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Best of the

Fidelity edges out Edge and Schwab for first place in our rankings of top discount brokerages. BY DAREN FONDA

INVESTORS CAN POCKET A FEW HUNDRED BUCKS JUST BY OPENING Online an account with an online these days. But don’t let a signing bonus sway you. Low commissions to trade stocks or exchange-traded funds can save you more money in the long run. Whether you’re a stock jockey, a saver or a retiree, finding a firm that suits your needs is far more valuable than even a $600 bonus (Merrill Edge’s current inducement if you open an account with at least $200,000). So what makes for a first-rate broker? It depends on what BrokersPRINTED COPY FOR PERSONAL READING ONLY. KIPLINGER’S PERSONAL FINANCE 08/2016 PHOTO-ILLUSTRATIONS BY C.J. BURTON NOT FOR DISTRIBUTION. 08/2016 KIPLINGER’S PERSONAL FINANCE » INVESTING

you value. Low fees may be critical funds, and features a robust set of on- sions). Vanguard isn’t as trader-friendly. for active traders, but buy-and-hold line tools. (For the complete rankings, For clients with less than $50,000 in types may want an array of no-trans- see the table on page 6.) Vanguard mutual funds or ETFs, the action-fee mutual funds. with Keep in mind that our survey results firm charges $7 per online trade for unbeatable prices may lack the retire- combine objective and subjective cri- the first 25 transactions in a calendar ment-planning tools or advisory ser- teria. Not everyone will agree with year; after that, the price jumps to $20. vices you need. how we weighted the categories. And Fees decline for bigger accounts. To help you choose, we rounded up the results are so close that a slight Overall, Merrill earns the top spot data from seven of the biggest brokers bump in one category would lift the in this category, charging $6.95 per in the business: E*Trade, Fidelity, rankings for some firms. To find the stock trade, the lowest flat rate per Merrill Edge, Schwab, , TD best broker for you, check out the box transaction. Investors with a bank Ameritrade and Vanguard. Why these on page 4, where we list the top firms account at , Merrill’s seven? A firm had to offer online trad- for different types of investors. parent company, may qualify for up to ing of stocks, ETFs, funds 100 free trades per month, and individual bonds to be depending on their combined included in the rankings. balances. Merrill also charges Discount brokers affiliated the lowest rate, $19.95, to buy with Citigroup and Wells or sell mutual funds outside Fargo don’t provide online its no-transaction-fee fund bond trading. Capital One, network. That basically ties T. Rowe Price and USAA E*Trade ($19.99). Fidelity hits all declined to participate. you up for $49.95 to trade We also excluded some transaction-fee funds, while brokers that focus primar- Schwab socks you with a $76 ily on active traders and charge. Vanguard charges lack a full suite of invest- $35 if your account holds less ment choices and services. than $50,000, and $20 if you Although the results are have $50,000 to $1 million in close in most categories, Vanguard funds. Fidelity slips past Merrill Brokers also pad their Edge and Schwab for first wallets with fees and hidden place in our survey, featur- charges. No firm levies ing the best overall mix a fee for a low account bal- of investment products, ance. But Vanguard collects retirement-planning tools an annual maintenance fee and services. Fidelity’s of $20 on the brokerage commissions aren’t the accounts of clients with less lowest, especially if you than $50,000 in Vanguard want a mutual fund for funds who do not sign up for which you must pay a electronic statements. Most transaction fee. But its brokers charge a steep $25 to prices are close enough in other areas ➤ COMMISSIONS AND FEES send a bank wire. Plus, bond pricing is to be competitive with lower-cost Big online brokers last waged a price opaque at Merrill and TD. Both firms brokers. Furthermore, Fidelity wins war back in 2010, when E*Trade, pack an undisclosed markup into mar- points for its full range of retirement Fidelity and Schwab all shaved their ket prices of corporate and municipal and advisory services, along with top- stock commissions. Their prices have bonds. E*Trade, Fidelity and Schwab notch investing tools and customer