Yearly Review of Stock Brokers
2012 Online Broker Review
Blain Reinkensmeyer on
February 21st, 2012
Trends play a vital role in every market, especially the stock market. As investors pile into mutual funds and Apple (AAPL) stock here early in 2012, the trend is clearly up. The S&P 500 has gone more than 30 days now without one -1% session, and Apple stock has soared to trade for more than $500 per share. Ignore the trend and your portfolio misses out on what could be a golden opportunity to make money.
In the world of online brokers, similar trends can be seen each year. Whether it is account security (think 2005 with ETRADE's digital security key fobs and TradeKing's 2006 launch of a virtual log-in keyboard), lower commissions (the rise of Zecco and OptionsHouse, among others), or most recently the movement of supporting trader communities and collective sentiment research. Here in 2012, there is a new trend in play, one that has come about because of new technologies and tough competition. The battlefield is the overall client experience.
Since last year's StockBrokers.com 2011 broker review, we have seen strong efforts made to beef up the client experience in one key way: by building out web-based platforms. These platforms are designed to require no desktop download, run fast without any delay, and require little to no support to operate. The key aspect then becomes ease-of-use for investors of all experience levels and ages. Being able to easily access the information they need, fill out a trade ticket, and, ultimately, place a trade quickly is critical to on-the-go lifestyles.
Several brokers have already made great strides in this area. Heading into 2012, OptionsHouse and TD Ameritrade stand out, as they both lead the pack in two distinct ways. This year, OptionsHouse 2.0 impressed us with its ultra-efficient trade ticket and order management, making the broker the only one to score 5 stars in both “Commissions & Fees” and “Ease-of-Use.” On the other side of the table, TD Ameritrade's Trade Architect is a beautiful work of art. We were in awe of how seamlessly we navigated between screens and the collection of tools built in. This earned the platform the title of Best Web-Based Platform 2012.
Beyond web-based platforms and ease-of-use, the offerings provided by the 24 online brokers we tested during a three-month period are widely diverse. Depth of research is still as important as ever, quality customer service remains at the heart of many clients, and discounted trades with quality executions are required to win over the active trader's heart. The list goes on and on.
As a result, we designed our ratings this year to hone in on the best all-around broker to crown as our 2012 champion. We broke up “Tools & Research” into two separate categories: “Platforms & Tools” and “Research.” We also updated our category weightings, so that they are all spread evenly across the board. The eight categories and their weightings we graded include: “Commissions & Fees” (15%), “Ease-of-Use” (15%), “Platforms & Tools” (15%), “Research” (15%), “Customer Service” (15%), “Offering of Investments” (15%), “Education” (5%), and “Mobile Trading” (5%).
While an all-around broker can make investing a great experience, it is also important to know that every investor, in the end, has different focuses. For example, mutual fund research may be important to an investor planning his or her retirement, but it means little to the professional day trader placing hundreds of trades or more each month. That is precisely why the StockBrokers.com review is constructed to break down these various niche areas and highlight aspects of the many fantastic brokerages that otherwise would not be discovered.
Several hundred hours have gone into this review in order to provide the highest quality research on the 24 online brokers we covered. Our review is the only one that does not require any of the brokers to fill out extensive and time consuming Q&A “informational” packets. Furthermore, all research and testing is done by our team without the awareness of any brokerage. It is truly an annual review done by traders, for traders. We thank you in advance for reading and appreciate your support. Here's to all investors and our success in 2012.
Co-Founder & CEO
Table of Contents
Commissions & Fees
The battleground for the lowest cost broker is full of fierce competitors. Online brokers who compete for low-cost trades are most often designed specifically for providing their clients simply that. However, not all brokers come clean in this segment. To offset other costs of running their brokerages, some brokers tack on hidden fees and costs that require some digging to uncover.
The winner this year was Lightspeed, which offers two commission plans: one designed for professional traders seeking direct access, and the other for regular investors. Using the Lightspeed Web Trader platform, commissions are just $3 per trade up to 50,000 shares in order size. Experienced investors go with Lightspeed Trader, paying $.0045 per share or $4.50 per trade flat ($1 minimum ticket charge) plus/minus applicable market center fees. Our last year's winner, OptionsHouse, still earned strong points for its easy-to-understand discounted trade structure, but narrowly missed the No. 1 spot because of its new base rate of $3.95 per trade (up from $2.95).
