» investing // trading the best of the online Fidelity and TD Ameritrade are number one in our latest rankings of 14 top discounters. By Elizabeth Ody one of the lessons rank-and-file investors seem requires that customers have at least two years of investing experience to have drawn from the brutal 2007–09 bear market is before opening an account.) that professionals can lose money just as easily as they Unfortunately, brokers can charge you in many other, less-visible ways. can. A corollary is that keeping costs down is crucial. Many now charge nominal fees for As a result, many have decided to take investing into sending paper statements (rather than electronic ones) or for sending you their own hands. “Since 2008, our the rankings—from commissions to copies of old statements. Other largest source of new accounts—after customer service to whether customers charges aren’t so nominal. Merrill people transferring their accounts can purchase stocks overseas—is of Edge, which is Bank of America’s new from other discount brokers—has supreme importance in determining online-brokerage platform, scored been investors coming from full- who ends up on top. worst for annoying fees. It levies as service brokers or from advisers,” So rather than rank the brokers much as $100 annually for customers says Don Montanaro, chief executive based solely on what we think is im- with less than $50,000 combined in of TradeKing, a discount . portant, we decided to ask you, our Bank of America and Competition among discounters is readers, what you value in a broker. accounts, and it will charge you $95 if intense. As they battle for your busi- Not surprisingly, costs topped your list you decide to transfer your account to ness, brokers are fighting on a variety of concerns—49% of Kiplinger’s read- another broker. Just2Trade’s overall of fronts: undercutting one another ers cited commissions and fees as score was hurt by the $25 it charges on price, offering slicker and slicker their number-one issue when choosing customers to open an IRA, after which online-trading experiences, and out- a broker. But you said that an easy-to- you have to pay $35 annually. doing each other by introducing ever- use Web site and a broad menu of Vanguard received top marks for the more-compelling tools. investment choices are also important fewest and least-costly nuisance fees. To make sense of all the offers out concerns. With these considerations But it fell short of first place for overall there, we surveyed 14 of the biggest in mind, we set out to find the best costs because its commissions for buy- and best brokers in the industry to see discount broker to suit your needs. ing and selling bonds and options are which ones make your money go the on the high end. The all-around win- furthest. Fidelity, the winner of our ll COMMISSIONS AND FEES ners on costs, OptionsXpress and last survey (see “Best of the Online If commissions were the only fees you Zecco, offer competitive prices on Brokers,” Nov. 2008), again topped had to worry about, then Just2Trade their full menu of services. our rankings, but this year it shares would be the clear cost leader. The Neither Fidelity nor TD Ameritrade the honor with TD Ameritrade. broker entered the scene in 2007 with shines when judged on costs alone. Each of the brokers we surveyed flat $2.50 commissions for stocks and Fidelity charges $75 for online pur- excels in certain areas and flops in mutual funds, and no other broker chases of mutual funds that are not in others. That means the weighting we has been able to undercut it. (Founded its no-transaction-fee network (how- assigned to each area considered in with active traders in mind, Just2Trade ever, unlike other brokers, Fidelity

02/2011 Kiplinger’s Personal Finance » investing // trading

investing // trading

priority: # low 1costs 68 of our readers % 63 think% it’s very important to have a use an COMMISSIONS AND FEES OptionsXpress online broker www.optionsxpress.com broad range for managing some or Zecco of no-transaction-fee all of their investments. www.zecco.com mutual funds.

RESEARCH AND TOOLS INVESTMENT CHOICES Fidelity Fidelity www.fidelity.com www.fidelity.com Charles Schwab Charles Schwab www.schwab.com What you want in an www.schwab.com TD Ameritrade TD Ameritrade www.tdameritrade.com ONLINE www.tdameritrade.com BROKER Kiplinger’s reader survey

EASy-to-use web site . E*Trade 6 1 www.etrade.com 88% of our readers’ trades Fidelity per month www.fidelity.com transactions TD Ameritrade is the average www.tdameritrade.com are conducted executed per investor. online, the rest over the phone.

