Help a Reader: Picking a Broker

Here's an email I recently received from a reader:

I am looking for advice on choosing an online discount broker. I have read this post from couple years ago and obviously things like fees and service have changed since then. I have also read Consumer Reports article on discount brokers in May of 2009 issue but need someone to steer me in the right direction.

Here is my situation. I want to choose a discount broker to make a one-time stock purchase and just leave the money there for a couple years. So I am looking for a broker that has low fees, because I will buy and go away for couple years and not make new purchases or sell the stock I plan to buy. I would login to the online brokers account couple times a year just to check on it. 

At this time I don’t need a broker with free research, education tools or any other services. All I need is a bare-bones service with low buy and annual fees for the next couple years.

I am not looking for advice on choosing stocks, mutual funds or bonds. Just help in choosing a broker that would best suit my situation.

What broker would you choose in my situation? If you had some cash to invest in stocks, buy the stocks then go away for couple of years. 

Who's your recommended broker and why?

Comments

[Holly]

Go to Computershare.com, choose 'Country: United States, English', then go to 'Investor Centre' to sign up for direct stock purchases. There are plenty of stocks to choose from and extremely low purchasing fees...Ford costs $2.50 per investment, for instance (some without fees). Some require a minimum of, say, $500, or you can choose to invest $50/month for 6 mos., etc.

I chose the reinvestment plans so that the per dividends are automatically reinvested.

[MikeG]

There are many, many brokers that will work for you in this situation. Because you're planning to buy and hold for an extended period of time, an ultra-low commission broker isn't very important here. I'd recommend a highly-rated broker that has an easy sign-up process, a straightforward web platform, and (of course), no annual fees.

I would recommend Thinkorswim ($10/trade), TradeKing ($5/trade), or Zecco ($4.5/trade). Zecco has the least amount of star power out of those three (it's pretty bare bones), but they'll give you 10 free trades a month if you have over $25k in your account. I've used all three, and I have no complaints.

[Darin H]

If you don't need to reinvest the dividends (or plan to do so on your own once a quarter, year, etc) then Scottrade - $7 trades

If you have a relationship already with Bank of America, I have use them. I would have stayed with Scottrade except they didn't reinvest, BofA allows that. Trade commissions vary with how much you have with the Bank.

[Ben]

Wells fargo currently has the best free trade deal.

20k in total accounts and you get 50 free trades a month (or something like that).

the 20k includes: cash in all accounts and loans (INCLUDING CREDIT CARD). So if you have a credit card with them with a limit of 10k, all you need is 10k in investments. Free is good.

Schwab is now 8.95, and they offer great everything. No fees on their ETFs. lots of options out there, not too much of a difference. I say pick a stable option. Bank or big name discount broker.

[Paul Williams]

I'd recommend against the first commenter's suggestion of Computershare. The reason is simple.

While direct purchases may be one of the cheapest ways to buy individual stocks, you're much more likely to lose or not even track your cost basis information. However, just about every discount online brokerage will track that information automatically.

It may be easy enough to track it yourself if you're using Computershare and never make any long-term investment. But if you want to buy some stocks and "go away for a couple years", you'll need to track all purchases and all dividend reinvestments.

As the second commenter noted, TradeKing and Zecco are the cheapest out there right now.

[Michael Goode]

I have experience with brokers of all kinds. I am a professional day-trader (I've had probably 15 accounts in the last two years). Where do I keep the money I don't trade actively? Scottrade. They are cheap ($7 commission), do not have many nuisance fees, and are an established company that is larger and more reputable than many super-discount brokers. They clear their stock trades through Penson (Nasdaq: PNSN) which is one of the largest independent clearing firms.

ThinkorSwim is a poor choice because they were bought by Ameritrade ... I believe it likely that Ameritrade will add some nuisance fees to ThinkorSwim.

[Holly]

@ Paul,

Please re-read the original posters inquiry. He is looking for a bare bones investing service (no research, no advice).

It is easy enough to track your initial investments online w/computershare...simply click on transaction history (will show you your initial invested gross, all fees associated, reinvested dividends, share price at time of purchase, date of purchase, etc.) or you can simply call the 1-800 shareholder services #. No long wait...no fuss at all.

Only thing I dislike is the inability to make real-time trades.

[Tyler]

Since you want to make a purchase and then let it sit, the commission rates are not a big deal since most of them will be pretty close.
So you should consider other metrics:
1. ease of getting money from the account should you want to exit.
2. Broker risk- fraud, etc...
3. ease of account information- end of year tax, transactions sheets, general formats

Go with a top 5 name. Most will fulfill the above 3. The differences will be very minor. Personally, my accounts sit at scottrade. Like you, I dont really use any of the services offered beyond a few stock purchases.

