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Friday, March 11, 2011

Scoring Rubric for the 2011 Online Broker Review

We put 24 online brokers through a variety of paces.  To participate, each broker filled out an extensive Excel-based survey, and gave us access to a live account.  Several brokers we contacted to take part in the survey, including Vanguard, could not give us a live account, so they are not included in the survey. 

Here is what we went through to rank the brokers this year. 


Trade Experience: Working with a live account, we looked for a real-time quote and executed equity trades during market hours, making market buys and limit sales of a stock or exchange-traded fund. A real-time quote that is displayed without any additional user input (such as typing the symbol into a separate box or hitting a “Quote” button) receives credit here; if the trader has to make a duplicate entry of the ticker symbol to get a quote, the broker got zero.  We looked for a real-time streaming quote that updates automatically.  We checked out the ways a trader is told that an order is executed, such as pop-up notices or an order status screen that is updated when the order fills. 

Following the market buy, we tracked the execution and portfolio reports. We looked for pre-filled order tickets when selling a position, which eliminates possible errors during the closing process. After entering a limit-sale order, we examined the open-order reports and looked at ways to check the progress of the order, as well as ways to adjust the limit price or cancel the order. A key component going forward is the ability to select a tax lot when closing a position. 

We also placed options orders, using options’ order-entry screens when available. We also examined mutual-fund, bond, and (when available) futures, commodities and foreign-exchange order-entry screens. Methods for placing conditional orders, such as one-cancels-another or one-triggers-another, were checked out.
An overall score of 5 in Trade Experience means the order entry-and-execution process flowed easily from one step to the next, with streaming real-time information (including buying power and margin balance) available when needed.

Trading Technology: The availability of price-improvement strategies and smart-order routing technology (which finds the best bid or offer) are necessary to earn a 5 in this category. This year we asked whether a broker’s order routing engine used a spray or sequential engine; spray routing contacts multiple venues simultaneously and are less inclined to execute orders via routes that offer payment for order flow.  Brokers offering price improvement—a sale above the bid price, a buy below the offer—received a fraction of a point depending on the portion of their transactions that benefited.

Top marks were earned by brokers who offered a wide array of order types, including conditional orders, and had spray order routing technology. The ability to place a trade from a graph earned a fraction of a point. In addition, we looked for ways to customize the trading experience, such as setting a default number of shares or contracts, to speed order entry.

Usability: A 5 here means the site or program was easy to use and well-designed, didn’t bog down when moving from screen to screen, and can be tailored to the user’s needs. We looked at how easy it is to get started on the platform or website as a new customer. Constant availability of a trading ticket, and easy access to research and account status data is key. Being able to easily switch from one area of the website or program to another is key here, as are customization options. 

Range of Offerings: We awarded points for the diversity of investments that can be traded online, with partial points given for those that can only be traded offline. Since all the brokers allow long and short stock-trading, as well as single-leg options orders online, we don’t award points for those transactions. We asked brokers how many stocks, on average, their customers can sell short, and awarded up to a half-point based on their answer. Complex options trading, and the availability of mutual funds, bonds, futures, commodities and international trading were also considered. A 5 in this category means you can execute all of these transactions online.

Research Amenities: This category measures the quality and accessibility of research, quotes and charting. We looked for research, news and charting linked to a customer’s portfolio and watch lists; the quality of third-party research and its integration with the rest of the site; and the availability of screeners, with special emphasis on options-strategy screeners. Brokers also won points for offering real-time streaming quotes at no additional cost, powerful charting capabilities, and Level II quotes.  Partial credit was awarded for features that generated an extra fee. 

Portfolio Analysis and Reports: The emphasis here is on clearly laid-out reports, updated in real time, showing current balances, positions and margin status. Portfolio-analysis reports, with links to news and research, as well as extensive transaction history, are most desirable. Tax reporting also falls in this category. Full credit is given for reports that can be created on the broker’s website, with no additional fees or data entry required.  Partial credit is awarded to brokers that populate services such as GainsKeeper and Maxit (tax analysis and reporting programs) for an additional fee. 

Customer Service and Education: We sized up online help such as live-chat capability, user guides and frequently-asked-question files. Offline help was assessed by making calls to customer service, and weighing the brokers’ reports of the average time spent on hold when a customer calls in. We took a look at the education offerings, both online and live. The ability to visit a broker in person, and to access the account via a mobile device, is taken into account here.