stayed flat since then. Today, Scot- charge a flat commission of $1 per service. trade charges $7 per trade, followed bond, selling them at prevailing mar- Merrill and Schwab wind up in by Fidelity ($7.95) and Schwab ($8.95). ket prices that external dealers set. a dead heat for second place, though E*Trade and TD Ameritrade aren’t Merrill edges ahead by a whisker in as competitive at $9.99 per trade, ➤ INVESTMENT CHOICES the scoring. Merrill takes top honors although E*Trade cuts its commission You can find thousands of funds, in the research category, charges some to $7.99 if you make at least 150 trades stocks and bonds at every broker in of the lowest prices to trade stocks, per calendar quarter (which would our survey. But variety alone isn’t exchange-traded funds andPRINTED mutual COPYamount FOR to nearly PERSONAL $1,200 in commis READING- enough ONLY. to earn a top spot in this cate- NOT FOR DISTRIBUTION. KIPLINGER’S PERSONAL FINANCE 08/2016 » INVESTING

gory. We take into account the size of ➤ TOOLS each firm’s lineup of commission-free Need help figuring out whether it pays The Right Match ETFs and no-load, no-transaction-fee to refinance a mortgage? What are the * mutual funds with investment mini- best ETFs for the buck? Most brokers mums of $50,000 or less, as well as the earn high marks for their calculators, Pick the Best number of individual corporate and financial planning tools, and stock and municipal bonds available to clients. bond screeners. Scottrade and Van- Broker for You By these criteria, Fidelity muscles guard are notable laggards, furnishing its way to the top of the category. With fewer tools and screeners than their n Best for mutual fund investors: a roster of 3,737 no-transaction-fee competitors. Fidelity. With more than 3,700 no- funds, Fidelity beats every other bro- Fidelity earns a slight edge in this transaction-fee, no-load funds, Fidelity ker. Using the same measure, Schwab arena for its broad selection of tools, prevails in this department. All but a comes in at second place, with 3,616 most of which are intuitive and easy to few dozen of the funds on its roster no-fee mutual funds, followed by TD find on the site, and some of which ex- require minimum investments of less (3,587). Ranked last is Vanguard, with tend well beyond investing and retire- than $50,000. just 1,818 no-fee funds. Although that ment planning. For example, an “ETF looks meager, it includes all of Van- Dashboard” makes it easy to compare n Best for ETF investors: Schwab. guard’s 125 mutual funds, many of funds. Fidelity’s Full View feature ag- Paying to trade ETFs is becoming passé which have the lowest expense ratios gregates external bank accounts so at Schwab, which provides more com- in the business (potentially saving you can easily track your income, fi- mission-free ETFs (226) than any other you quite a bit more in the long run). nancial assets, liabilities and spending broker. Funds from iShares, Power- Schwab takes the prize for offering patterns. Clients can even import an Shares, State Street and WisdomTree the most commission-free ETFs, with estimate of their home’s value from are available without charge, along with 226, including funds from iShares, real estate site Zillow (or they can en- Schwab’s own lineup of low-fee ETFs. PowerShares, State Street and Wis- ter a figure manually). Merrill offers a domTree. No other broker has nearly similar tool. None of the other brokers n Best for active stock traders: as many commission-free ETFs; has anything comparable. Merrill Edge. The broker makes a strong E*Trade (118), TD Ameritrade (101) For screening tools, TD and E*Trade case for stock jockeys, charging a flat and Fidelity (85) take the next three score higher than Fidelity. TD’s handy $6.95 per trade. Customers with an ac- spots. Vanguard customers can buy fund screener lets you see how ETFs, count at Merrill’s parent, Bank of Amer- any of its 70 ETFs commission-free— mutual funds and closed-end funds ica, can qualify for up to 100 free trades a good deal, considering that they also with similar holdings stack up against per month. have ultralow expense ratios. Scot- one another (E*Trade features a simi- trade doesn’t provide any commission- lar screening tool). We also give high n Best for investors on the go: free ETFs. marks to E*Trade’s