It is understandable if you are paying less attention to your brokerage account these days, given the current market malaise. But the recent slide in stock and bond prices may rep-resent a “generational investment opportunity,” Ron Baron, a manager of several Baron funds and founder of Baron Capital, recently wrote in a letter to shareholders.
In short, it’s a good time to be active as an investor. But it also pays to be selective in times like these, which makes the services offered by your online broker highly important, whether for you that means plying your brokerage’s tools to sift for hidden gems in the stock bargain bin, finding smart fixed-income strategies or even getting professional investment guidance.
With that in mind, we conducted our annual review of online brokers. This year, we have 10 contenders. Five are large, well-known brokers that cater to all kinds of investors, from novices to active day traders: Charles Schwab, E*Trade, Fidelity, Merrill Edge and TD Ameritrade. Schwab acquired TD Ameritrade in 2020, but the brokerages still work independently, and the firms asked to be reviewed separately, except in the category of advisory services. The remaining five firms are smaller in stature, but each has something to offer: Ally Invest, Firstrade, Interactive Brokers, J.P. Morgan Self-Directed Investing and WellsTrade, the brokerage arm of financial firm Wells Fargo.
Each company answered dozens of questions in seven categories, including commissions and fees; investment choices; advisory services; tools; research; and mobile, which tested the functionality of each firm’s app. We also measured what we call user experience—a general category for how many ways, and how well, a company interacts with its customers. The score in each category was based on information provided to us by the brokerage firms, which we vetted to the best of our abilities.
You’ll no doubt notice the absence of some companies you may be familiar with. To be included in the survey, a firm must offer trading in stocks, exchange-traded funds, mutual funds and individual bonds. Siebert didn’t respond to our invitations. As in previous years, T. Rowe Price, TradeStation and Vanguard declined to participate.
And the Winner Is….
E*Trade won the overall survey, topping the charts in three key categories: mobile, tools and research. But Fidelity was hot on its heels. Schwab came in third this year, and Merrill Edge finished fourth.
Finally, the popularity of small brokerages that focus solely on stocks and ETFs is tough to ignore. For that reason, we conducted a truncated survey of firms that typically don’t qualify for our broader survey—namely, Betterment, M1 Finance, moomoo, Robinhood and SoFi. For more on how those firms fared against each other, see Who Are the Best Small Online Brokers.
Best Brokers for Your Specific Needs
For mutual fund investors: Charles Schwab. The firm offers the widest array of solid, no-transaction-fee funds, and most come with a super-low $100 minimum for initial investments.
For options traders: Firstrade. The firm waives commissions and contract fees on options trades. Other firms typically charge 65 cents per contract. (Ally charges a little less, 50 cents a contract.)
For ESG-focused investors: Interactive Brokers and Merrill Edge. Interactive has an Impact tool that allows clients to sift for stocks that match their environmental, social and governance priorities—gender equality, say, or fair labor. Merrill’s Idea Builder tool provides sustainability-minded investors with a variety of investment suggestions tied to certain ESG ratings from MSCI. The “responsible consumption and production” list includes 439 ideas (top stock performers on that list over the past 12 months include Switch and Resolute Forest Products); the “sustainable cities and communities” list includes 169 ideas (Tenneco and PS Business Parks are among the top performers over the past 12 months). You can also filter for ESG leaders in specific sectors or in specific climate change issues, such as carbon emissions, supply-chain labor standards or corporate behavior.
For margin traders: Interactive Brokers. No other firm beats the interest rate that Interactive Brokers charges on margin accounts—2.33% at last report, no matter the account balance.
For investors who want professional advice: Fidelity, E*Trade and Schwab/TD Ameritrade. Stick with the big guns if you’re thinking of getting advice. That’s because these firms offer multiple tiers of service, from digital advice only to a dedicated adviser.
For crypto buyers: Firstrade and Interactive Brokers. There are exclusive crypto exchanges that offer these services, but if you want to make your traditional investments and crypto purchases in one place, both Firstrade and Interactive Brokers are possibilities.