Other Best in Class winners included Interactive Brokers, Just2Trade, and TradeKing. Interactive Brokers, for example, is a powerhouse broker built for active investors and professional institutions. Requiring a $10,000 minimum deposit (the highest among brokers we tested), Interactive Brokers charges just $.005 per share for standard U.S. stock trades, with a minimum of $1 and a maximum of .5% of trade value. What wasn't appealing, though, was the $10 monthly minimum commission spend and the $10 monthly real-time quote fee. To avoid both fees, a minimum of $30 in commissions must be spent each month.
One broker who didn't make the cut for a Best in Class finish but that does offer discounted trading is auto investments broker ShareBuilder. ShareBuilder offers automatic trades under its Basic plan for $4 ($2 with a recent Costco promotion) or Advantage Program clients paying $12 per month get 12 free automatic trades with the rest costing $1 thereafter. Regular stock trades under the Basic plan cost $9.95 each. The one major caveat is that all automatic trades are made on Tuesdays by ShareBuilder, making them easy targets for manipulation by professionals. One long-time ShareBuilder client we spoke with gave us the best advice as far as costs go, saying the key is sticking solely with the automatic investing.
On the high end, Muriel Siebert, once again, took the crown this year, blowing us away with their ridiculously high commissions structure. Regular stock trades cost $14.95 per trade when trading less than 1,000 shares, and $14.95 + $.015 per share otherwise. Options trades are even worse, as there is a $30-plus minimum charge, and contracts can cost as much as $2 each. Ouch.
How we scored: Broker commission rates and fees are recorded, analyzed, and compared. This includes costs for placing stocks, options, ETFs, and mutual fund trades. Furthermore, commission rates for advanced orders types, pre- and post-hours, stocks less than $1, and option exercises and assignment, among others, also are analyzed. On the fees side, we look to see if brokers charge fees for inactivity, low balances, account types like IRAs, or for platforms and data. Brokers that offer flat commission structures and easy-to-understand fees earned extra points in this category.
In the category of Ease-of-Use, larger online brokers - while offering a greater selection of research, trade tools, and overall content - surprisingly, had some of the smoothest websites and platforms. Where smaller brokers have an advantage with less overall content, larger brokers have the advantage of highly skilled web developers and user experience managers. Our Best in Class finishers this year include ShareBuilder, OptionsHouse, ETRADE, TD Ameritrade, and Scottrade.
ShareBuilder's clean and modern website made navigation simple and performing research a breeze. ShareBuilder understands its clientele is mostly independent investors managing their own retirement accounts who want automatic investments. We found setting up an automatic investment plan to be pain-free and an enjoyable process. Managing any portfolio thereafter is also straight-forward, which includes monitoring any account on the go through a variety of mobile apps.
OptionsHouse, with all account activity and portfolio management taking place in its browser-only trade platform, also caters to its client base very well. The order ticket is always accessible and is unique in that both stocks and options trades are placed as legs. This makes placing trades on the fly quick and efficient.
One feature we really enjoyed brokers offering was a customizable homepage. Customizable homepages allow clients to organize everything they see when they first log in. ETRADE 360, for example, was in Beta at the time we were testing with nine different widgets to choose from. All widgets have drag-and-drop functionality and went beyond basic text to include individually unique designs and really clean data. More than half a dozen brokers offered some form of a customizable homepage, but some were definitely better than others.
Among the 24 brokers we tested, Vanguard and Muriel Siebert shared the lowest scores in this category. With outdated website designs, confusing site navigation, poor layout of content, and a lack of any quality quick access tools or functionality, these brokers were the runts of the test field.
How we scored: When analyzing each online broker's ease-of-use, we assessed how simple it was to perform basic tasks such as obtaining a quote, checking our account balance, transferring funds, accessing customer support, navigating through research, or placing a trade. Ease-of-use also applies to the overall cleanness of design and the learning curve required to utilize all offered platforms and tools. Extra points were awarded for brokers who provided customizable homepages, web-based platforms for clients, site-wide one-click quote and trade ticket access, and user-friendly mobile apps.
