Best Online Brokers for Fund Investors

published 31 August 2007

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? That's a reasonable question. 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.

So we've geared this analysis of online brokers toward investors in regular, open-end funds. We scrutinized a dozen brokerages 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.

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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. We placed a significant amount of emphasis on 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 -- how the brokers invest 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:

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 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.