SmartMoney 2009 Best & Worst Online Brokers

Despite all the troubles at the financial service company, E*Trade Financial scored a big win in the latest SmartMoney Broker Survey, leading four out of five categories. Though I don’t use E*Trade as my stock broker, nor do I have a savings account with them, I do have a E*Trade Global Trading Account to trade a few stocks listed on Hong Kong Stock Exchange. For the few times that I had to call them around midnight (that’s when Hong Kong trading is underway), I was quite impressed that my issues were resolved right away, without having to wait till the next morning during *normal* business hours.

In the SmartMoney study, broker services in Mutual Funds & Investment Products, Banking Services, Trading Tools, Research, and Customer Services are evaluated.

Commissions & Fees

Trading costs, such as commissions and fees, are always the issue I consider as the most important one when screening discount brokers. I may not go to the broker with the lowest commission, but I don’t want a full size broker with all the features and charge me a load of money to trade stocks either.

  • Best: Just2Trade charges $2.50 commission for both stock and mutual fund trades, the lowest per-trade based rates as I know (see Discount Brokers Comparison for more details).
  • Worst: Even though WellsTrade offers commission free trades, you will have to have $25K assets with the bank to qualify. The same requirements for both Bank of America and Zecco. Commission is $19,95 at WellsTrade if requirements are not met, more than four times higher than what Zecco charges ($4.50/trade).

Investment Products & Mutual Funds

What I want to do with my brokers is trade stocks/ETFs (I haven’t got into option trading yet), not mutual funds because I found that fees charged for trading mutual funds are usually much higher at discount brokers. Even though many brokers have a long list of no-transaction fee funds, many good funds are left out. For mutual funds, I prefer to go to the fund companies directly.

  • Best: Fidelity, as one of the largest mutual fund companies, has its advantage over its competitors in providing investment products, including its own line of mutual funds at no additional cost.
  • Worst: On the other hand, SogoTrade doesn’t have any much fund to offer its customer, even though the commission for stock trades is among the lowest.

Customer Service

Among those discount brokers I am currently using, I am quite happy with how things are going with Scottrade and TradeKing. Since I use mostly Scottrade to trade stocks now, I have more chances to call their local office than before and my calls were always answered promptly and issues were resolved rather quickly. I am surprised neither Scottrade nor TradeKing won in this category.

  • Best: I am not familiar with Muriel Siebert, which was also selected by Kiplinger in 2007 as the best fund broker. The reason for the selection was the firm answered “phone calls and e-mails promptly with thorough and cordial responses.”
  • Worst: WallStreet*E, a broker I never heard of, was name the worst in this category two years in a row because it didn’t reply emails from prospective customers. Then there’s no reason do business with them if they don’t want you.

Trading Tools

Since I am not an active trader, I usually don’t pay a lot of attention to those fancy tools brokers offer (I do use a few alerts from Zecco) and most of my researches on stocks were done independently to any brokers because there are many free tools available. That said, it’s always nice if you can get everything done with your main broker, instead of jumping back and forth between different sites.

  • Best: With TD Ameritrade, you can use as many as 13 trading tools to trade more efficiently, including trade stocks from your smartphone. If you want to pay $10 per trade, you can enjoy the convenience of the broker.
  • Worst: ShareBuilder, now owned by ING, likes to keep things simple, therefore, they don’t have many tools for investors. And simplicity is what you will find at ING Direct and many people seem to like that.

Banking Services

I don’t expect too much when it comes banking services from a broker because I am not going to use it as a savings account. I prefer to leave that to a bank because I think I can get a better deal from a bank, not a broker. But comprehensive financial service companies such as E*Trade and ING Direct did have competitive banking products in the past (ING Direct Savings and E*Trade Complete Savings).

  • Best: You can get free services such as online bill pay, instant fund transfer, and ATM fee rebates from Fidelity, E*Trade and WellsTrade, which are nice if you also use their banks.
  • Worst: However, if you use either SogoTrade or Scottrade, you won’t get many extra services with your money because neither offers any attractive banking services.

Research

As mentioned above, I usually do research outside my broker. I have talked about Scottrade’s mutual fund center and TradeKing’s research tool in the past, but most of the time, I like to use tools available at, for example, Morningstar or INO, many other free tools.

  • Best: Charles Schwab and E*Trade are selected as the best because they both have easy to navigate websites that make stock and mutual fund research not a challenged job for investors.
  • Worst: On the other end of the spectrum, Zecco and WallStreet*E are brokers with hard to use websites and lack of research tools. I don’t know much about WallStreet*E, but Zecco has received quite some complains before for their not-so-user-friendly website, despite their improvements. A lot have to be done for sure.

When you select a broker, what do you consider as the deciding factor?


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