Platforms & Tools
While almost every online broker offers a stand-alone trade platform - whether it be web or desktop based - putting together a winning product is no easy feat. Our hats go off to all of the engineering and coding teams who dedicate their working days to producing and maintaining a winning formula for their clients. As the industry as a whole really begins to see the value in a truly powerful platform offering, the stakes have never been higher.
That is why when you take a close look at this year's winner, TD Ameritrade, and their platform offerings, it is easy to see why they came out on top. TD Ameritrade offers two platforms for its clients: Trade Architect (web-based) and thinkorswim by TD Ameritrade (desktop-based). Both platforms won awards this year: Best Web-Based Platform and Best Platform Overall, respectively.
Trade Architect, built for its main client base, has more bells and whistles than most of its competitors' flagship platforms and executes with precision. The built-in real-time quote streamer, for example, was the cleanest and most advanced of any of the platforms we tested. It includes not only streaming quotes but quote trends, trade trends, a relative range indicator, and a 52-week range bar to easily identify how close the stock is to its 52-week high. The layout is completely customizable and is drag-and-drop friendly. The platform also offers CNBC Live TV, heat mapping, advanced charting, time & sales, and level II quotes, among other features.
Its desktop counterpart, thinkorswim by TD Ameritrade, caters to the broker's active and more advanced clients. Originally operated as a standalone broker, thinkorswim was built around providing a tier one user experience for active traders. Since being acquired by TD Ameritrade in early 2009, thinkorswim by TD Ameritrade has only grown to become more advanced and offer a wider array of tools. For our testing, we ran 12 charts at once in a 4x3 grid with streaming news and real-time sales rolling through. Several hundred different technical studies can be analyzed on stock charts, all trade types are supported (stocks, options, ETFs, futures, and forex), and a variety of professional tools are offered like thinkOnDemand, Trade Prophet, and Widget 360.
Other Best in Class finishers, TradeStation and ETRADE, stood out for their own platforms and tools. TradeStation offers the most advanced platform technology of any of the online brokers we tested and includes a plethora of customizable tools. The broker even has its own developer network, the TradeStation Strategy Network, where developers can offer platform plugins for either free or a fee. ETRADE's active trader platform, ETRADE Pro, is best known for its clean design, flexible layout, and snap grid functionality. During testing, our favorite tool quickly became the real-time Strategy Scanner, which was easy to customize and produced dozens of trade possibilities on the fly.
How we scored: For this category, both web-based and desktop-based platforms were graded, not only for the depth of their tools but also the overall quality. Real-time quotes, real-time streaming watch lists, charting capabilities (overall cleanness, number of studies supported, advanced functionality, etc.), screeners (depth of screen-able criteria alongside trade types included), trade tickets, options analysis tools (risk analysis, trade assessment, strategy builders), tax tools, trade alerts, and news coverage were all factored into each score. Extra points were awarded for the availability of advanced tools and functionality such as back testing, real-time trade-idea screening, built-in live TV, earnings calendars, level II quotes, and real-time streaming sales, among others. Lastly, overall speed, usability, and functionality were assessed.
Active traders are a niche group of investors that demand the absolute best from their broker in the areas that are most important to them. Some traders swear by their platform, claiming it and only it is the key to their success, while others strictly care about how their order is being routed and executed. For the average investor, clicking “buy” and seeing their shares show up on their portfolio page is a fulfilling experience in itself. However, for professional traders, every penny paid over their designated target entry can completely change the dynamics of the trade. It is a critical part of success.
For online brokers, these niche clients are all very important assets, as professional day traders can place hundreds of trades a month and spend thousands in commissions without blinking an eye. Furthermore, the number of good traders who remain in the game year after year and have a successful career is few and far between. Thus, keeping clients happy and away from the competition is the key to success. When we performed our testing and determined our Best in Class group, we chose the brokers who hone in on one specific area and execute with precision.
Interactive Brokers is known for its lightning fast executions and steeply discounted commissions. The broker offers every trade type imaginable and access to more than 100 different market exchanges in 19 countries. Stocks, options, futures, forex, bonds, and more: Interactive Brokers supports them all, earning it the title of Best Broker for International Trading this year. Competitor TradeStation, on the other hand, makes itself known with its advanced platform supporting auto trading and endless customizations. It's the only broker that offers its own coding language, EasyLanguage, so programmers can tweak any tools to suit their own personal needs.
