Investor Brain

Saturday, July 17, 2010

A Bank With a Unique Broker Niche

EverBank’s online-brokerage services aren’t cheap, but they include an intriguing way to park cash in nondollar investments.

BANKING GIANTS LIKE Wells Fargo and Bank of America aren’t the only ones offering online-brokerage services. Consider EverBank (http://www.everbank.com), which has been around for a decade, but just made it onto our radar.

Like most banks, the Jacksonville, Fla., lender doesn’t push the envelope on broker technology and pricing. For example, you’ll pay $10 a month for streaming real-time quotes, which are free to customers of most online brokers. However, EverBank does have a few tricks up its sleeve that can make it worthwhile for those interested in foreign currencies or precious metals, two areas that have gained more investor attention amid volatile equity markets.

A recent upgrade added Financial Manager, which is an account-consolidation tool powered by Yodlee. This allows you to view non-EverBank assets and liabilities, providing a more complete balance sheet. Using Yodlee’s secure log-in, customers enter their user IDs and passwords from other financial sites, such as those of brokerages, credit-card firms, and lenders, and the Financial Manager draws a more complete picture.

Says Jane Dulle, a senior vice president at EverBank: “One of our key value propositions is that customers can use our checking and money-market accounts to park their uninvested cash, and get a view of what’s going on with all their accounts at once.”

WORLD MARKETS IS EVERBANK’S specialty-business line, allowing clients to hold foreign currencies at relatively low minimums, as well as foreign-denominated money-market accounts. There are approximately 20 currencies available for money-market accounts, along with certificates of deposit (CDs). The bank also creates and sells index CDs that are set up along themes, such as petroleum countries or emerging markets.

EverBank also permits customers to hold gold or silver through its World Markets offering. You can buy “allocated” or “unallocated” metals. Allocated metals are owned directly by the investor, in the form of coins or bars held in custody by the bank. Unallocated metals aren’t owned directly by the purchaser, but have lower minimums and no storage fees.

Dulle says most of EverBank’s brokerage customers started out with a bank account, then opened a brokerage account for the convenience and the international products. Opening an additional account once your first one is in place requires only the filling in of a few fields. It takes just a few seconds.

One caveat: The bank’s brokerage fees are higher than average, especially after all the discounting throughout the industry earlier this year.

Domestic stock transactions are $10 per trade for up to 2,000 shares. Larger trades run an additional one cent per share. Options fees are also high–a base rate of $14.95 for online transactions, plus $1 to $1.50 per contract. Mutual funds can be purchased only with the help of a live broker, for $25 per trade.

Would I move all of my accounts here? I doubt it. This isn’t a site that will be useful for an active trader, especially one interested in options. I find the World Markets offerings intriguing, however, as a place to park excess cash in non-dollar investments.

The bank’s account-consolidation feature can be helpful, as well. I’ve been testing Mint (http://www.mint.com) for a couple of months and have some quibbles with the way it presents its reports. EverBank’s Financial Manager is more easily customized. 

Published in Barron’s, July 12, 2010

Saturday, July 03, 2010

Merrill Plays Defense Online

The big brokerage firm upgrades Bank of America system and tries to hold on to electronic trading clients.

MERRILL LYNCH WHICH WAS ACQUIRED by Bank of America in early 2009, is putting its stamp on the banking giant’s online brokerage. 

Merrill Edge (http://www.merrilledge.com) opened its virtual doors on June 21, and essentially replaces BofA’s existing online offering. The plan to convert the bank’s online brokerage to Merrill Edge was announced in late February. (If you try going into BofA’s brokerage via http://www.bankofamerica.com/investing, you’re now redirected to the Merrill Edge site.)

During the site’s introduction in February, Sally Krawcheck BofA’s head of wealth management, said that it would be aimed at “those clients who today have ‘play money’ at one of the online brokers.” The “play-money” concept was certainly true in the late 1990s, but today, online brokers such as Fidelity and Charles Schwab, can snatch entire accounts from full-service brokers. That trend accelerated in late 2008, amid the credit crisis.

Merrill Edge appears to be an attempt to hang on to those full-service clients, who may trade online elsewhere. However, the service will only be extended to Merrill customers on request. BofA brokerage clients have been automatically converted to Merrill Edge.

The main benefit for BofA (ticker: BAC) clients is online access to some Merrill research. Otherwise, the site doesn’t offer much that’s new beyond the rebranding and a fresh coat of paint. Merrill Edge boasts on the site that it already has 1.16 million customers with $48 billion in assets, which averages out to $41,400 per customer. That’s less than the December 2009 average that E*Trade and Schwab reported for our annual online broker review; it’s slightly more than TDAmeritrade.

Merrill Edge extends BofA’s “free” trades (30 per month) for customers with more than $25,000 in assets. Those who don’t qualify, or who trade more than 30 times per month, will be subject to fees that vary with account size. The price breaks start with accounts of $250,000 and up. Commissions for online trading range from $4.95 to $8.95 per stock trade. Broker-assisted trades are $50 to $75 for stocks and exchange-traded funds. Margin rates are currently 7.5% for a $50,000 debit balance.

COST-BASIS REPORTING BEGINS soon. Starting with stock purchased in 2011, your broker will be required to report the cost basis—as well as the proceeds—of your closed positions to the Internal Revenue Service. The main purpose is to cut down on underpayment of capital-gains taxes. While the IRS will, presumably, collect more from taxpayers who are forced to be honest, financial-services firms are investing large amounts of money to try to provide accurate reports.