research tools, E*Trade. Its smartphone app features Fidelity and Schwab narrowly beat which include preset screens such as some of the best trading tools we sur- the competition in some other areas. “Dogs of the Dow” and “Inexpensive veyed, including stock, ETF and fund For example, both provide online ac- Growth Stocks.” Merrill scores well in screeners. cess to more foreign stock exchanges this area, too, providing buy lists and than other brokers. Fidelity also doled screens based on research from parent n Best for managing cash: Fidelity. out the most initial public offerings company Bank of America Merrill Customers can pay bills and track spend- (311) from the start of 2014 through Lynch, as well as from Morningstar ing on all their external accounts on 2015, trouncing Merrill (115) and and S&P Capital IQ. Fidelity’s site. Sign up for a Visa Rewards Schwab (73). But don’t expect a piece card and you’ll get 2% back on all pur- of a hot new stock unless you’re a ➤ RESEARCH chases—cash that is deposited right into big spender. Fidelity grants access On all sites, basic facts about stocks, a brokerage or savings account. to IPOs to customers with at least bonds and funds abound. But only a $100,000 at the firm, or who make few firms supplement the standard n Best for retirees: Vanguard. The at least 36 trades in a 12-month period, data with more information from fund giant’s low-fee model can help you and it allocates shares based on a major Wall Street investment banks. keep more of your savings. Vanguard variety of factors. E*Trade and Schwab and TD Ameritrade provide charges 0.3% to manage an account, Schwab say they allot IPO shares to comprehensive stock research from well below the rates of other big brokers. customers who have lower account Credit Suisse to all brokerage clients. Clients also get access to ultralow-fee values or who have made a certain E*Trade customers can access Credit Admiral class funds. number of trades. PRINTED COPYSuisse reports,FOR PERSONAL too, but only if they READING ONLY. NOT FOR DISTRIBUTION. 08/2016 KIPLINGER’S PERSONAL FINANCE » INVESTING

maintain at least $100,000 in assets can use Morningstar’s X-Ray tool to Computerized Advice with the company. Fidelity doesn’t compare their portfolio’s asset mix * supply any comparable stock research, against more market benchmarks than although it does offer reports from Fidelity’s analytical tool allows. Mer- Ranking the some small research firms, along with rill customers can also see how closely S&P Capital IQ. Scottrade and Van- stocks, bonds and funds in their port- Brokers’ Robos guard provide minimal stock and fund folio move in sync with one another, research. and they can track their portfolio’s hy- E*TRADE AND FIDELITY ARE NOW That leaves Merrill as the runaway pothetical growth against a wide vari- rolling out “robo” services, joining winner in this category. Customers ety of market benchmarks—features Schwab in selling managed ETF ac- can see Bank of America Merrill that Fidelity doesn’t offer. counts that are automatically ad- Lynch stock reports on more than One useful tool on E*Trade is a justed to maintain a steady asset mix. 1,400 companies, along with stock roundup of Wall Street analysts’ opin- Which one is best? research from Morningstar and S&P ions and price targets for individual On the surface, Schwab’s Intelli- Capital IQ. Merrill’s big economic stocks, showing how the analysts’ gent Portfolios look unbeatable for reports and thematic pieces, such as recommendations rank (a feature un- one big reason: The firm doesn’t a recent report on stock picks for an available on other sites). E*Trade also charge a management fee. Customers aging global population, are also avail- shows more details about stocks, such pay only the low fees of the underly- able. And customers get access to as how many shares are being pur- ing ETFs. But Schwab doesn’t let cus- Merrill’s lists of recommended stocks. chased or sold by company insiders. tomers stay fully invested in stock If you want bond research, though, Vanguard’s site looks sparse in com- and bond funds, requiring at least 6% you’ll have to look elsewhere. Ratings parison, with fewer trading and re- in cash for aggressive investors— reports on individual companies aren’t search tools. For its part, Scottrade climbing to 29.4% for