The Best E-Broker for You

I've had several online brokers through my investing years, so I'm always interested in articles that rate different e-brokers. Furthermore, my personal experience has been less than stellar with many of them, so I'm always on the lookout for a better company.

This piece from Business Week on the best e-broker for you is the latest article that attempts to rate online investment companies. It's a hard task -- to pick the "best" -- as they state early on in the piece:

Who's the best to do business with? That depends on what you want from a broker. Do you value cheap commissions, fastest order execution, or the biggest menu of mutual funds? Or maybe you don't have a strong preference and just want an e-broker that does an all-around top job.

In other words, the "best" is going to be different for different people depending on what they want from a company. For instance, I personally put the most weight on cost (everything impacting cost including execution of trades and fees too), customer service, and ease of use of the site. But Business Week continues, ranking companies on qualities such as overall service, mutual fund investing, novice investors, active investors, breadth of product, online research, yield, and trade execution. Pricing is covered in several of these categories.

The closest Business Week comes to picking an overall winner is Scottrade. Here's what they have to say about this company:

Perhaps the best broker for the money is Scottrade, where a stock trade costs just $7, period. Still, what gives the company an edge over even lower-cost competitors is its 272-branch network, with offices in 47 states. If you're having any kind of problem, instead of waiting to reach a call center, you can drop into an office. "That personal relationship with our reps is very important to our customers," says Chief Executive Rodger Riney.

The combination of low cost and extra service has earned Scottrade the J.D. Power customer satisfaction award for six years in a row.

Pretty good recommendation -- I may have to try them out.

The piece includes a chart that lists fifteen web brokers and how they stack up according to seven different criteria. I've had experience with six of them and thought I'd share with you my thoughts. Here they are in alphabetical order:

• Charles Schwab - Too pricey! At least they were when I used them several years ago. So I left and haven't been back. My understanding (and Business Week's chart confirms) is that they have lowered their fees substantially, but personally I see no reason to go back.

• E*Trade - I currently have a few accounts with them (taxable, IRA, and two Coverdell). I'd rate them as "ok" but not great. One particular problem I have with them -- they send me revised investment statements every March for the previous tax year -- forcing my accountant to make last-minute changes. They say this is within their "rights" to do this, and I'm sure it is, but it's a pain for me and no one else does it. FYI, out of all the sites that received a customer service ranking (only 8 of the 15), E*trade ranked last (8th).

• Fidelity - Our company 401k is with them, so I have little choice on this one. They have a good selection of funds and seem fine to deal with. Not sure I'd have an account with them if they weren't with our company. I have a better source for mutual funds (see later).

• Merrill Lynch - I've had a couple past 401ks through Merrill Lynch. All I can say is that they are very, very pricey. I wouldn't have an account there by choice and I currently don't have one with them.

• TD Ameritrade - I have a few accounts with them currently (IRA, taxable account, Roth). They are "fine" on price and their site is simple to use. However, their statements must have been designed by the IRS (hard to read) and they rank 6th/7th (two rankings because they were two companies when the survey was taken) in customer service. That makes them second-worst in customer service to E*Trade. Just my luck.

• Vanguard - I don't use Vanguard to buy stocks, but have all my funds (including my index funds) with them. They are excellent! Great customer service (#2 in the survey), low costs, easy-to-read statements, and a good site. I have bundled enough accounts with them that I get preferred status too, which makes my experience with them even better. I recommend Vanguard 100% to anyone wanting a great mutual fund company.

As a next step, I think I'll check out Scottrade -- maybe moving my E*Trade or Ameritrade (or maybe both) accounts to them. Anyone have anything good or bad to say about Scottrade? Or any comments on any other e-broker? I'd love to hear your thoughts.

Comments

[Bronco]

Yea, Scottrade is great. The only complaint I would have is that their research is lousy-- but that is a low priority for me as you can get whatever you need on Yahoo.

[JB]

I've been using OptionsXpress for several months and really like their service. They were ranked very high by SmartMoney. I also like Vanguard, but their brokerage fees are very high, so they are not a good choice if you are doing any trading.

[Hawkmoon Nine]

I am in the process of switching my account from Scottrade to Banc of America (Brokerage is with a 'c' their bank is with a 'k'). With BofA, I can still get $7 trades (Advantage member with Bank of America, non-Advantage members it is $10, but I think it's $7 for anyone over $25,000? account value). I was relatively happy with Scottrade (not being able to do online deposits was the only drawback), but Banc of America offered something that Scottrade didn't....DRIPs. For anyone with long term investing who wants dividend reinvestment, I recommend Banc of America.

Additionally, I left Etrade over 4 years ago for Scottrade over their fees. I liked Etrade better, but the fees weren't worth it. I didn't leave Scottrade because I was unhappy, if they had offered dividend reinvestment I would not have switched.

[George]

Before you decide on Scottrade, I recommend you look at Firstrade. I have used them for a long time with pretty good results. They are very similar to Scottrade but from my experience and the experience of my members, I think Firstrade's centralization at a home office gives them better capabilities at handling more complicated transactions such as corporate restructuring and buybacks. I've heard some horror stories about Scottrade branch office brokers seriously botching up transactions and not providing proper information on complicated issues.

You won't here much about Firstrade because they send almost no money on advertising, which I consider to be a plus. (Heck, I can't even get an affiliate program with them and I'm sure I drive quite a few new customers to their site.) If you are a more passive investor, Firstrade is also good in that they have a ton of mutual funds with no trading fee, even for no-loads. If you are interested, send me an email and I can hook you up with a referral.