Cameron Routh, senior vice president of Scivantage, the publisher of performance-reporting system Maxit, says the main problem for retail investors will be collating transactions made at several different brokers. Routh says that the average number of online-brokerage accounts per trader is 2½, which means that most investors will be dealing with reports from several brokers.

One related trouble spot is wash sales. A wash sale occurs when shares of a particular security are sold at a loss and a substantially identical security is purchased within 30 days. It doesn’t matter whether the sale or purchase happens first, so long as there’s a 61-day window.

Let’s say you sell a stock from your E*Trade account on June 1, then buy a “substantially identical” one in your TD Ameritrade account on June 10. The IRS doesn’t care where the transactions took place. Under the law, you must report the wash sale accurately when you prepare your Schedule D. We’ll be checking tax programs to make sure they can handle transactions done in different venues.

NEW TOOLS: ZECCO (http://www.zecco.com) recently rolled out its Zap Trade tool, which lets you have an open Zecco order ticket while you peruse other financial sites. Zap Trade is a browser plug-in. It currently works only with Firefox, although Zecco plans to introduce versions for other popular browsers.

Zap Trade scans and prefills an order ticket, while you browse compatible financial and investing Websites. It works with Bloomberg, CNN Money, Google Finance, Yahoo! Finance, MSN Money, Reuters, MarketWatch, the Motley Fool, and The Street. It’s also active in the public-research areas of E*Trade, Scottrade, and TD Ameritrade.

You can trade stocks and ETFs with Zap Trade. Trades of mutual funds, options, and other products haven’t yet been enabled. Zecco’s usual commissions apply, although use of the plug-in is free. 

Published in Barron’s, June 28, 2010. 

Saturday, June 19, 2010

More Brokers Join Price-Cutting

It’s usually a good thing when an online brokerage gives its customers what they have asked for, especially when it comes to pricing.

In the latest case, Interactive Brokers (http://www.interactivebrokers.com) says it cut fees based on the buzz on its bulletin boards. Andrew Wilkinson, director of media communications, said he had “picked up on the thoughts of a customer wondering why IB’s futures commissions were as high as they were.” He passed the note on to the firm’s CEO, Thomas Peterffy, who subsequently cut IB’s commissions for U.S.-based futures and futures-options trading.

As a result, the two new fee plans for futures trading at IB include bundled, which cover all exchange and regulatory fees, and unbundled, a kind of à la carte menu in which fees are added to the basic transaction cost. Exchange and regulatory fees, as you would expect, depend on the trader’s membership status at the exchange where the trade occurs and the country in which it takes place. The array of fees can be bewildering, though a savvy trader who understands the details of the products can save money by choosing the unbundled plan.

The bundled commissions, as of mid-April, are 85 cents per contract, a significant decrease from the previous $1.24 to $3.75 per contract that IB reported for the Barron’s online-broker review in March. For those who would rather figure out the additional fees on their own, the volume-tiered unbundled plan now costs 25 cents to 85 cents per contract plus exchange, regulatory and carrying fees. Previously, the top commission was $1.25 per contract. Four price tiers based on monthly trading volume are available. Full details can be found at http://www.interactivebrokers.com/en/p.php?f=commission&p=f&p2=futures3#e; click on the “US Exchanges” tab.

Wilkinson says the tiered pricing structure for foreign futures and futures options has been simplified; it still looks fairly complex to me. Though I’m generally against tiered pricing structures, I understand that these prices are dictated by the exchanges rather than by IB’s policy. IB clients can trade equity, foreign exchange, fixed income, energy, metals and other commodities futures and futures options worldwide from a single account.

IB isn’t alone in attacking prices. Schwab, E*Trade and Fidelity have already reduced their trading costs. And now ING Direct’s ShareBuilder (http://www.sharebuilder.com) is cutting fees for real-time transactions for its Advantage customers, who pay a monthly subscription, to $7.95 from $9.95. ShareBuilder is designed to encourage regular investments; Advantage clients subscribe to the site’s services for $12 per month, which entitles them to make as many as 12 stock purchases in specific dollar amounts every month. For instance, you could set up a program in which you buy $100 of Apple (ticker: AAPL) stock every week, plus $250 of a favorite exchange-traded fund monthly. When you want to sell stock, you place a real-time trade.

ShareBuilder also has a pay-as-you-go pricing plan, Basic. Under this program, you pay $4 for each automatic investment and $9.95 for each real-time trade. The site offers a one-month free trial of the Advantage program to new customers. The firm eliminated a third pricing tier, and for that, hooray.

New tools of the trade: TD Ameritrade (http://www.tdameritrade.com) clients who use the platform of its thinkorswim unit can now access an innovative trading simulator called thinkOnDemand. ThinkOnDemand lets investors replay a trade with tick-by-tick data, allowing them to review the conditions at the time of the transaction in slow motion.

The thinkorswim system from the TD Ameritrade trading platform enables thinkOnDemand to paper-trade stocks, futures, foreign exchange and options. Traders can select any date from the previous four months and replay, fast-forward and pause the archived market data. You can enter simulated trades and see the hypothetical results. It’s an extraordinary learning tool integrated with the live trading platform; we raved about its inclusion in the thinkorswim platform back in March.

TD Ameritrade clients who use the thinkorswim platform also have access to several other new tools, including Gadget 360, which displays complex options data in graphical form, the Market Cast squawk box with live discussion of market conditions, and additional charting, analytics, alerts and news.

Published in Barron’s, June 14, 2010.