THE DOW JONES BUSINESS AND FINANCIAL WEEKLY www.barrons.com MARCH 20, 2017
SPECIAL REPOR%T Amid price cuts, Fidelity repeats as Barron’s Best Online broker, nosing out Interactive Brokers. One More Reason to Buy Online by Theresa W. Carey
The bull market is on sale for online cial-advice decisions. Barron’s own reader sion only for opening a position—$5 for brokerage customers. survey shows that the majority of respon- equities and $1 per contract for options. In the run-up to our 22nd annual rank- dents want to keep their costs at a bare Closing a position is free. ing of Barron’s Best Online Brokers, two minimum. As much as we admire tastyworks, it developments topped all others: The three “But cost is just one piece of the puz- seems unlikely that a small newcomer major indexes—the Dow Jones Industrial zle,” as Metzger says. Barron’s encourages could cause such an upheaval. Schwab, Average, the Standard & Poor’s 500, and investors to look at the entire set of ser- one of the largest online brokers, both by the Nasdaq Composite—all set record vices a broker provides, including research assets under management and by number highs, and six brokers slashed commis- and education offerings, and then decide of clients, isn’t a nimble little sailboat that sions and other fees. At the 16 brokers we whether the commissions assessed provide reacts to every passing breeze. It is, rather, reviewed this year, the average monthly adequate value. a large ship—and it can take time to change cost of trading for an occasional investor Cost is an element in our rankings, and headings. The firm appears to have started had fallen 25% since early 2016, to $47.51 the six brokers who changed their pricing the process of lowering its fees months be- from $63.45. That means more of the mar- all earned more points in that category this fore the launch of tastyworks. ket’s gains are ending up in the pockets of year. The points awarded there are based Not everyone was eager to join in. TD self-directed online traders. on the range from cheapest to most ex- Ameritrade said as recently as mid-Feb- Charles Schwab kicked off the price pensive, with the least-expensive brokers ruary that it had no plans to cut fees. But wars by cutting its base commission from earning more points. when its biggest competitors slashed fees $8.95 to $6.95, and after a flurry of activity, We also take margin rates and other to $4.95, TD had to respond. “While we six brokers settled into reduced-fee struc- charges into account, and they can affect have made a point not to get involved in tures. Following a second cut, Schwab now a broker’s score. Schwab achieved the big- past price wars, in this case, the time was charges $4.95 per equity trade, as does gest bump in its Cost rating from 2016 to right,” says Steven Quirk, the firm’s execu- Firstrade. TD Ameritrade and E*Trade 2017, going to 2.2 points from 0.9 points. tive vice president of trading. “We had the dropped to $6.95 from $9.99. E*Trade Fidelity and TD Ameritrade both edged up benefits of a rising-rate environment, the charges active traders—those who trade a fraction. Margin rates rose this year for competitive environment, and our integra- more than 30 times per quarter—$4.95 per almost every broker. tion planning for Scottrade to consider.” transaction. TradeStation announced that The rise in interest rates—demon- Scottrade, which TD recently purchased, it is waiving its $99 monthly platform fee strated by the Federal Reserve once more charges $7 for a stock trade, so TD’s new for its sophisticated analysis and trading last week—can help bolster the bottom pricing is in line with that of its acquisition. engine, and also added a flat $5-per-trade lines of the brokers that have cut their Quirk says the brokerage business will charge to its elaborate fee schedule. And commissions. The increase leads to higher continue to be dynamic, but warns against our 2017 winner of Best Online Brokers, margin-interest rates and higher rates of a price war that takes all participants to Fidelity Investments, also joined in: The return on cash held in customer accounts. the bottom. “Firms that try to compete firm dropped its commission rate in two As we’ve written about price-cutting, across multiple dimensions, such as price, steps to $4.95 from $7.95. we’ve received emails from fans of tasty- product, and experience, will inevitably fail “We know that costs matter to inves- works, a new online brokerage launched to be the best at any of them,” he says, add- tors,” says Barry Metzger, a senior vice in January by the founder of thinkorswim, ing that nobody wins in a price war when president in Schwab’s Trading Services Tom Sosnoff. His acolytes believe that the firms cut back on platform innovation, cli- unit. When Schwab surveyed its clients launch of tastyworks, with its innovative ent service, and investor education. recently, more than 70% said that cost is a fee structure, was the first salvo in the critical component in investing and finan- price war. Tastyworks charges a commis- A WAVE OF CONSOLIDATION continues to
(over please)
