(s)

moneymonk | Dec 18, 2006 | Reply

“Scheduled investments are only for weekly or monthly, no bi-monthly or quarterly automatic investment plan; “

with Sharebuilder.

aaarrgh, I hate that also. It will be easier for me to invest bi weekly because those are my paydays. Purchasing shares on Tuesdays, at first it was hard for me to remember.
Novice | Dec 18, 2006 | Reply

I am using Ameritrade izone. I came to the same conclusion you have summarized. Izone offers $5 online trades but no dividend reinvestment option. ACH transfers take 3 days. I am not sure whether as an izone customer one has access to TD Ameritrade branch offices. I also have an account through Ameritrade I use their branch office.
TJP | Dec 19, 2006 | Reply

That $15 ShareBuilder fee is their worst feature by far.

I bought 2 ETFs back in September, and made a nice little profit, around 10% gain.

When it came time to rebalance my portfolio, I decided to sell them since they were mainly short-term trades.

Big mistake. Got slapped with $30 in commission fees, which really hurt my gains.

Never heard of QQQDirect. Thanks for the headups.
Michelle | Dec 20, 2006 | Reply

You really need to look into zecco.com. It’s 40 free trades per month! The customer service has been great, the ACH very quick, and it’s FREE. I’m DCA’ing into VTI in my taxable account held exclusively through zecco.

Why is no one in the PF blog world using it??
The Sun | Dec 21, 2006 | Reply

Michelle: I agree with you that the free trading offered by Zecco is very attractive and their free dividend reinvestment option is as, if not more, valuable as well. However, my only problem with Zecco is the their relatively short history and nobody knows if they can offer free trading forever, or that’s only a bait. I’d like to wait a while (for example one year) to see their business goes before making an commitment. If everything is fine this time next year, I will seriously consider having an account with them.

MM: The reason they fix the date is, I guess, that they can buy a large amount of shares with a single trade, lowing the costs. With their automatic investment plan, you don’t have to remember the date. The money will be drafted from your bank account and automatically invested.

Novice: It’s true that lot of discount brokerages don’t offer free dividend reinvestment, which I think is a very important piece of generating passive incomes. And I don’t understand why they don’t provide this option. As for branch offices, they are convenient if I want to mail a check instead of using ACH. Plus, some times dealing with people face-to-face is much easier than over the phone.
Michelle Hope | Dec 21, 2006 | Reply

Hey Sun. Thanks so much for the personal reply. I’ve enjoyed your blog every day since I first found it.

Yeah, I know people are afraid to commit to something new, especially when it comes to retirement savings. The timing was perfect for me (I was finally ready to open a taxable account), so I just went for it. I didn’t have to move anything or change anything since I was starting from scratch.
The Sun | Dec 22, 2006 | Reply

Actually, I think that the problem may be the inconvenience it may cause later on if Zecco reverses course and starts to charge fees. Then I may need to look for other brokerage and transfer the account out of Zecco and that whole process could be a hassle. If Zecco can demonstrate that it can keep the fee-free structure for a long period of time, then everybody will love to have an account with them. Nobody wants to pay a fee when they can get the same thing for free.
ZW | Jan 20, 2007 | Reply

I have been curious about the comparison among those broker for long time. Thanks for your wonderful summary. Also it is very informative to learn zecco.com today. I am considering opening an account there also.

Looking forward to reading more updates.

ZW
Chris | Jan 27, 2007 | Reply

I just discovered sogoinvest.com, and am surprised you didn’t mention it. They currently don’t have retirement accounts but are planning on adding them. They have lots of good features and very low trading fees at low as $1 and up to $3. They do dollar bases investing, fractional shares, auto investing, no minimum balance or opening and no maintenance fees.
The Sun | Jan 28, 2007 | Reply

Chris: It’s true that when I wrote the post, I didn’t know about Sogo and had no experience with it. I only the company early this month and haven’t got time to take a look. From your link, I went to their website and found they indeed offer a very low fee for even real time trading, though it’s not free as Zecco offers. For Zecco, however, my problem is I don’t know how long they can last with zero commission. When the company charges a reasonable fee, it’s more believable to me.
Chris | Jan 29, 2007 | Reply

Zecco does sound interesting, but like you said how sustainable could ad supported trading really be? I know sogoinvest is tied into an existing trading platform that lets them make a profit at their $1-$3 trades. And while they are not very old, their parent company has been around for a few years and is doing well. Plus if you were just starting out or doing it for a child Zecco’s $2500 minimum balance would pay for Sogo’s sharebuilder-like plans if invested in an MMA at 5%.
The Sun | Jan 30, 2007 | Reply

I am guessing that there may be a connection between their fee-free trading and the $2500 minimum requirement to open an account as not many discount brokerage firms require that size of minimum any more. On the other hand, Sogo looks interesting because it also offers real-time trade with the same fee as automatic investment plan, and this part is better than Sharebuilder. It really looks like a good choice.
Jon K | Feb 3, 2007 | Reply

Sun,
I’ve been investigating Zecco before opening an account. They are quite open about how they are able to offer commission free trades: each trade costs them about $2, which is less than the Etrade’s of the world because they have no marketing expenses. How do they make money? They earn about 3% interest on margin balances, as well as making some off your uninvested float. They also have advertising, including Adsense, on their website. I suppose it’s plausible that if you keep your expenses down, you can make a profit with this model.
The Sun | Feb 6, 2007 | Reply

Hi Jon:

Thanks for the information. I was always wondering how they make money by offering commission free trading. The fact that they use AdSense as well is also very interesting, but I doubt how much money they can make from that. Without marketing, it’s hard to get the word out and if people don’t know them, it’s hard to get the traffic to their site. I am taking the wait-and-see approach. Hopefully, they can maintain their model that benefits small investors. Once people have good words to say about them, they will get their customers.
investing101 | Feb 13, 2007 | Reply