the most con- accessible on Merrill’s site. By con- packs scads of charts and data on its servative portfolios. Held at Schwab trast, E*Trade, Schwab, Scottrade site, but it doesn’t offer as many plan- Bank, that cash earns just 0.08% and TD Ameritrade furnish company ning tools or screeners. in interest, and it can weaken long- reports from credit-ratings agency One other element that’s part of this term returns. Moody’s. One hot new tidbit: social- score: customer service and branch E*Trade says cash in its new Adap- media signals. E*Trade shows blog- availability. Schwab and Merrill both tive Portfolios won’t top 1%. But all-in gers’ sentiments on individual stocks. report hold times for phone service annual costs are 0.50% for ETF port- On Fidelity and TD, customers can averaging 31 seconds or less, beating folios and 0.75% for accounts with see how a stock is trending on sites Scottrade (42), Fidelity (58) and Van- both ETFs and mutual funds. Con- such as Twitter. guard (60). Scottrade scores well with 495 offices, more than every firm versely, Betterment (one of the first ➤ EASE OF USE except Merrill, which provides broker- robo advisers) charges a manage- Brokers aim to make their sites age services through 2,000 Bank of ment fee of 0.25% a year for portfo- user-friendly. But some are so convo- America branches. (Vanguard doesn’t lios between $10,000 and $100,000 luted—packed with news, charts and have any branches.) and 0.15% above that. Betterment data—that they can strain your eyes. holds only low-cost Vanguard and For overall ease of use, Fidelity racks ➤ MOBILE APPS iShares ETFs, while E*Trade includes up the highest marks. A horizontal The brokers in our survey all offer some pricier mutual funds and ETFs. task bar at the bottom of the site’s ac- apps to allow customers to trade and Fidelity was slated to launch its counts page lets you place a trade with conduct other business on a mobile robo service, Fidelity Go, in July. The a few clicks, streamlining the process device. All except Vanguard let you log firm says all-in fees will be 0.35% to compared with other sites. Paying in with a fingerprint. And the apps can 0.39%, which would beat E*Trade’s. bills, researching funds and analyzing be handy for banking: Investors can And Fidelity says Go portfolios will a portfolio are all relatively simple pay bills, transfer funds and scan hold 0.5% in cash, much less than on Fidelity’s site. Investors can also checks for deposit (though Vanguard Schwab. That could give Fidelity port- personalize the site in a number of enables mobile check deposit only for folios a performance edge over the ways, such as tracking their portfolio’s clients who hold exclusively Vanguard long term. Ultimately, though, your re- performance against a custom set of funds or ETFs). sults will depend on whether the market benchmarks (something E*Trade’s smartphone app scores robots do a better job of managing Schwab doesn’t allow). best in this category. Along with stan- your money than a human. Fidelity does trail the competition dard trading and account tools, it’s the PRINTED COPYin some FOR areas. PERSONALMerrill Edge customers READING only ONLY. one with a screening feature for NOT FOR DISTRIBUTION. KIPLINGER’S PERSONAL FINANCE 08/2016 stocks, funds and ETFs. The app also managed accounts when we called folio of mutual funds or ETFs—one shows E*Trade’s “all star” roster of to inquire about them. of the lowest bars in the business. funds. And investors can scan a prod- Fidelity and Vanguard earn the top Schwab also offers robo ETF accounts, uct barcode to pull up stock informa- spots in this category, trailed closely free of charge, with only a $5,000 tion (a feature TD provides, too). by Schwab. Fidelity racks up points minimum. Merrill and TD lack robo Of course, smartphone apps can’t for its menu of managed accounts, services and steer clients into man- handle everything. None shows a including one that focuses on muni aged accounts that charge at least 1% detailed analysis of your portfolio or bonds and another on income-oriented annually, depending on portfolio size lets you trade bonds. Stock and fund ETFs. Minimum investments start at (plus the fees of underlying funds in research remains sparse on phone $200,000 for most types of accounts, fund-based accounts). apps, too, although