The Publisher’s Sale Of This Reprint Does Not Constitute Or Imply Any Endorsement Or Sponsorship Of Any Product, Service, Company Or Organization. Custom Reprints 800.843.0008 www.djreprints.com DO NOT EDIT OR ALTER REPRINT/REPRODUCTIONS NOT PERMITTED 53292 Barron’s 2017 Best Online Brokers Ranking No. 1 Fidelity scored highly in virtually all areas—even raising last year’s low ranking for trading costs a bit. Interactive Brokers did well across the board, though itsBarron’ customer sersvice 20 was17 on theBest low side. Online Like Fidelity Br, TDokers Ameritrade Rankinggenerally did well, with the sole exception of trading costs. No. 1 Fidelity scored highly in virtually all areas—even raising last year’s low ranking for trading costs a bit. Interactive Brokers did well across the board, though its customer service was on the low side. Like Fidelity, TD Ameritrade generally did well, with the sole exception of trading costs. 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Every broker- age in our survey with a mobile app—15 decided to move on. online brokers in six categories—frequent of the 16—reported growth ranging from Two brokers we’ve examined for many trading, in-person service, investor edu- 15% to 30% in trades placed on phones and years, Scottrade and TradeKing, stepped cation, long-term investing, services for tablets. To make the experience seamless away this year due to acquisitions. (In novices, and options trading—to help you across platforms, brokers have, for the TradeKing’s case, the buyer was Ally decide where you might want to open an most part, made it possible to synchronize Bank.) But we have two newcomers: Plan- account or transfer an existing one (see watchlists and trading defaults across plat- ner Securities and Tradier, each of which table). We also show the brokers that forms. has an interesting story to tell. were at the extremes when we calculated That means that when you set a trading To analyze 2017’s top brokers, we took the monthly cost of trading for infrequent default on, say, the Web browser of your a hard look at the value they offer to cli- traders, as well as for those who trade mul- broker’s services so that your standard or- ents, analyzing security, mobility, and so- tiple times per day. der type is a limit order, that setting also cial-media features as well as the depth of You can read about our methodology at appears on your mobile app the next time their investment tools and their trading Barrons.com in “How We Ranked Our On- you log in, and vice versa. This is most capabilities. Our primary consideration in line Brokers,” and review the categories helpful when your watchlists synchro- judging these 16 firms is how they work that informed our analysis in the tables nize between your desktop or laptop and for our readers, who are high-net-worth “Barron’s Online Broker Survey: How the your mobile device. Until this year, most active investors. Price-improvement statis- Brokers Stack Up,” the most comprehen- brokers required you to set up watchlists tics are built into our Trading Experience sive comparison we’re aware of listing the separately on each platform, a tedious task and Technology category. tools and services each firm provides. This that, mercifully, appears to have gone ex- The ability to set up a personalized year, we expanded the tables displaying re- tinct. experience, both on a computer and with search and news based on reader requests. Smartwatch apps, which primarily a mobile device, is a key area of focus. Those requests are extremely helpful in display alerts such as trade executions, We want to see how smoothly the sys- our research, so please keep them coming. are offered by 11 of our 16 brokers. The tem moves from idea generation to trade Apple Watch is supported by 10 of our ticket, and then on to reporting the results Fidelity Investments (4½stars) wins be- brokers; one (Just2Trade) supports only of one’s hard work. Customizable reporting cause of its excellent mobile tools and as- Android-based watches. Two brokers, is a concern. We think it’s important for sistance available whenever you want it. Tradier Brokerage and TD Ameritrade, investors and traders to understand which The firm is one of the rare brokerages that support both Apple and Android watches. of their strategies work—and which need a maintained access to international markets little more work. when others walked away. Now that the BUT LET’S GET TO the real excitement of Three firms earned 4½stars, and our company has lowered its base commission our rankings. For 2017, Barron’s reviewed winner, Fidelity, was a repeat from 2016. to $4.95 and its per contract options fee to 16 firms, each of which supplied us with a Its margin was a bare 1/10th of a point over 65 cents, Fidelity’s full suite of tools and large amount of data and hands-on trading longtime favorite Interactive Brokers. TD services is also a terrific value. accounts. As has become customary, Van- Ameritrade moved up one spot to No. 3. Fidelity is leading the way in making guard once again rejected our overtures. Five brokers, each with unique strengths, the quality of its trade executions more We considered resorting to other means earned four stars: OptionsHouse, Charles