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EDITOR'S NOTE: This article is from Kiplinger's Mutual Funds 2008 special issue. Order your copy today.
Rankings of online brokers typically focus on how well the brokers serve stock investors. But what about those of us who are interested only in mutual funds?
Consolidating your fund holdings with a single broker makes it a snap to trade funds from a variety of families, monitor your portfolio and report your annual gains and losses to the IRS.
We've rated a dozen online brokers on the basis of services they provide investors in regular, open-end funds. That meant scrutinizing them on a broad array of issues important to do-it-yourself fund investors—from the commissions charged for buying and selling funds to the usefulness of each firm's Web site.
Two online brokers stand out: Muriel Siebert & Co., the firm founded 32 years ago by the first woman to hold a seat on the New York Stock Exchange, and Fidelity Brokerage, a unit of the fund giant. Both firms offer a wide selection of no-load funds, run well-organized Web sites that feature top-notch research and screening tools, and charge few nuisance fees.
In judging the brokers, we gave the most weight to the number of no-load, no-transaction-fee (NTF) funds that the brokers offer and the fees they charge for buying and selling funds that are not part of their NTF programs. Also key were the total number of no-load funds the brokers offered and the features and friendliness of their Web sites.
We also considered -— but placed less emphasis on -- where the brokers put your uninvested cash, the fees they charge if you sell your funds too quickly and other miscellaneous charges, and any perks the brokers give to high rollers. Here is how Siebert and Fidelity stack up:
Fund availability. With 3,263 funds, Fidelity came in second in the number of no-loads, behind OptionsXpress. Siebert, with 2,982 funds, came in fourth (third was Firstrade, with 3,098). Siebert took the prize for NTF funds, offering 1,806 no-loads at no charge, followed by Fidelity, with 1,597.
Fees for non-NTF funds. Fidelity and Siebert are in the middle here. At Siebert, you'll pay $35 to buy or to sell. Fidelity charges $75 to buy but nothing to sell. That's a better deal than buying or selling at Schwab or TD Ameritrade, which charge $50 either way.
Other fees. Most brokers charge if you sell too quickly. Siebert is about average, charging $35 if you sell within 90 days. But Fidelity falls into the investor-unfriendly group, charging $75 if you sell within 180 days (this fee doesn't apply to Fidelity's own funds). As for other fees, Fidelity and Siebert rock: Neither levies annual fees, inactivity fees or fees for transferring your account to another broker. Except for Scottrade, all the brokers in our survey charge at least one such pesky fee.
Investing your cash. The better brokers -- Siebert among them -- automatically sweep your cash into a decent-yielding money-market fund. Fidelity gets a middling score because it requires investors to opt for a money-market fund; otherwise, cash goes into an interest-bearing account. We gave the least credit to firms that don't offer a money-market fund at all (Scottrade) or that impose restrictions (Schwab and Wells Fargo).
Web sites. Because you interact with your online broker mostly online, we put considerable emphasis on each Web site's presentation and its tools for researching and screening funds. Both Fidelity and Siebert rank in the top tier. We were impressed with Fidelity's fund screener, which allows you to screen by performance and Morningstar ratings, among other criteria. The well-organized site also makes it easy to compare funds (as many as five at a time). Siebert offers Morningstar profiles and countless ways to compare funds based on factors such as volatility and performance relative to an index.
Perks for big customers. Again, both Fidelity and Siebert are at the top. Siebert is willing to negotiate lower charges, including fees for non-NTF funds, for clients with large accounts or who trade frequently. At Fidelity, customers with more than $100,000 get priority call routing and free consultations. Those with balances of more than $1 million get their own account executive.
POSTED BY: KiplingerReader (April 17, 2008 04:20 PM)
Great topic. Most brokerage survey articles are useless because they fail to analyze how brokerages cater to mutual fund investors. I agree with criteria the author defined. Unfortunately, the author ignored the criteria when making brokerage judgments.
How could Fidelity possibly stand out as one of the best? They charge the highest purchase fees in the industry. Firstrade charges $10, Scottrade charges $17, ETrade charges $20, Wells Trades charges $0, Fidelity charges $75. $75 is absurd. Its more than twice as high as most everybody else. Consider an investor make 10 tf purchases a year:
- The Fidelity investor would have to pay $750.
- The Firstrade investor would pay $100.
- The Wells Trade investor would pay $0.
Fidelity's $0 redemption does not balance out the absurd purchase fee...
POSTED BY: dcl (April 21, 2008 04:06 PM)
Does it really matter if one or another broker does or does not "sweep cash"? I have read that one should always reinvest distributions...is that wrong? If it is right, then where would the cash come that needs to be "swept"?
POSTED BY: Manny Schiffres (April 25, 2008 04:06 PM)
Hi. I supervise the investing coverage for Kiplinger's Personal Finance magazine. To Kiplinger Reader: I appreciate your thoughtful note. The fact is, though, that you can skew a rating any way you want to by the weight you place on each category. Obviously, commissions for non-NTF funds is very important for you, so you find Fidelity unappealing (by the way, Fidelity doesn't charge to sell; the others you mention do, so the Fidelity disadvantage isn't as great as it seems). On the other hand, Fidelity offers many more NTF funds than the other firms you mentioned. I'm sure many investors consider that more relevant than the fee for non-NTF funds. At any rate, it was our judgment that Fidelity was near the top based on the totality of all the factors we looked at. I hope this helps.