E*Trade and Mer- and management fees range from 1.7% For its part, Vanguard doesn’t rill make some stock reports available. to less than 0.6% for diversified port- provide a robo service or managed folios with higher balances. Fidelity accounts holding individual stocks ➤ INVESTMENT ADVICE is also rolling out an automated (or or bonds. But customers with at least The larger your account, the more “robo”) managed-account service that $50,000 in assets can tap into the customized and personal investing invests in ETFs; it requires a minimum firm’s Personal Advisor Services, advice you’ll get. But aside from Scot- investment of $5,000 and charges an- which let you slide into a managed trade, which doesn’t offer advice, ev- nual fees of 0.35% to 0.39%, including account that charges just 0.3% in ery broker will help you figure out an underlying fund fees. annual fees. The accounts hold only investment mix, set up a retirement E*Trade and Schwab offer robo ser- Vanguard funds that mainly track plan and steer you to a professionally vices, too. But E*Trade’s isn’t priced market indexes. But that’s not a bad managed account (functions that Scot- as competitively, and Schwab requires thing; clients can get Admiral share trade farms out to external advisers). clients to hold sizable cash balances, class funds, with expense ratios of less Fees for managed accounts typically which can drag down long-term re- than 0.07% for U.S. stock and bond start at 1% of assets annually, though turns (see the box on the previous funds. With most active managers fail- they may be negotiable. Without page for more information about the ing to beat their benchmarks, sticking prompting, a phone rep from E*Trade brokers’ automated-account offerings). with broad-market index funds can offered to knock 0.1 percentage point At Schwab, customers need just be a good way to pocket more money off the firm’s standard 1.25% fee for $25,000 to get into a managed port­ in the long run. n

Category Ratings

HOWBy the Numbers 7 LEADING ONLINE BROKERS STACK UP In a rating of this sort, overall scores depend on how much weight is and fees, 15%; investment choices, 15%; tools, 15%; research, 20%; assignedCHART to each category. OF We ONLINE based our weightings BROKERS on what our ease of use, 15%; mobile, 10%; advisory, 10%. You should decide readersThe amount considered of cash important doesn’t always and our tell own the wholejudgment: story. commissions For example, Apple’swhat extraordinary you consider balance most important sheet also and includes choose $36.5 a broker billion accordingly. in long- term marketable securities. The amount of cash doesn’t always tell the whole story. For example, Apple’s extraordinary balance sheet also includes $36.5 billionMinimum in long-term marketable securities.Breadth of to open an Cost of a Commissions investment Broker account stock trade and fees choices Tools Research Ease of use Mobile Advisory Overall score Fidelity $2,500 $7.95 fidelity.com Merrill Edge 0 6.95 merrilledge.com Charles Schwab 0* 8.95 schwab.com E*Trade 500 9.99† etrade.com TD Ameritrade 0 9.99 tdameritrade.com Scottrade 2,500 7.00 scottrade.com Vanguard 0 7.00# vanguard.com

*No minimum account opening balance if clients open a no-minimum Schwab checking account linked to a brokerage account. Without the link there is a $1,000 minimum for a Schwab One brokerage account. †E*Trade charges $7.99 per trade after the first 150 trades per quarter. #Vanguard charges $20 per trade after the first 25 trades in a calendar year for clients with less than $50,000 in Vanguard funds. PRINTED COPY FOR PERSONAL READING ONLY. (#S021700) Adapted with permission from the August 2016 issue of Kiplinger’s Personal Finance. © 2016 The Kiplinger Washington Editors Inc. For more information about reprints from Kiplinger’sNOT PersonalFOR Finance, DISTRIBUTION. visit PARS International Corp. at www.kiplingerreprints.com. Article copyright 2016 by Kiplinger’s. Reprinted from the August issue with permission from Kiplinger’s. The statements and opinions expressed in this article are those of the author. ® cannot guarantee the accuracy or completeness of any statements or data. This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC. 765335.1.0 PRINTED COPY FOR PERSONAL READING ONLY. 1.9870968.100 NOT FOR DISTRIBUTION.