transparent. We’re fans of the Fidelity because so many readers are interested Schwab, Merrill Edge, TradeStation, and report that displays after every execution in seeing how Vanguard would stack up. E*Trade. showing how much price improvement its But since much of the data we request is Because there are so many different trading engine generated. difficult to find without a firm’s help, we trading styles, Barron’s also pinpoints top As one of the three brokers that partic- ipate in the Financial Information Forum’s the tabs at the bottom of the screen. Over the past year, TD launched its own voluntary extended reporting program, To keep from getting lost in the com- robo-advisory service, Essential Portfolios, which is working to standardize execution plexity of the Trader Workstation, IB in- via its advisory affiliate, TD Ameritrade quality reports (the others are Schwab and troduced an artificial-intelligence-enabled Investment Management. Goal-setting is Scottrade), the firm also puts out quarterly assistant named IBot, which responds to a key piece of this service, with five di- reports that show the percentage of orders plain English questions. IBot can answer versified model portfolios recommended by that were price-improved, and the average queries about price quotes, option chains, Morningstar. Slider bars allow the client savings per order. In the fourth quarter of order placement, upcoming corporate to make adjustments at any point in the 2016, a 500-to-1,000 share order of a stock events, and market activity, among other investing cycle, and display the updated listed on the S&P 500 attained an aver- things. results. For clients who are not projected age savings of $10.25 per order at Fidelity. The trader’s journal has been enhanced to hit their targets, up to three tips are That gives you more back in price improve- significantly, allowing you to organize your presented to help them get back on track. ment than you pay in commissions. notes by underlying symbol so you can see On its Website and in mobile apps, Fi- all of your notes in one streaming view. OptionsHouse (4 stars), which was ac- delity’s design mandate is to create a uni- These notes are stored on IB’s server, so quired last year by E*Trade, continues fied customer experience, so that you don’t you can access them whether you’re using to operate as a separate entity but will feel like you’re in a different universe on the desktop, Web, or mobile version of the be integrated into a single platform this your tablet compared with your desktop. platform. year. The combined firms are targeting the Its exchange-traded-fund screener now IB also offers 10 low-fee robo-advisory summer for the completion of the process, includes technical pattern recognition pow- portfolios from its Covestor Smart Beta which will offer the OptionsHouse platform ered by Recognia, which lets you look for Portfolios unit. The portfolios combine au- to E*Trade customers, and vice versa. Op- particular price events, such as a moving tomated investing with human oversight, tionsHouse’s Steve Claussen assures us average crossover or, perhaps, a bullish and their risk-return profiles are poten- that the platform will not be going away, engulfing line for candlestick enthusiasts. tially more profitable than passive index and will be developing additional tools for The screener will display all of the tech- trackers. Rather than being invested in analyzing and trading futures. When the nical events you’ve chosen, then narrow ETFs, the portfolios, which are rebalanced merger is complete, OptionsHouse custom- down the choices further by fundamental quarterly, include a wide range of individ- ers will be able to utilize E*Trade’s ex- items, such as market capitalization, or ual stocks. The minimum investment is tensive education offerings as well as its pricing characteristics such as volatility. $5,000, and the portfolios may include frac- recently-launched robo-advisory. Fidelity also has an ETF Compare tool, tional shares of some of the stocks. Fees On the mobile front, OptionsHouse which shows you similar funds and lets top out at 0.08%. launched two new native mobile apps in you compare them side by side. ETFs that 2016, and is currently rolling out a new trade commission-free—91 in all at Fidel- TD Ameritrade (4½stars) moved up into HTML5 application that can run on any ity—are indicated with an icon. the top three this year by enhancing each device, from desktop to smartphone. The Fidelity has made a concerted effort to of its platforms. On the Web, the experi- new layout is extremely flexible, and the go after the millennial market, including ence of analyzing stocks has become more design team worked to reduce the num- repackaging educational content onto its personalized in the My Stocks Overview ber of clicks and taps that it takes to get mobile site. There are 12 programs avail- section of its research section. The firm’s around, and to provide more functionality able now, with more being added monthly. thinkorswim platform added global indexes for active traders. Options chains displays The Planning and Guidance center is de- to the charting