Low-Cost Brokers (When No One Charges Commissions)
What commissions? A laser focus on low investment fees, together with fierce competition among brokerages to win your business, means it now costs almost nothing to do practically anything at your online broker. That’s a big reason this category accounts for just 10% of the overall score in this brokerage review. That said, several companies stand out here.
We judged the firms on how much they charge, or save you, in three different areas: trading costs (for mutual funds, bonds, options and broker-assisted trades); interest rates on margin accounts, which allow investors to borrow money to purchase shares; and executing stock trades of well-known large companies at the best available price or better.
The overall category winner was Firstrade, with low trading costs that led the field. Unlike the other firms we reviewed, Firstrade charges no commission or contract fee to trade options. It also levies below-average fees for broker-assisted trades of stocks and options, and charges below-average interest rates on margin accounts.
Interactive Brokers shone, too, with the lowest interest rate charges on margin accounts—at last report, 2.3% on balances of less than $100,000. Plus, the firm says that 100% of its trades for stocks in the S&P 500 index are executed at the best quoted market price, called the national best bid and offer price. The NBBO represents the best available “ask” or offering price when you buy securities and the best available “bid” price when you sell. The other brokerage firms we surveyed, by contrast, execute an average of 96% of trades for S&P 500 stocks at the NBBO (that figure excludes data from J.P. Morgan and WellsTrade, because the firms didn’t disclose them).
But on price improvement in particular—which happens when firms improve on the NBBO and execute your trades at even better prices—Schwab and Merrill stood out. Schwab reported that on average it saves $27.68 per order on trades for 1,000 shares of an S&P 500 stock. On a similar trade, Merrill saved its clients an average of $24.60. Merrill also won extra points for executing 99% of its trades for S&P 500 stocks at NBBO or better.
J.P. Morgan and WellsTrade brought up the rear in this category. Their scores were pinched in part because they didn’t disclose trade-execution details, such as price improvement. But Wells and J.P. Morgan don’t accept payment for order flow, which is a plus in our book. Payment for order flow can pose a conflict of interest because it refers to compensation a brokerage receives for funneling trades to a certain firm, called a market maker, to fill your order. (Fidelity and Merrill don’t accept payment for order flow, either.
Online Brokers with the Best Investment Opportunities
Fidelity offers the broadest range of investment opportunities. Whether it’s corporate or municipal bonds, mutual funds available without a transaction fee or access to initial public offerings, the Boston-based financial services firm offered the largest array of investments overall. (This category accounts for 15% of the final score.)
Like last year, firms that offer fractional-share trading—allowing you to buy partial shares of certain stocks and ETFs—stood out. That feature helped Fidelity, Interactive Brokers, E*Trade and Schwab rise to the top in this category. Note that while E*Trade gets credit for offering fractional-share purchases, they’re accessible only through its automatic-investing tool, which allows clients to set up recurring contributions to an investment account from a checking or savings account or a paycheck (more on that later). And a heads up: J.P. Morgan says fractional-share trading is in development.
For mutual fund investors, there’s no better place than Schwab. The firm, through Schwab OneSource, offers the greatest number of funds without a load or transaction fee—4,471 of them—and almost 3,000 boast three-star or better ratings from Morningstar, which means they have average to above-average risk-adjusted annualized returns relative to peer funds. What’s more, the minimum investment required for funds in the firm’s OneSource network—just $100—is less than other firms’ typical requirement.
The ability to trade cryptocurrency was another differentiator. Interactive allows you to trade bitcoin, bitcoin cash, ethereum and litecoin through crypto-brokerage services offered by Paxos Trust Company. Firstrade, which finished in the middle of the pack in this category, uses Apex Crypto to offer its clients access to 41 digital currencies.
Which Online Broker Has the Best Mobile App
The more tasks you can manage using a mobile app, the better. Can you trade stocks, funds, bonds and options? Transfer funds? Pay bills? Does the app let you easily access in-depth research reports about a stock, mutual fund or ETF? Find articles or videos about investing and the markets? These days, many of us are more likely to…
Read More: The Best Online Brokers and Trading Platforms, 2022 | Kiplinger