This weekend Barrons has the annual issue out which reviews the online/discount brokers. While it does a good job overall, I think it misses some specific aspects of brokers that new investors are looking for.
This time last year I was looking for a stockbroker and found it a bit confusing as to which one might be best for me. As a new investor what I craved most of all was access to information and research. And I wanted it in a cost effective manner.
So I did a bit of reading and came up with a list of stockbrokers that might appeal to new investors who are looking for professional research for the least amount of money. In fact, what I found is that it is pretty easy and essentially free to get research services that others might pay several hundreds of dollars to receive.
For those who already are happy with their broker it is easy to access these brokers in a manner that does not require moving your current account. Moreover, the list may appeal to the more active trader who has an account at one of the brokers that start at only a $1-2 per trade (MB Trading and Interactive Brokers). The active trader gains access to research not available with their primary stockbroker who was selected for different reasons.
I limited my research to online stock brokers who do not charge any fees for account activity or any fee to maintain an IRA. Why? Because most new investors either do not trade actively and/or opening an IRA will be the way they begin to invest. Also, because these accounts may be secondary accounts holding down costs is important. Moreover, I wanted this list to be relevant for the more experienced investor who is looking to access different research sources without having to commit large amounts of capital to a secondary account and worry about maintaining a certain level of activity. Furthermore, I only included brokers that actually offered some type of third party research for no additional charge to account holders.
This only left eight online or discount stock brokers out of over 50 that I checked. I ranked them based on 1. amount of research offered; 2. trade cost; and 3. minimum amount to open. Here is what I found.
Coming in at No. 8 is Accutrade. Stock Trades are $29.95. Minimum to open is $2,000. Research includes Institutional Shareholder Services, S&P Stock Reports, and Bob Gabele's Insider Trading Watch.
Pros: No account fees
Cons: $29.95 for a trade; $2,000 to open; $29.95 for a trade; limited research; $29.95 for a trade
Bottom Line: Did I mention $29.95 for a trade? That alone stops me. Throw in the $2,000 minimum to open, limited research, and the lackluster website and I am no way Jose on this one.
Tied at No. 6-7 is Scottrade. Scottrade offers $7.00 stock trades. $500.00 minimum to open with no account fees. Research includes: S&P Reports and Thomson Financial.
Pros: $7.00 trades; many local office locations; no account fees
Cons: $500.00 to open and limited research
Bottom Line: If you want/need to be able to walk in and talk to your broker than Scotttrade is for you, as it has many physical branches nationwide. $7.00 trades are a plus but limited research holds me back.
Pros: $6.95 stock trades, no minimum to open; no account fee
Cons: Only offers S&P reports
Bottom Line: Good pricing on stock trades at $6.95 and no minimum to open get it tied with Scottrade, but very limited research makes it a no go in my book.
No. 4-5 is E*Trade. Etrade offers $12.99 stock trades. The available research includes Reuters Research, S&P Reports, Rochdale Research, Sabrient Systems, Wall Street On Demand, Thomson Financial, and Bank of New York’s Jaywalk Research Reports. For those with large accounts ($100,000+) Credit Suisse Research is also available. You can find the whole list here.
Pros: Wide offering of research providers; no fee IRA accounts
Cons: $12.95 stock trades; $1,000 minimum to open; non-IRA accounts must make at least one trade per quarter or are assessed $40 account charge
Bottom Line: At first glance looks inviting based on the amount of research available, but the $40 account charge on non-IRA accounts and $1,000 minimum to open puts me off. $12.95 for trades is also a negative. Objectively it could be higher, but hey it is my list and I just get the feeling that it is more of a bank with a lot of little fees here and there.
Tied No. 4-5. is Optionsxpress. Optionsxpress offers stock trades for $14.95 with no minimums to open and no account fees. Optionxpress provides free access to Morningstar stock reports.
Pros: Morningstar research; good tools for option traders; no minimum to open, no fees on any account
Cons: Stock trades are $14.95; only offers Morningstar stock research
Bottom Line: No hidden fees at all is a big plus as is no minimum to open, but $14.95 for stock trades is a negative (if the trade cost was under $10 I would have put them at No. 3). While it is limited in research to Morningstar Stock Reports it is the only broker to offer access to Morningstar so that gives it a slight edge to E*Trade in my book. Note: For those interested in Health Savings Accounts (HSA) Optionsxpress is one of the very few ways you can actually set up an HAS account and trade normally.
No. 3 is Muriel Seibert. Trades are $14.95. No minimum to open and no account fee except on IRA’s less than $10,000 ($30 per year). Seibert offers the following research: Standard & Poor's Reports, Zacks Research, Reuter’s Multex, ProphetFinance, Validea, MarketEdge®, VectorVest®, Growth Stock Analytics, Lehman Brothers, and Thomson Baseline.
Pros: No minimum to open, wide variety of research
Cons: $14.95 to trade, $30 a year on IRAs less than $10,000
Bottom Line: Good selection of research. $14.95 to trade is a negative as is the $30 per year charge on a IRA. But it offers a wide variety of research with a couple of unique products not offered elsewhere. If there is some specific research provided which is something you are looking for than this may be the choice for you. It gets the nod over E*Trade based on no minimum to open and over Optionsxpress based on the amount of research. If Seibert cut its trade cost and got rid of the $30 IRA account fee it could challenge for the top two spots.
No. 2 is Fidelity. Fidelity has stock trades for $19.95. There is a $2,500 minimum to open but no account fees. Research is extensive: Argus Research, Ativo Research, LLC, Channel Trend, Columbine Capital Services, Decision Economics, Ford Equity Research, Lehman Brothers, Market Edge, Ned Davis Research , Prudential Equity Group, Standard & Poor's Reports and Outlook, Thomas White International, Thomson Financial, and Zacks Research .
Pros: Lots of Research, No account fees, local branches
Cons: Trades are $19.95, $2,500 minimum to open
Bottom Line: While the trade price is high at $19.95, the amount of available research makes Fidelity one to consider. Also, many investors might have a 401(k) here and that may make it easier to keep everything in one spot. The trade cost and large minimum to open kept it out of first place.
The No 1 pick is TDAmeritrade. Stock trades are $9.99. Minimum to open is $1,000 for IRA accounts and $2,000 non-IRA. Research includes : S&P Reports and Outlook, Vickers Stock Research, Thomson’s First Call, The Street.com Ratings, Ford Equity Research, and Thomson’s Market Edge.
Pros: $9.99 stock trades, lots of research, no account fees
Cons: $1,000/$2,000 minimum to open
Bottom Line: TDAmeritrade offers good selection of research and a low trade price. While the minimum to open is a drawback, overall I would say TDAmeritrade deserves consideration and gets a slight nod over Fidelity based on the trade cost.
In the end I like Fidelity for the selection of research and if I based it solely on that I would say that it would be No. 1. But TDAmeritrade is no slouch in research and offers a trade cost half as much as Fidelity’s so it gets the nod as No. 1, but just barely.
Overall, any one of these brokers is a good deal, and my 1-5 are all solid choices. While I have ranked them as a means of separating them relative to each other, they all provide more value than they ask for. That is because anyone of the brokers is offering several hundred dollars worth of research just to open an account, in some cases with no minimum, and at no annual cost. Pretty good bargain for any investor.