package, as well as Federal snap onto the screen. When placing an op- signed to allow customers to focus on the Reserve data. Technical traders can use an tions order, data for the underlying stock future, planning for any kind of goal from enhanced scanner, which looks for classic continue to stream, keeping the trader up college tuition to retirement to taking a and candlestick patterns. You can even to date during the process of crafting a long vacation. Fidelity Go, the firm’s ro- set up a scan graphically, by dragging and spread. bo-advisory service, is clearly aimed at the dropping components into the tool. The platform has switched from a pro- younger set. One of the creature comforts we ap- prietary charting package to one powered Fidelity has also added a site that al- preciate is the way TD watchlists can be by third party Chart IQ, which has given lows guest access for 30 days and includes generated quickly from the output of a OptionsHouse additional technical studies its premium research. When the 30 days screener and then made available to all as well as fundamental data (dividends, are up, you can decide whether to open an platforms—including mobile. You can have earnings, splits) that display on a chart. account. a multiscreen setup that includes your mo- On mobile, the platform has been rede- bile devices, and all of your data and watch- signed so that it can be operated with one Interactive Brokers (4½stars) maintains lists are instantly synchronized. hand, either right or left, for quick access its position near the top of the charts. IB The designer crew at TD has made to quotes and trading. The mobile options is aiming at more than just the hyperac- thoughtful changes to the mobile expe- chain uses a tumbler for choosing strikes tive trader these days. In order to ease rience, including the way long watchlists and dates rather than long drop-down a new customer onto its flagship trading are sorted on smaller devices. Some other menus. There are multiple trade analysis platform, the downloadable Trader Work- brokers don’t allow you to access real-time tools on both mobile and the HTML5 plat- station, or TWS, IB has launched a layout streaming data on multiple devices simulta- form to make sure you know the probabil- library that includes 20 predefined setups neously, mainly because of the cost of sup- ity of success. for different styles of trading. There are plying the data. “We’re good at negotiat- templates for options traders, fundamen- ing with data providers,” notes a technical Charles Schwab (4 stars) continues to pull tal research, and traders who focus on the manager at the firm. With 20% of trades tools from optionsXpress into its flagship news. You can set up as many layouts as occurring on mobile devices, the focus on Web platform, and in the last year has in- you’d like and switch among them using mobile is appropriate. vested into its trading infrastructure to support those tools. Once the integration viewed on mobile. The charting function is position management, and search. When is complete, Schwab will offer portfolio slick – when you switch to landscape mode viewing an options chain, as you click on margining, which will be a benefit to active on your device, the charts are fully interac- a bid or ask, a spread gets built. The plat- traders who use options to mitigate risk. tive, which includes indicators, event mark- form recognizes the spread you are build- Idea generation functions, including Trade ers, and comparisons to peers, indexes, or ing, or you can click on a drop-down menu Source, a gain/loss analyzer, have also been sectors. Store the template and use it again to start with a particular strategy. The added to the Website. for a different symbol. There was also an Analyze tab displays a profit/loss graph, The site has also been enhanced with emphasis on long-term investing on mo- while the manage tab lets you quickly roll additional personalization, such as a cus- bile, integrating goal planning content a strategy out, or add legs. tomizable opening view with widgets that with self-service functions. In April, there On mobile devices, options chain dis- can be dropped into the display. Once will be a suite of mobile education modules plays were expanded, including Greeks you’ve updated this view on the Web, it through a partnership with Morningstar. calculations. Conditional order types were follows you to your mobile app. For active Back on the Website, an options strat- enabled on mobile, as well as the ability to traders, StreetSmart Edge added quite a egy builder has been launched, which helps close all positions with a click. few options tools, including a nicely laid-out a customer filter strategies by market out- The firm added a huge amount of con- trading workflow. A probability calculator look and volatility expectations. The op- tent to its educational offerings, with re- is built into the trade ticket. When viewing tions order entry screen was updated as sources that address all asset classes and account positions, you can resubmit, close, well. The MarketPro platform includes the skill levels. There are live Webinars every or roll out a position