Then there is TD Ameritrade, which has the most expensive commissions of all the brokers in this elite group, but whose clients don't mind paying extra for the arsenal of professional tools and advanced charting available to them. Options traders, for example, can take advantage of the Spread Hacker and Spread Book tools to help find thousands of different possible butterfly, calendar, and vertical spreads. Order entry is also a breeze, whether it be a multi-leg options trade or trading the EUR/USD spread.
MB Trading provides its clients with several platforms, low commissions, good executions, and, like Interactive Brokers, does not focus on just equities. Its specialty is in the forex market where its Electronic Xrossing Network (EXN), known as MBTFX, delivers unmatched execution for forex traders. Their forex kickback plan, which rewards clients for using limit orders, has already generated more than $800,000 in cash back for its users. This unique trading experience won the broker our overall title in the 2011 Forex Broker Review last fall.
Lastly, you have Lightspeed, which concedes a tool-rich platform in favor of providing its clients with the most accurate data feeds and executions at a low price. Lightspeed even goes beyond the active trader realm with its prime brokerage services. Familiar with black box trading? Well, Lightspeed is a provider that makes this possible for institutional clients.
Each one of these online brokers scored four or five stars in customer service. To round out their niche offerings, they all have highly trained sales teams, many of whom are traders themselves. We found talking to these reps to be some of the most rewarding conversations for us. All of them were very easy to speak to and knew their own strengths, as well as their competitors' weaknesses, by heart. They are passionate about the market alongside their firms. In the end, with such a quality selection of choices available for active traders today, selecting a final home for any portfolio is no doubt a difficult task.
How we scored: Active trading comes down to quality trade executions, ultra-competitive commissions, a powerful platform, and raw speed. Desktop-based platforms, direct access trading capabilities, per-share commission fees, execution routing technology, and order management were the key focus areas in assessing this category.
Conducting research doesn't mean just pulling up a basic quote and seeing what the current price for a favorite stock is. Investors want access to third-party research reports from the likes of Standard & Poor's, Credit Suisse, or compiled analysis from ResearchTeam, to name a few. Viewing all of the company's fundamental data and seeing detailed earnings data is important as well. Bottom line: An online broker that provides great research for its clients gives them much more than what can be found for free on Yahoo Finance or Google Finance.
That is why when it comes to research, bigger is better. In this category, the large, established, well-known brokerages almost always offer the best access to research. When we finished taking a look at all 24 brokers this year, it was no surprise which names came out Best in Class: Charles Schwab, TD Ameritrade, ETRADE, Fidelity, and OptionsXpress.
While all of our Best in Class winners offer a vast selection of data, third-party research reports, earnings analysis, peer comparisons, and the like, Schwab separates itself by offering its own in-house professional commentary and research. Schwab clients have access to professional commentary and analysis from in-house experts like Liz Ann Sonders. Furthermore, Schwab's own Equity Ratings score 3,000 different securities A-F on four separate components: fundamentals, valuation, momentum, and risk. Not to be outdone, Fidelity displays an Equity Summary Score - a consolidated view of 10 or more third-party research providers - of 1 to 10 (10 being the most bullish) in its research center for individual equities.
One of the more unique features came from OptionsXpress, which displayed company logos with quote results - a nice touch. With their main provider of research data being Zacks, fundamental data was thorough and even included a detailed breakdown of top executives throughout the company and their compensation plans. Perhaps our most favorite feature, though, came from ETRADE with its inclusion of Trefis price analysis. Trefis is a newer, third-party research company that helps investors visually see how company products make up the total stock price. For example, according to Trefis, Apple's iPhone line makes up 52.4% of the total stock price value.
One distinct pattern we did notice while exploring these Best in Class broker offerings was that, when it came to mutual funds research, Morningstar was the third-party provider of choice. All five brokers had Morningstar data, covering everything from current and historical performance, to asset allocations, overall ratings, fees data, and more. With Morningstar being the leader in the space of fund research through its own independent website, we feel all of these online brokers made a great choice for this investment type.
