Is Kiplinger’s Choice of Best Online Fund Broker Any Good?

Last week, when I went through Kiplinger’s 2007 Best List, one of the surprises to me was their choice of the best online broker for fund investors, which went to Muriel Siebert, a broker that I have never heard of until I read the magazine. Kiplinger gave a brief explanation why this particular broker won the horner:

Sibert carriers a selection of nearly 3,000 no-load funds, and more than 1,800 of them are available without a transaction fee. The brokers’ easy-to-navigate web site offers countless ways of comparing funds. The firm also wins points for automatically sweeping customers’ cash into a money-market fund and keeping nuisance fees at bay.

In the past, I have used the so-called mutual fund supermarket such as Scottrade to invest in mutual funds so I didn’t have to deal with each fund company individually. It also saved me considerable amount of time in managing the funds as well. However, that activity was abandoned in 2003 when Scottrade started to charge fees to invest in a lot of no-load funds. When I saw Muriel Siebert in Kiplinger, I decided to take a look to see if there’s anything special of this firm.

To me, one of the biggest concerns of using a broker instead of the fund company is fees they charge to buy and sell no-transaction fee and no-load funds. And here’s what I found on Muriel Siebert’s web site:

In addition to no-load funds with no transaction fees, FundExchange offers many more of the no-load funds you want at a flat rate of $35 per transaction, regardless of how much you buy or sell.

That $35 transaction fee alone is enough to keep away from this firm.  Just to have an idea of how bad it is, Scottrade charges $17 flat fee for transaction fee, no-load funds, and Firstrade’s fee is even less, at $9.95/transaction. Who’s going to pay $35 to buy mutual funds when you can purchase the same fund at $9.95?

Then their fund selection of no-transaction fee and no-load funds. Muriel Siebert claims they have over 1,800 fund in this category. While the overall number seems to be quite large (Scottrade has more than 1,100 funds), the selection of funds doesn’t appear to be better. For example, I checked several funds from several popular fund families, such as Vanguard, T. R. Price, Dodge & Cox, and Bridgeway, and they all belong to transaction fee, no-load funds.

While using a broker can make investing in mutual funds a little easier (one account with the broker as oppose to multiple accounts when dealing with the fund companies directly), it doesn’t make any sense to pay a hefty fee ($35 in this case) to buy the fund through a broker when it can be purchased through the fund company without any extra fees.

Any I really don’t see why this broker is recommended by Kiplinger.

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