One More Reason to Buy Online by Theresa W

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One More Reason to Buy Online by Theresa W 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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