into a future strike OptionsPlay toolkit as well as Recognia’s day the market is open, including those on with minimal effort. pattern recognition. strategy trading, daily market intelligence, One area where Schwab has made a big Life events drive the planning and and “I Want To Be A Trader” sessions for push is transparency around order execu- goal-setting capabilities of the platform. novices. The platform is ideal for technical tion and quality. The firm has introduced More than 20 life events, such as getting analysis junkies, and for those who want to a new order routing system that allows married, sending a child to college, buying build their own trading system. it to make direct comparisons of quality a house, or retiring are included. Merrill across execution venues. During the fourth has been baking in an enterprise-wide ap- E*Trade (4 stars) rolled out its new Port- quarter of 2016, this new system ensured proach to helping clients meet their goals folio display last fall, which offers a much that 98.4% of shares traded in the 500-1,999 with varying levels of assistance from com- cleaner layout with easier access to addi- share bucket were executed at the current pletely self-directed to advisor managed. tional functionality. The aim was to allow market quote or better, and the average Merrill Edge Guided Investing is the firm’s customers to get more tasks done without savings per order was $11.29. This focus on robo-advisory, which makes it possible to having to leave the page, which was a most execution quality is most welcome. restrict the ETFs that will be included welcome update. The entire navigation ex- Schwab’s robo-advisory service, Schwab in the account. Customers with a Bank of perience was overhauled and simplified; as Intelligent Portfolios, managed to amass America relationship, whether checking, a result, the Website feels much cleaner $12.3 billion in assets by the end of 2016, savings, mortgage, or credit card, can see and up-to-date. The Estimated Income tool which is an incredible figure for a service a unified view of all accounts from Merrill that launched in 2015. The firm has added Edge. You’ll find financial advisors in al- was overhauled, giving customers a clearer another level of financial planning, Schwab most every Bank of America branch. picture of how their portfolios are generat- Intelligent Advisory, which combines pro- ing income with a customizable time frame fessional advisors with automated port- TradeStation (4 stars) dropped its $99 and the ability to seek out additional in- folios. Performance details are displayed monthly platform fee, and added a $5 flat come. upon logging in to the Website or the mo- rate commission, which could be more E*Trade Pro’s charting package was bile apps. appealing to less active traders. All cus- significantly enhanced as well, including tomers will be able to access the firm’s 110 technical and fundamental studies Merrill Edge (4 stars) found that about RadarScreen tool for no extra charge as and comparison tools. The charts created 50% of its customers who are using its well. GainsKeeper, a tax management sys- in E*Trade Pro can also be loaded in the mobile apps are mobile only, so it pushed tem, has been integrated to make April mobile apps, which is a welcome cross-plat- to enrich the experience on smartphones a less cruel month. Other enhancements form integration. and tablets. The apps now include a Dash- include an Intraday Short Locate app to With the acquisition of OptionsHouse, board feature that displays your portfolio, allow short sellers to find shares to borrow. E*Trade will be able to offer additional and quite a bit of information related to When viewing quote detail on a particular options analytics and trading functional- your holdings such as corporate events, stock, you’ll be able to see an “easy to bor- ity later this year. E*Trade launched its ratings changes, and news. The events are row” or “hard to borrow” indicator. Several own robo-advisor, Adaptive Portfolio, in presented based on how recently they oc- algorithms for managing large block trades mid-year, which allows combinations of ac- curred, and how impactful they are to your have also been published. tively and passively managed ETFs and portfolio. OptionsStation Pro is also available to mutual funds. Portfolio analysis functions When placing a trade on a mobile app, all customers for no additional fee, and it look similar when viewing a robo-gener- the entire process can be done on a single has been simplified considerably in the last ated portfolio or your regular portfolio in page rather than swiping back and forth. year. At the bottom of the options chain terms of asset allocation. The firm offers There is also quite a bit of customizable screen are four tabs rather than the pre- three other managed solutions with higher research and education content that can be vious 12, with access to trading, analysis, initial minimums. n
Article copyright 2017 by Barron's. Reprinted from the 3/20/2017 issue with permission from Barron’s. The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
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