Online Broker Reviews 2010

Online brokers are reviewed on a variety of categories every year by Smart Money magazine.  This year’s brokerage reviews came out at the beginning of the summer and the results show that competition is good for you and me.

Brokerage Competition

Competition has gotten extremely hot between all of the online brokerages. The financial crisis took a significant dent out of the number of people looking to invest money — and that naturally affected the companies that investors use. In the past you had two different tiers of brokerages: online discount brokerages and retail brokerages that also had an online presence.

That line is getting more and more blurry. Your retail brokerage firms like Charles Schwab have cut their prices down to compete with the discount brokerage firms. And customer service should, in theory, improve. TradeKing was voted tops in customer service for the speed and quality of their responses. (One firm didn’t even respond to Smart Money’s requests last year — ouch!)

And you’re seeing competition not just in the prices of trades, but in additional services like investment research or banking options like certificates of deposit.

The brokerages are also consistently updating their trading platforms. Better speed, easier to use, and easier access to research are keys. Many of the larger firms are developing or have released smartphone applications (for iPhone and Android) that allow you to manage your investments from anywhere you have a data signal with your cell phone. The report voted Fidelity’s trading tools the best.

The bottom line is good for consumers because increased competition means better products to choose from and lower costs overall.

Brokerage Fees

Trading commissions have dropped significantly but brokers have found other ways to meet their numbers.  So while online trade costs have dropped to as low as $2.50 per trade you’ll want to keep your eye on other fees. (Yes, $2.50 per trade at Just2Trade — targeted toward active traders. By far the lowest trade cost of all the brokerages.)

Fees to avoid:

• Trade confirmation fees (for recieving paper confirmations in the mail)
• Inactivity fees
• Extra charges for advisory services

Investments and Banking Services

If you’re looking for a new brokerage you’ll need to make sure it offers an appropriate number of options for the investments you’re targeting.

Fidelity and Charles Schwab offer the largest number of investments — about 15,000 — but there is a huge difference between the two firms. About half of Fidelity’s investments have a sales charge attached to them while less than 4% of Schwab’s have an associated sales charge. Sales charges are needless costs added to the total cost of your investment and are definitely something you should aim to avoid. Schwab came out ahead in the rankings because of this.

As I mentioned earlier many brokerage firms are also offering banking services. I’m not a huge fan of mixing these services because I have a different set of criteria for what I want in a bank and what I want in an investment provider. But if your investment firm offers competitive interest rates and can meet your banking needs then go for it.

Top Online Brokerages

The survey shows Fidelity coming out on top with 5 stars in all categories (investment products, banking services, trading, research, and customer service). Trade prices have been slashed to $7.95. Just make sure that you check for the sales fees on those mutual funds.

Here’s a list of the other top brokers according to the survey:

• E-Trade ($9.99 trades, 4-star research)
• TD Ameritrade ($9.99 trades)
• Charles Schwab (Advice & research)
• TradeKing – (Best customer service)
• Scottrade – (Quick & easy trades)

Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He's building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, ING Direct, and many others.

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