[Mark]

I started out with the same idea - barebones, infrequent purchase, etc.

As my needs grew and changed over a long period (more than 10 years), I found I wanted to do more - link to my online banking, invest more money, etc.

I used Scottrade initially for the simple one-off deal, and then Datek (now Ameritrade), and ultimately E-Trade. I still have two Ameritrade accounts, but I am not very excited about their service or the convenience fo their website, so I find I have gravitated to E-Trade for most of my financial needs now.

Fees, etc. depend on your total combined balances. I am lucky enough to have a large amount with them, so I pay about $10 per trade when I trade (infrequently) and no other fees. The amounts I trade are large enough and infrequent enough that I don't care if the commission is $10 or $2.50.

It's a hassle to change from one company to another so try to choose with the future in mind. You may find you need more services than you think.

[Ken]

Tradking. I am using that. Easy to use and seems to offer a lot at low cost.

[Tyler]

There is zero reason to use a 'bare bones' broker. You can use a major discount broker for almost zero cost with a lot of service.

"Only thing I dislike is the inability to make real-time trades"

are you kidding me? This is such an absurdly low standard. Zero fees, $7 trades, tons of extras, and that elusive 'live trades'. Any discount broker can provide a base level of service for a minimal cost.

[Holly]

Tyler-

I just dumped $7000 cash into Ford, United Technologies, and Wells Fargo in early 2009 and watched the rebound. So, no, I am not the aggressive type of investor. I also use Sharebuilder, but am not interested in short-range trading since I feel that trying to time short-term market activity is pointless.

I just wanted to park my money and sell when I need/want to sell. So far, it's certainly paid off.

I got the idea from a geat post on a PF site that could be regarded as one of FMF's competitors....ssshhh!

[Budgeting in the Fun Stuff]

We invest and hold as well and have been using Scottrade for more than 5 years. In case it matters to your choice, we don't automatically reinvest dividends. We let them build up along with our investment cash and use it all at once to buy additional stock whenever we're ready or find a great deal.

[Paul Williams]

@Holly:

When it comes to cost basis, it doesn't matter what services you want or don't want. You need that information. In my experience preparing taxes and working as a financial planner, most people who invest through Computershare or other direct purchase programs never seem to have their cost basis information. Does Computershare just provide a list of all your transactions, or does it keep track of your actual cost basis (after multiple buys and sells)?

[Tyler]

Holly-
It has nothing to do with being aggressive or not. (One could make a strong argument that your first sentence of your post could put you into an aggressive category, but I'm not really interested in said debate.)Congratulations on your investments.

[Ben]

Three worth considering (I narrowed it down to these three for no account fees, good customer service, didn't receive a bailout, user interface, execution quality and ability to sync with Quicken):

1. thinkorswim. Rated best by Barrons for frequent traders. Trading is $0.015/share ($5 minimum) or 9.95 flat fee. It does sync with Quicken but only manually. Trading platform runs on Windows, Mac OSX and Linux. First broker to have an iPhone app. Support told me an iPad app is in the works. Three free mutual fund trades per month. Some features like dividend reinvestment can only be turned on by contacting support.

2. Charles Schwab. 8.95 trades, syncs with Quicken, Schwab ETF trades are free. Lower ETF expense ratios than Fidelity but fewer to choose from. Schwab's website feels a little outdated and slow but their phone support is excellent.

3. Fidelity. Rated best by Barrons for long term traders. 7.95 trades, sync with Quicken, 25 iShare ETFs can be traded free, as well as many mutual funds can be traded commission free.

All have good support, but thinkorswim excels with their email support (I prefer to send an email over making a phone call). On multiple occasions I've emailed questions late at night and each time received a response within an hour. Schwab and Fidelity took several days to respond to emails and didn't always fully answer or understand the question.

If your aim is to simplify Schwab and Fidelity can be a nice "everything under one roof" option with their online banking checking/savings, credit card and investment accounts. Of these two I think Schwab has slightly better offers (e.g. postage paid deposit envelopes, no foreign transaction fees on the credit card) but you'll be filling out a lot of forms and faxing them in to setup accounts which can be annoying. Fidelity has an easier to use website and seems to do a better job keeping up with technology.

[jclimber]

If you can park at least $25k at Wells Fargo you can get 100 free trades per year per brokerage account that is linked to a PMA checking account. The $25k is the sum total of all the account - checking/saving/brokerage/IRA's and 10% of any mortgate. Credit card limits are NOT counted. If you meet the balance limit there are no account fees assessed on any of the accounts. This I believe is the best deal out there.