Monday, March 05, 2007

Online Discount Stock Broker Review

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.

Tied at No. 6-7 is Firstrade. Firsttrade offers $6.95 stock trades. No minimum to open and no account activity or IRA fee. S&P Reports are offered.

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 HSA 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.

35 comments:

AJ said...

Hi Steven,
Any opinions on SogoInvest and Zecco?

Thanks,
AJ.

Bullish Jim said...

I complain about Ameritrade from time to time but I have to admit they have an extemely user friendly setup. And the trades are cheap.

John said...

I trade through Fidelity and due to my frequent trades, I get their best rate: $8.00/trade. Their commission depends upon how often a person trades i.e. if you make more than 120 round trip trades (in a rolling 12 month period) you get the $8 rate. Also if you keep $1M or more in your act. you get the $8 rate (does not apply to me - lol). John

Steven said...

AJ: Zecco has no research and Sogo charges for an IRA with no research. So they do not make the cut. But the trade prices for both are great.

Jim: Thanks for the input on Ameritrade. I think I am going to open an ESA for my son when he pops out in May and give Ameritrade a look to see if I like it.

John:

If you make 120 round trips a year that is $960 a year. Depending on your trade size you might want to take a look at Interactive Brokers or MB Trading.

at Interactive a 100 per share trade is $1.00, 500 share is $2.50, 1000 is $5 and 1,600 share is $8. So unless you trade over 1,600 share a pop IB might be better.

You could then leave a little money in Fidelity to keep ity open asnd use whatever you need form them.

Anonymous said...

Good revu and consolidation of info. I have been with Siebert (6 years) and have been pleased. Am searching for options other than Siebert for my 2 "kids" primarily because of the cost per trade ($14 +).

Adam said...

Good Review,

I have read several reviews/opinions on discount brokerages and this seems to rank them based solely on trade price and research. I would be interested to see how customer service/reliability/problems compare between brokerages as well and see where they rank with that aspect.
Also, is the research you seem to speak so highly of worth it? Is the research better than what you can get from yahoo finance, experts columns on msn money, cnn money, or fast money/watching cnbc?

None the less, good straight forward comparison.

Adam

Steven said...

Adam

The utility of the research for a new investor is actually gquite good. Some of the research is from a fundamental point of view, some form a technical, and others mix the two.

For a new investor it is not about the conclusion reached but understanding the process of stock evaluation. The research may or may not reach the right conclusion but for the new investor reading the reports provides a sense of the methods needed to perform analysis.

Adam said...

Steven

My conclusion based on your information would be that it would make sense for a saavy and frugal invesotr to have a fidelity account where one can hold the minimum balance in so you can do all your research there and avoid fees, and also a Zecco account where you can make your trades for free - using your knowledge from fidelity to make trades.

Adam

Anonymous said...

Sogoinvest offers cheap stock trading for as low as $3. It's a good bet.

Asif said...

Steven, another one to consider is Ameritrade IZone at $5 per trade. It does have a minimum $5,000 to open an account but I love the $5 trades. The interface is exactly the same as the regular Ameritrade and it probably uses the same platform to execute the trades. The key limitation is that you only get web based customer service and cannot talk to a live person on the phone.

Jason said...

Thanks for the pointer on OptionsXpress and the HSA. I've been looking for that!
FYI, the partner bank/HSA administrator they use, hsaresourcebank.com, requires only $50 to be maintained in the HSA checking account, and they seem to have very low account maintenance fees. The downside is that the two companies are very separate, so the hsaresourcebank.com woman I talked to had very little information on how funds are transferred between the two entities.

Anonymous said...

AJ said that Sogo charges a fee for IRA accounts but their site says they still don't offer them yet. It lists 'will be available soon'.

If they do offer them, how much is the fee? I couldn't find it.

Did you mean Zecco has the fee? Cause I know they charge $30 per year for IRAs.

If Sogo has been around since mid 06, then why haven't they gotten IRAs up some year and a half later. An interview with the CEO said 1-2 months. lol

Commodities Broker said...

Maybe one day you make s listing for futures brokers and their fees.

Rockon said...

I would be interested to see how customer service/reliability/problems compare between brokerages as well and see where they rank with that aspect.

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Nice reviews thanks, for a side-by-side price comparison of all the Canadian discount brokers you could also check out www.discountbrokers.ca

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