Low commissions are great. Free trades, which some online brokerages offer, are even better. But most investors want more from their discount broker. They want a Web site that's easy to use, tools that clarify the markets, access to stocks across the globe and some guidance when they need it.
With this in mind, we examined 12 firms in a quest to find the best all-around online broker. The idea was to pick a firm that not only charges reasonable commissions and fees but also makes it easy for clients to conduct business and find a variety of investment choices, including stocks (both domestic and foreign), mutual funds, bonds and options. In sum, we wanted the total package.
||Invest With Your Friends|
We kicked the tires plenty. To put the brokers to the test, we opened accounts at all the firms surveyed, pestered customer-service representatives with questions and e-mails, and used many of each Web site's tools. We scored everything from how easy it is to calculate an account's cost basis to interest earned on cash to how market orders are handled. We judged Web sites on their design, and reviewed the fines and settlements brokers paid to regulators and customers.
Fidelity, one of the nation's biggest fund companies and now also a powerhouse in the brokerage business, topped our rankings. Charles Schwab, which has cut its commissions in recent years to become more competitive in that area, came in second. Muriel Siebert, which came in second in our most recent survey of online brokers, took the third spot this time.
Among discounters, Fidelity is second to none when it comes to research, and the firm offers useful tools and features a large selection of funds, bonds and foreign stocks. "Self-service is great, but there always comes a market climate or a time in your life when you need some assistance," says Chris Daniel, a 50-year-old Fidelity customer who has been using the firm since 1993. "That's where these guys excel."
No broker aced all of our tests, and Fidelity is no exception. You can find lower commissions elsewhere, and if you want to buy a fund outside Fidelity's extensive no-load, no-transaction-fee program, it will cost a stiff $75 per trade. "Fidelity's commissions are not the lowest of the discount brokers, but they're certainly lower than what retail brokers charge, and you get a lot of value for what you pay," says Daniel, an assistant treasurer for the city government of Albuquerque.
Anointing the best broker is tricky because so much depends on the needs and wants of customers. Investors who feel they need a lot of hand-holding may gravitate toward Fidelity and Charles Schwab, which run neck and neck in the race to provide customers with all the advantages of a full-service broker at a discounter's price. Investors who are willing to settle for fewer bells and whistles will appreciate Muriel Siebert, a small firm that stands out for its selection of mutual funds and third-party research. Price-conscious customers might favor TradeKing and newcomer Options-House, which charge low commissions -- $4.95 per stock trade, regardless of the account size -- and provide good customer service.
We didn't survey every online broker. We excluded T. Rowe Price and Vanguard because the firms' online-brokerage operations mainly support their fund businesses. By contrast, the online brokerage is a key part of Fidelity's operations. We also did not include Thinkorswim and TradeStation, which are highly rated in other broker rankings, because the firms are geared more toward active traders than long-term investors. We attempted to survey ShareBuilder.com, but it declined to answer our questions.
What they charge
The main draw for an online broker is, of course, low commissions. But it's not the only thing you should consider. If that were the case, WellsTrade, the online-brokerage arm of Wells Fargo bank, and Zecco would top the rankings in this category because they give away free trades to most of their customers. But annoying fees hurt the standing of both firms.
OptionsHouse, launched in 2005, earned the best overall score in this category. Low commissions -- $4.95 per trade -- and few of those pesky fees were the reasons for the win. Wells-Trade and Zecco placed highly, thanks to their free-trade programs. Trade-King ($4.95), Firstrade ($6.95) and Scottrade ($7) were close behind the leaders.