Customer service priority: E*Trade www.etrade.com easy- best overall score Scottrade # Fidelity www.scottrade.com to-use www.fidelity.com Vanguard TD Ameritrade www.vanguard.com 2web site www.tdameritrade.com

Kiplinger’s Personal Finance 02/2011 doesn’t ding you again when you sell foreign bourses available, respectively. dustry comparisons for stocks, and de- such funds) and $100 to purchase them We also appreciate a brokerage that tailed portfolio information for funds). over the phone through a representa- can get clients access to IPOs. Charles And we like navigation bars that let tive. TD Ameritrade will hit you with Schwab, Fidelity and TD Ameritrade you get where you’re going without a $50 tab if you transfer your broker- all scored well here. Schwab custom- too many clicks. age account or IRA to another broker. ers, for example, were able to partici- The notable laggards were Muriel pate in 81 stock IPOs in the first ten Siebert and Just2Trade. Navigation ll INVESTMENT CHOICES months of 2010. on the Siebert Web site was so choppy Both Fidelity and TD Ameritrade it made us seasick. We found the site’s excel when judged by the range of drop-down menus to be unintuitive. investments they offer. To rate a bro- “Schwab retail It was difficult to find research and ker’s investment choices, we looked tools, and we grew weary of waiting at everything from mutual funds and clients can buy for pages to load. The Just2Trade exchange-traded funds to the ability site was only marginally less vexing. to trade on foreign exchanges, obtain no-load mutual We found it difficult to track down initial public offerings of stock and funds from nearly something as simple as a mutual fund get new bond offerings. quote. While the site’s bare-bones feel For no-transaction-fee funds, Charles 400 companies may be well-suited for investors who Schwab can’t be beat. Schwab retail without paying are there just for cheap trades, we clients can buy no-load mutual funds were looking for a little more. from nearly 400 fund companies a transaction fee.” without paying a transaction fee. ll CUSTOMER SERVICE Muriel Siebert takes second place, When you need help or more informa- with about 250 no-fee fund families All the brokers we surveyed offer tion, you want your broker to respond available. TD Ameritrade and Fidelity access to corporate and municipal accurately and pleasantly without tie for third place, with both brokers bonds. Some, such as Fidelity, hold an making you wait around all day. We offering funds from about 240 families. inventory of bonds. Others, such as tested every broker’s representatives TD Ameritrade is now the clear Just2Trade, hold no bonds in inven- by phone—and, when available, by leader for no-fee ETFs. Last October, tory but employ traders who will work e-mail as well—with questions ranging it began waiving commissions for 101 with a customer to track down a given from easy to tough. E*Trade’s reps ETFs for all customers who hold on bond that interests him or her. We aced our tests. They demonstrated to the funds at least 30 days. “We want gave points to brokers that let custom- thorough knowledge but also took to make ETFs work to the best value ers buy bonds online and that offer the time to look up the answers to any of the long-term investor,” says TD new bond issues. We also gave points questions they couldn’t immediately Ameritrade executive vice-president to the six brokers—which include answer, and they treated our phone Peter Sidebottom. The list of funds, Fidelity and TD Ameritrade—that testers with courtesy. Scottrade and which spans nine ETF providers, can get foreign bonds for clients. Vanguard also impressed us. was handpicked by analysts at fund Most brokers’ customer-service researcher Morningstar. Vanguard’s ll WEB SITE lines will put you through to a warm offerings are also formidable. Its If you do most of your trading and body within 90 seconds. Only USAA customers can trade all 63 Vanguard research online, you require a broker tripped up here—on one occasion we ETFs—many of which are the lowest- with a well-designed Web site. In waited more than 15 minutes to speak cost ETFs within their categories— general, brokers impressed us on this to a rep, who then missed a softball with no commissions. point. But we had nits to pick, too. question we pitched to him about Globe-trotting investors will appre- Rather than bare-bones trading pages, IRAs. But all around, Charles Schwab’s ciate Muriel Siebert’s winning list of for example, we prefer screens that reps were the least helpful over the 49 international exchanges available show a quote for the issue you’re trad- phone. And it took nearly a week to customers. It is the only broker ing, your account’s available funds and for Schwab reps to respond to our we surveyed that offers access to, for any minimum investment or transac- e-mail queries. example, the Shanghai , tion fees for mutual funds. We gave the Indonesian stock exchange or the extra points to brokers that put a wide ll RESEARCH Tel Aviv stock exchange. Fidelity and range of useful information at your The final component of our rankings Vanguard also offer broad access to in- fingertips when you look up stocks was a site’s research and tools. Fidelity ternational exchanges, with 26 and 4 and funds (such as key ratios and in- rules when it comes to stock research.

