Weekly business newspaper Barron’s just released their 2015 annual broker survey rankings. Here’s a snippet that helps explain their perspective and readership (emphasis mine):
To pinpoint 2015’s top brokers, we analyzed not just their security, mobility, and social media features but the depth of their investment tools and their trading capabilities. Our primary consideration in judging these 18 firms is how they work for our readers, who are high-net-worth active investors. Customization, especially of reports, is a particular focus, as is the ability to move smoothly from idea generation to a trade ticket.
Their overall winner was again Interactive Brokers, a broker designed for more advanced traders with an extensive feature set, low commissions, and low margin rates. Note that they have a minimum opening balance of $10,000 ($3,000 if age 25 and younger) and a minimum monthly fee of $10 even if you don’t trade at all (waived at $100,000+ equity balance). If you rack up those trades every month, this is the place to be.
Barron’s defines an “occasional trader” as someone who averages 6 stock trades and 2 options trade per month. A “frequent trader” makes 100 stocks trades a month, 100 option trades a month, and carries $30,000 in margin debt. I am not active enough to even be called an “occasional trader”, but I still like having a clean user interface, relatively low commissions, no maintenance fees, and helpful customer service when I need it. Thankfully, Barron’s again ranked the brokers for these folks as well:
Top 5 Brokers for Novice Investors
- TD Ameritrade. Performed well in customer service & education, research tools, and mobile offerings. Improved desktop site and mobile apps integration. Free real-time quotes from NYSE, AMEX, and NASDAQ Level 1 and 2.
- Fidelity
- E-Trade
- Capital One Sharebuilder
- Merrill Edge
Top 5 Brokers for Long-Term Investing
- TD Ameritrade. The only broker to provide a wide range of commission-free ETFs from various providers based on popularity instead of in-house ETFs or paid placement).
- Fidelity
- Charles Schwab
- Merrill Edge
- E-Trade
Top 5 Brokers for In-Person Service
- Scottrade. Scottrade has over 500 physical branches across US, so that when you call you reach a human in that local branch. Free in-person educational seminars are offered as well.
- Merrill Edge
- Charles Schwab
- Fidelity
- TD Ameritrade
I would note that due to their active trader readership, most of Barron’s rankings don’t really consider the benefits of any commission-free ETFs that a broker like Fidelity or TD Ameritrade might offer. Perhaps their “long-term investing” ranking takes this factor into account. Vanguard’s brokerage arm is not included in the review. Also not included are automated brokers like Betterment or Wealthfront and other specialized brokers like Motif Investing.
Newcomer Robinhood and their free trades were mentioned in passing, but basically dismissed with skeptical quotes like “There’s no such thing as a free lunch […] They will make their money one way or another” and “A “free” trade could cost quite a bit if the broker is relying on payment for order flow rather than trying to create price improvement opportunities.” I still think Robinhood will eventually be bought out by one of these big brokers for their mobile-first design and young client base.
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Thanks for the great post, as usual. Any thoughts on vanguard?
Vanguard brokerage is great… if you want to buy Vanguard ETFs with no commission. I opened one up when Vanguard ETFs were much cheaper than their mutual fund versions. That is still the case at times, but if you can reach Admiral shares (lower requirements now than before) the expense ratios are very similar. Vanguard Mutual Fund accounts are separate from Vanguard Brokerage accounts.
I still keep some ETFs due to unrealized capital gains, but my new money just goes into the mutual funds. At Vanguard the mutual funds and ETFs enjoy the same tax-efficiency benefits due to their special structure.
Ive been impressed with the in person support from Scottrade. The couple times I’ve had to go to a branch to do stuff they’ve had no wait and helpful people.
Did they just purposely leave Vanguard brokerage out of their data set?
In past years, Vanguard brokerage has declined to participate in the test. This year Vanguard was not even mentioned in the article (that I saw), so I’m not sure if they just decided to leave them out or if Vanguard declined again.
In my experience, Vanguard really doesn’t promote their brokerage to active traders or even as a separate entity. It is mostly just for buying Vanguard ETFs, or as a feature for Vanguard mutual fund account holders so if they want, they can keep some legacy holdings or do a few trades here and there without leaving the Vanguard family.
I am still hopeful about Robinhood. They will make money on margin interest and cash deposits interest, as well as some other sophisticated methods. “Price improvement opportunities” mentioned in the Barron’s article is overrated. What difference does it make? You are still placing a limit order to buy or sell a stock.
Personally I’ve become quite a fan of TradeKing. Cheesy name (which I actually kind of like), but very low commissions, low requirements to avoid fees, and still with all sorts of tools for analysis and such (if that’s your thing), as well as a generally straightforward layout and presentation. When I recently started messing around with options, they proved to have a nice interface and good rates for that as well.
They don’t have a big name, but they have consistently been a very good balance between features and affordability for me. Actually I suppose in honesty my main criteria has really just been affordability, and other than potentially Robin Hood (which currently has only an iOS interface) or sites for extremely active traders like InteractiveBrokers, I don’t think it gets much cheaper than $4.95 / trade.
Plus they are 3rd party-friendly and in particular support Turbotax for automatic tax reporting, which is HUGE for me, as otherwise my transactions sometimes tended to be limited by not wanting to deal with having to track them for tax purposes. They even have a component which informs you of your tax situation so far in a given year, and allows you to execute trades according to various tax-minimizing strategies.
James, Interactive is $1 per trade. Options are only 50 cents. I think it is cheaper than TradeKing.
Yep, I did mention it in passing since it clearly wins on price for consistently active traders, as you point out. But they also charge you a minimum of $10/month in commissions, which more than cancels out their cheap per-trade cost if you’re like me and typically trade less than twice a month (often zero times). They also pay no interest on cash balances, and have prohibitively high account value requirements for beginning investors. But again, for the seasoned active investor, I’m sure they’re a godsend, as you suggest!
You are right, for someone who doesn’t trade much it would not be beneficial to pay the $10 per month. It’s just you mentioned you started messing around with options, and I thought it would be beneficial if you sell covered calls against your stocks/ETFs. It is like generating your own dividend. I do it on a monthly basis. It just doesn’t make sense to hold stocks/ETFs and not make a little bit of premium by selling covered calls. So, if you do that, the $10 minimum fee would not apply.
I tried IB and ended up closing that account and transferring my positions out. Their commissions and margin rates are great, but I found their user interface to be abysmal. And I would repeatedly get kicked out of their online software at inopportune times and have to log back in again. Maybe they were making changes to their online trading platform and that explains the bugs, but I couldn’t deal with it. The last thing you want when you are trying to trade is to lose the order you are entering and have to log back in. And I honestly don’t trade that much.
Vanguard charges me $2 a stock trade. Their execution is very good. No foreign stocks and their option rates are high. I always get good service and never had a problem with stock splits, buy backs, etc. I would not characterize them as mostly good for ETFs and Vanguard funds. They don’t have much research and their trading platform is relatively simple. But I’m kinda simple minded so works good for me.
Good to get that report, though it may be worth mentioning that the $2/trade commission only applies to accounts with more than $500k in assets. A great many people are not at that point, and will instead be paying $7/trade for a very no frills experience. But heck, if you have >$1 million in assets with Vanguard, then you get FREE trades. I think there are other institutions that will give you good deals like that with large balances, as well.