Saturday, April 03, 2010

Responding to Your Online Queries

Readers sound off on our recent Best Online Brokers ranking.

BARRON’S ANNUAL REVIEW OF ONLINE BROKERS always generates a lot of interesting responses and queries from readers. So below we address at least some of the comments left for us at Barrons.com, as well as various tweets and blog posts that reviewed our review.

What happened to the banking Websites like Wells Trade and Banc of America that were featured in your previous reviews?

We sent out a request for information for this year’s review ("Newest Trading Play: Screen Savings,” March 15) in mid-January, but got no response from these banks, even after several attempts. The review process requires a lot of cooperation from the brokers themselves, including access to a live customer account, making it impossible to review a firm that remains silent. We hope they come back in the future, but it may be a sign of how different the markets for frequent or sophisticated traders/investors and more casual users has become.

Why didn’t you include Folio Investing (http://www.folioinvesting.com) and ShareBuilder (http://www.sharebuilder.com)?

We decided it was better to treat these two firms in a separate story, since their services don’t fit well into our scoring rubric. These sites cater to buy-and-hold investors, and our review favors brokers who provide real-time data and trading capabilities.

Why didn’t you include the clearing firms that these online brokers use, since their failure can be devastating to shareholders?

We actually did collect the data on the clearing firm for each of our online brokers, but we had to cut it out because they’re simply wasn’t room for it.

Is Penson, the clearing outfit for many online brokers, up to the job in light of its thin profit margins, declining revenues and sagging stock price?

Penson services (http://www.penson.com) eight of our surveyed brokers, most of whom cater to very active traders. The firm, which was recently fined by the Financial Industry Regulatory Authority for inadequate anti-money-laundering procedures, services a segment of the online business known for running on razor-thin margins.

According to its clients, Penson offers aggressive pricing and runs highly efficient operations. At least one broker we spoke with plans to move its clearing operations to Penson in the next few months.

“We are very pleased with the services provided from Penson, and feel they are the best solution for our business,” says David Lipsett, president of MB Trading (http://www.mbtrading.com), a client. He notes that Penson has grown in its correspondent network, and is also expanding globally as the firm establishes connections in other countries.

In an e-mail, Penson President and Co-founder Dan Son assured Barron’s the firm’s finances “are sound, with capital well in excess of regulatory requirements in all subsidiaries.” As a public entity, Penson also has access to the capital markets and is highly liquid, he says. Declines in revenues and earnings are attributable to slower industry volumes and lower short-term rates, which affect the spread Penson makes on balances, notes Son. However, the firm’s ability to grow its business and services is a sign it’s “solidly financed,” says Son.

ALTHOUGH WE WEREN’T PROMPTED by a reader query, we’d like to clear up a misunderstanding about TradeStation (http://www.tradestation.com). We said you could test the effects of slippage (the difference between the expected price of a trade, and the price at which it’s actually executed) with its system. Technically, that’s correct, but the function we cited is actually an indicator written to show off the platform’s power. Also, RadarScreen has been around for several years; it was enhanced in 2009.

IT CAME TO OUR ATTENTION DURING our online-broker review that another financial publication had ‘borrowed’ large portions of our survey—a questionnaire in Excel format that is sent to all of the reviewed firms—for an upcoming story of its own. The other publication decided, after the issue was pointed out to them, to delay their story. Imitation may be the sincerest form of flattery, but we appreciate their decision to produce their own set of queries for their own readership.

Posted by twcarey on 04/03 at 05:20 AM
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