02/2011 Kiplinger’s Personal Finance In addition to offering stock reports surveyed that offers credit-quality they almost manage to take the pain and recommendations from a wide va- reports for individual bond issuers. out of discovering that you’ll need riety of firms—from Ativo Research to You’ll find detailed Moody’s reports to save an additional $1,500 per month Zacks Investment Research—Fidelity for corporate-bond issuers on the to afford the retirement you were provides “Research Firm Scorecards,” bond-research section of the TD planning. (If you’re craving a heavy which rank, for example, how Ned Ameritrade Web site, in addition to dose of harsh reality, the tool is avail- Davis Research’s picks in the energy S&P credit-quality reports for specific able for free at www.etrade.com.) sector have stacked up historically municipal-bond issuers. Other than Just2Trade, all of the compared with the sector in general We awarded points for tools that brokers we surveyed offer one or more and with other firms’ recommenda- help illuminate your portfolio and smart-phone applications or a mobile tions. The scorecards also show how keep your investment plan on track. version of their Web site. Zecco and your portfolio would have performed Most of the brokers we surveyed offer OptionsXpress also offer tools that you over the past three years if you had one or more retirement-planning cal- can download to your browser so that religiously followed every buy and sell culators to help you develop a savings you can trade stocks within your bro- recommendation by, say, Standard & plan. Some of these are bare-bones kerage account while you’re surfing Poor’s stock analysts. tools, such as Vanguard’s calculator other sites on the Web. Although these TD Ameritrade doesn’t offer as to estimate your retirement income. features might make some investors lengthy a roster of stock-research Others, such as E*Trade’s Retirement more prone to impulse trading, we reports, but it was the only broker we QuickPlan tool, are such a joy to use can’t deny that they’re awfully nifty. n

Broker Ratings HOW 14 LEADING online discounters STACK UP

A broker’s overall score in a survey of this sort depends heavily costs, 30%; Web site and investment choices, 20% each; customer on how much weight you assign to each category. We weighted service and research, 15% each. Ultimately, you should decide what the categories based on what our readers consider important: you consider most important and choose a broker accordingly.

Web site Investment Customer Research Overall Broker Comment Costs usability choices service and tools score

Fidelity Top-notch all around. www.fidelity.com TD Ameritrade Tied for first place, with better www.tdameritrade.com investment choices than ever. E*Trade Solid in all areas. www.etrade.com Vanguard Low costs and superb customer www.vanguard.com service set this broker apart. OptionsXpress A Mecca for options buffs that www.optionsxpress.com scores high on costs. Charles Schwab Offers the broadest list of funds www.schwab.com with no loads or transaction fees. Scottrade A better Web site would have www.scottrade.com boosted this broker's ranking. TradeKing The first broker to incorporate www.tradeking.com social networking. Firstrade Could use additional tools and www.firstrade.com investment choices. Merrill Edge This newcomer charges high fees. www.merrilledge.com Zecco Offers low costs but few www.zecco.com investment choices. Just2Trade Bare-bones broker boasts the www.just2trade.com lowest commissions. Muriel Siebert Impressive range of investment www.siebertnet.com choices; abysmal Web site. USAA Costs are high, and Web site and www..com investment choices are lacking.

(#22087) Reprinted with permission from the February 2011 issue of Kiplinger’s Personal Finance. © 2011 The Kiplinger Washington Editors Inc. For more information about reprints from Kiplinger’s Personal Finance, contact PARS International Corp. at 212-221-9595.

Article copyright 2011 by Kiplinger’s Personal Finance. Reprinted from the February 2011 issue with permission from Kiplinger’s Personal Finance. The statements and opinions expressed in this article are those of the author. ® cannot guarantee the accuracy or completeness of any statements or data. 570540.1.0