Costs: We looked at commissions for stock and options trades and margin interest rates, giving more points for lower costs. We scaled the points awarded so that the lowest costs in the group earned the maximum number of points, with fractions (and occasional zeros) given to the more expensive brokers. Stock and options commissions are the biggest factor here, but mutual-fund and other transaction fees are also considered. A 5 could be earned here by very low stock and mutual-fund commissions, $4 or less for 10 options contracts, margin interest rates below 2%, and no account-maintenance fees. 

Posted by twcarey on 03/11 at 10:17 AM
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Friday, October 22, 2010

TD Ameritrade Launches Free ETFs

The online brokerage giant joins the commission-cutting fray with the largest assortment of funds yet. Also, a Website upgrade from Firstrade.

FINALLY JOINING THE free-trade fray, TD Ameritrade has begun to allow customers to trade about 100 exchange-traded funds without paying commissions. Other big-name brokers rolled out free ETF trades earlier this year, but TD Ameritrade (ticker: AMTD) is offering significantly more funds. The firm didn’t, however, couple the free ETF trades with a general cut in commissions. 

There are other catches, mostly to keep frequent traders from overwhelming the system. You have to hold the ETF for at least 30 days to get the commission waived; otherwise, it’s the usual $9.99 fee for a stock or ETF transaction. As CEO Fred Tomczyk says, “We haven’t lost our minds here.”

The free ETFs are part of the rollout of TD Ameritrade’s ( ETF Market Center, many of whose functions can be used by non-customers. The center is modeled on a similar product for mutual funds. It includes lists of “premier” funds, as well as screeners and other tools. To see the screener’s results, though, you must log into a TD Ameritrade account.

Tomczyk says that TD Ameritrade began participating in the exchange-traded fund market in 2004, when its Amerivest online advisory unit focused on ETF strategies.

The funds that can be traded commission-free were selected by an investment consulting unit of Morningstar and include ETFs from iShares, Vanguard, State Street, PowerShares, and others. In comparison, Schwab’s free ETFs include only 11 of its own funds. Similarly, Vanguard offers 62 Vanguard ETFs for free.

Though late to the table, TD Ameritrade is serving up heftier portions than its rivals. The next course could be interesting.

ALSO A BIT OVERDUE, Firstrade ( has redesigned its Website, which, in our view, had gotten tired in recent years. We were also disappointed that the data displayed were delayed; real-time info is important for making trading decisions.

All that is due to change on Oct. 20, when Firstrade launches an update that highlights speed, user interface, flexibility and customization. We were shown the new platform in early October while it was still in a beta test in a closed environment. It’s a straight browser-based trading application; no need to download applications or launch tools in a separate window.

The landing page you see when you log in is divided into two columns. The left side focuses on the investor’s account and has a drop-down selector so you can switch between accounts quickly. The right column focuses on markets—showing news, quotes and graphs. The columns can be collapsed or expanded, and the various boxes displaying data can be moved around.

At the bottom of every page is a simple order-entry ticket for stocks or single-leg options. On the far right is a box where you can see real-time positions, balances, open orders and executions.

“We wanted to make it convenient for customers to not only place orders, but be able to get quotes and research,” says the Firstrade vice president of business development, C.S. Hsia.

You can customize the columns displayed on the positions page. As you choose column headers and move them around, you can see a preview of the resulting report. The site also features newly designed stock, mutual-fund and ETF screeners.

Firstrade also has added the ability to place conditional orders, such as one-triggers-another and one-cancels-another. Although these features have been available on other sites for years, Hsia says that Firstrade’s conditional orders are stored in its own servers, which means they can be checked with every tick. Some broker sites review them only every minute, which can lead to trades that don’t fit your criteria.

One area still in need of some help is options trading, although the updated options chains are nicely displayed. The order ticket allows you to place only a stock order or a one- or two-legged options order, so the more complicated spreads have to be entered as a series of orders. This is a pretty major shortcoming.

The new platform does take a step into the community area. When an order is executed, you can tweet it or post it to Facebook. You can set your sharing posts to hide the quantity and/or execution price, and you can add a note that includes your rationale. On Facebook, Firstrade shows how many people have shared trades that day, and it can show your friends’ activity.

Commissions remain the same—$6.95 for a stock transaction and $6.95, plus 75 cents per contract for options.

Firstrade has taken a big step in the right direction, but there’s still a ways to go. 

Published in Barron’s, October 18, 2010. 

Posted by twcarey on 10/22 at 01:12 PM
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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 ( 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, 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.

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 ( 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. 

Posted by twcarey on 07/03 at 05:00 PM
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