How we scored: To receive the best possible score for this category, brokers have to provide their clients with a deep variety of both fundamental and technical data. Along with the overall market, the investment types we focused on for research were stocks, options, ETFs, and mutual funds. Third-party research and reports, industry analysis, earnings analysis, and peer comparisons are just a sampling of what we looked for and assessed. The better the quality and depth of research, the higher the score.
While clients don't always take advantage of customer service, when they do, having a fast, easy, professional, and friendly experience goes a long way. Tony Hsieh, CEO of Zappos.com, has proven that customer service wins lifelong customers. And in the world of online brokerages, quality customer service is even more critical as clients have their nest eggs and financial futures at risk each day.
During our testing, we had a wide variety of encounters, both very positive and poor, to say the least. Our overall winner this year, TradeKing, was the most consistent across the board. Whether we reached out via email, phone, or live chat, the experience was always of the highest quality and overall enjoyable. In fact, TradeKing was tied with Cobra Trading for the quickest email response time, responding to our client questions in a blazing fast three minutes. ChoiceTrade failed to even reply to our test emails this year. For those that did reply, the longest response time was SpeedTrader, which took just under 15 days (14 days, 23 hours, and 49 minutes to be exact) to get back to us.
When talking to support reps via phone, on the whole we were impressed and saw an improvement in ratings across the board over last year's review. 17 of the 24 brokers had connection times (after making the appropriate selections to speak with a representative) of one minute or less during market hours. Representatives were friendly and patient as we asked, in some cases, up to four or five questions. During testing one Friday, for example, Merrill Edge's rep had no trouble answering our questions and concluded the call with an enthusiastic: “Thank you for choosing Merrill Edge - have a great weekend!” Those are the kind of calls we loved.
On the flip side, however, not all phone experiences were great. For example, once we finally reached a Vanguard representative and asked a simple question about commissions, the rep couldn't find the fees page so we had to guide them ourselves (Vanguard's website received only one star for ease-of-use) to explain what we were talking about. Our follow-up question thereafter prompted us to be transferred to a different brokerage rep, and after being put back on hold and waiting several more minutes, we simply couldn't take it anymore and disconnected.
The longest wait time and oddest overall support experience came with discount broker SogoTrade, whose phone bot informed us every 30 seconds of where we were in line. Starting at caller No. 3 in the queue, we slowly moved up to caller No. 1, the “next caller.” However, something strange happened, as 30 seconds later the phone bot informed us that we were back to being caller No. 2. Adding insult to injury, after moving up to caller No. 1, it happened again! In the end, it took us 12 minutes to get connected to a representative, who, luckily, was friendly and answered our questions with little trouble.
Focusing back on the positive highlights, Scottrade, which won our title for Best Overall Client Experience, offered the most personal customer service out of any of the brokers. Something only done by Scottrade, calling the support phone number on the website during market hours prompts you for your zip code then redirects you automatically to your local branch office. Our local branch was quick to pick up, had answers to all of our questions, and knew the Scottrade website like the back of their hands to guide us to the information we were looking for.
Other highlights this year included TD Ameritrade's live chat support through thinkorswim, which had us feeling like royalty. Within seconds of joining a new support chat, we were instantly connected with two support reps (one kindly left). For brokers that promoted 24/7 support, we purposely tried random days and times to see if we could catch them off guard. Schwab impressed us when we called in at 8 PM on a Sunday and a rep connected immediately, delivering a textbook five-star experience.
How we scored: Brokers were assessed on the quality and availability of all customer service options provided, including phone, email, and live chat. Help areas and site FAQs were also assessed for thoroughness. Response and connect times were recorded for each communication. Testing times were randomized and, on average, two to three questions were asked each occurrence. Extra points were awarded for friendliness and for support reps who displayed an overall positive and/or enthusiastic attitude.
How we scored: Brokers were assessed in eight different categories with the following weightings: “Commissions & Fees” (15%), “Ease-of-Use” (15%), “Platforms & Tools” (15%), “Research” (15%), “Customer Service” (15%), “Offering of Investments” (15%), “Education” (5%), and “Mobile Trading” (5%). It is important to note that behind each category star rating is a numerical score, so while some brokers may have similar star ratings, total points earned for that category likely vary. With all of the category weighted scores calculated, a formula is then applied to determine the overall star rating.
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