Markets
The Best Online Broker
A relatively new player sweeps our rankings.
By Steven Goldberg, Contributing Columnist, Kiplinger.com
Jessica L. Anderson, Associate Editor, Kiplinger's Personal Finance
July 2006
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We penalized firms that route a large percentage of orders to firms they own. Here Fidelity, E*Trade and Schwab are the three worst offenders. Although Schwab sold its market maker two years ago, it agreed as part of the sales contract to continue sending orders to its former subsidiary for eight years. Brokerages that route orders to firms they hold only partial ownership in were also penalized, but less severely.
Is anybody home?
Bad service is unacceptable. You should not have to experience long waits when you need to talk with your broker. We set up accounts at all the brokerages, then tested how quickly we could get a broker on the phone, dialing each firm three times during a relatively quiet trading day in April. Siebert brokers answered our phone calls in an average of 21 seconds. OptionsXpress took 24 seconds; Firstrade, 30 seconds; and TradeKing, 42 seconds. The slugs: E*Trade took 10 minutes; Schwab, 4 minutes and 26 seconds; and TD Ameritrade, 3 minutes and 32 seconds.
To prompt a rapid reply, we next sent a panicky e-mail to each broker, falsely accusing it of misplacing a $25,000 check. TradeKing took 17 minutes to answer our question. (Automatically generated computer responses didn't count here.) Siebert answered in 44 minutes. Next best was TD Ameritrade, which replied in 13 hours and 24 minutes. The out-to-lunch (and dinner and breakfast) bunch: Scottrade didn't reply for 28 hours and 47 minutes, E*Trade for 22 hours and 8 minutes, and Schwab for 21 hours and 43 minutes.
Instant messaging works much better. Brokers that have it -- OptionsXpress, Fidelity and TradeKing -- all responded in 90 seconds or less. We gave all three extra credit for offering this handy option.
Finally, we quizzed the brokers to determine how well they could answer customer questions. We asked each broker the same three questions over the phone. Schwab brokers performed best in this exercise. TD Ameritrade and OptionsXpress tied for second; Fidelity finished last.
Best for funds
A good reason to open an online account is to consolidate your fund investments. An online brokerage makes it much easier and faster to sell one fund and buy another from a different family, cuts down on mailbox clutter and should make reporting your annual gains and losses to the IRS a snap.
We ranked brokerages on how many no-load funds they offer, how many of those no-loads are available without a transaction fee and what you pay for funds that do have a fee. We placed the greatest weight on the last question because many first-rate, low-cost funds are available only for a fee.
Schwab, which pioneered the fund supermarket concept, offers almost 4,000 no-fee funds -- more than twice the number offered by the second-place finisher (Firstrade, with 1,917). But woe to you if you pick funds not on the no-fee list. Schwab transaction fees run from $49.95 to (gulp) $164.95. Moreover, you pay not only when you buy, but also when you sell. TD Ameritrade isn't much better, charging a flat $49.99 to buy or sell.
The clear winner in this category is Firstrade. It doesn't charge a thing to buy or sell any of its no-load funds. OptionsXpress and TradeKing tie for second, charging $14.95 each way, though neither offers no-fee funds.
As for the total number of no-load funds available, OptionsXpress and Schwab each boast about 5,400. TD Ameritrade and Siebert each offer about 4,000. E*Trade, Scottrade and TradeKing bring up the rear in this category, each offering fewer than 1,900 no-load funds. Before opening an account, check to make sure that the brokerage offers the funds you want.