For me, I plan to open a Roth IRA a/c (investments would be primarily in mutual funds). after some research i have decided on firstrade(FT) over scottrade(ST) among the discount brokerage firms primarily

- FT offers $9.99 in transaction fees for non-NTF no-load funds opposed to $17 of ST
- no minimum investment with FT vs. $500 min with ST
- option of divident reinvestment possible with FT but not with ST
The Sun | Feb 15, 2007 | Reply

investing101: If your main investments are in mutual funds, why would you want to go with a brokerage instead of the fund company? Though FT offers some no-fee no-load mutual funds, you can be sure you won’t pay any extra fees with the fund company (Vanguard does have an annual fee of $10 if the fund assets you have is less than $5000). And it may be a misunderstanding that there’s no minimum to invest with FT. That’s true if you invest in stocks or EFTs, but may not be so with mutual fund as most mutual funds do have a minimum investment requirement. However, some brokerage firms (the so-called mutual fund supermarket may not require this as they make bucket investment, that is, they collect all investments from all investors into one particular fund and make one purchase then distributes shares to each individual investor. Scottrade used to do that several years ago, but not any more and you have to check with FT to see if they requires a minimum if the fund requires a minimum. Finally, all mutual funds investments with Scottrade have the option to reinvest dividend/capital gain distribution, but not with stocks/ETFs.

All these being said, I didn’t mean Scottrade is a better option. Actually, I think for mutual fund investments, whether in retirement accounts or regular account, the best choice is go with the fund company directly, though this may mean you have to manage many accounts if you purchase lots of funds from different companies, the cost is the lowest.
The Sun | Mar 3, 2007 | Reply

Brokerage: Part of the post was crippled, but now it is restored.
Garner Weng | Mar 12, 2007 | Reply

I have used Sharebuilder for about 2-3 years — and their uncaring and slow customer service is driving me to look to move, perhaps to FolioFN. I had a problem with my account (which incidentally made no sense — involving Sharebuilder allowing me access to one of my accounts but refusing access to the second of my accounts, saying that my identity was not verified!) — and it took nearly 8 hours to get a call back from a supervisor. And she took the attitude quite expressly that she did not care if the company kept my business or not. If everything worked flawlessly, perhaps I could deal with the attitude. But it doesn’t. Aside from the account access issue, I have had a few occasions in which I have had to request fixes, e.g., recently I could not open the tax document from Sharebuilder to do my taxes and had to request a fix.
The Sun | Mar 15, 2007 | Reply

Garner: I have used Sharebuilder for about a year now and didn’t have many problems with them. I guess the reason was I only have a very simple relationship with them and don’t really have to deal with them except making a purchase every month.

I have heard about FolioFN but never really considered it? Just curious, what’s the reason for you to choose FolioFN? A quick look shows they have a monthly fee. It only makes sense if you do a lot of trading every month to save on commissions you will otherwise pay for other brokers. But if this is the case, did you consider Zecco or Sogo? Zecco doesn’t charge monthly fee or commission and Sogo has a maximum commission of $3 for both scheduled and real-time trading.
Steven | May 8, 2007 | Reply

How does QQQDirect compare to Sharebuilder?
Sun | May 8, 2007 | Reply

Steven: QQQDirect is a division of MyStockFund, which is also a discount broker. The main difference between QQQDirect and Sharebuilder is that with QQQDirect you can buy QQQQ without paying commission. But that’s only for QQQQ. If you want to buy other stocks, then you will have to pay commissions. I have another post that compares MyStockFund and Sharebuilder that you can find at here.
zeronimo | May 14, 2007 | Reply

Zecco is a new brokerage company. You get free trades of 10/day with a maximum of 40/month. Although they require you $2500 to open an account but since there is no maintenance requirements you can take them out if you wanted. They had “secret” promo that you can open for only $1000. I don’t know when that expires.

Prior to May 10, 2007 they require you to submit paperwork by email/fax or regular mail. So first time registrants had experienced rough times because they got really backup processing applications.
Sun | May 14, 2007 | Reply

Zeronimo: I called Zecco last month about their promotion ($1000 to open an account) and was told, at that time, it will end on April 30. I am not sure if that promotion is still available. I also got an email from Zecco today that they have removed all the paperwork when opening an account. That’s definitely a good news. I haven’t made up my mind whether to get an account or not. The free trading is a big plus, but I wonder they can keep offering that or not. Do you have a Zecco account? If you do, do you like it?
james jenkins | Aug 24, 2007 | Reply

does anyone have personal experience with optionsXpress?

Jim
sheila | Sep 1, 2007 | Reply

I have been using ShareBuilder for about 6 months, at the basic plan which charges only $4 per trade. I do not “batch” my orders but rotate it each month, buying stock in only one or two companies. As soon as the trade is made, I switch my automatic investing plan to the next two stocks on my list. This way I can have a portfolio of 12 stocks I like, making a purchase of each stock every six months. This is long-term investment (for retirement), and so I will not be selling the stocks any time soon. The ShareBuilder account is great for stocks held directly, but I am looking to invest more money elsewhere.
Joe | Oct 27, 2007 | Reply

Whatever you do, don’t go with Firstrade. They lured tons of people in with no transaction fee no-load fund trades. Then they dropped that feature and now charge people $50 per account to transfer out. Classic bait and switch.
Gerry | Mar 28, 2008 | Reply

Have you heard of SogoTrade? $1.50 per trade.
www.sogotrade.com
The other sibling is SogoElite.
http://elite.sogoinvest.com

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