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SmartMoney’s 2008 Best Discount Brokers

Posted By Jim On 05/29/2008 @ 7:22 am In Investing | 8 Comments

It’s always fun to see discount broker rankings [3]. Last week, I wrote about a little preview to the SmartMoney 2008 Broker Survey [4] in which SmartMoney released some preliminary results from their annual ranking of brokerage firms. SmartMoney has published the full details of their report and I’m sad to say that TradeKing [5] did not retain the top spot they enjoyed the last two years (third place isn’t bad!).

Summary

SmartMoney changed the way they listed their rankings a little this year. Last year, they separated “discount” and “premium” brokers. Compare the tables from 2007 [6] versus the tables from 2008 [7], they went from three (premium, full-service, discount) to one (umm… everything).

Of the 2008 top 5 (they were, in order, E*Trade, Fidelity, TradeKing, TDAmeritrade, Charles Schwab), only TradeKing came from the 2007 Discount Brokers bracket and they took the third spot (so one could argue they are still reigning champs of the Discount Broker conference?), the rest came from premium brokers.

The Winner: E*Trade

E*Trade [8] snagged the top spot this year with nearly five stars across the board. They also shared a nod for the best trading tools with TD Ameritrade and topped the list for best banking services (sharing that one with no other brokerage). When you can offer an interest rate of 3.25% on your holdings and not require thousands and thousands in the bank, it’s no surprise they were given the nod there. I personally enjoy using E*Trade for my stock trading because of this convenient link between the bank and brokerage.

Incidentally, in 2003′s rankings [9], E*Trade scored 9th in the “basic discount broker” category because of their $22.99 a trade commissions. It’s amazing what five years and “listening to feedback” can do for you.

TradeKing: 2007′s #1 Discount Broker

They probably got hosed this year by the rejiggering of categories (they had to update their little award picture!) since they were the only one of the top five to have come from last year’s discount category. Of the top ten, they were the second cheapest to Interactive Brokers (a firm I hadn’t heard of before this year’s survey) by a significant margin (after TradeKing, second cheapest was Firstrade at $6.95, a 40% difference). TradeKing did score a ribbon for best customer service and were the only firm to earn five stars in that category.

Click here to open a TradeKing account today! [5]

The Top 5

Looking strictly at stars, not much separated the top five. While the criteria were not equally weighted, each one scored five stars in at least two categories and a minimum of three stars in each (in fact, only TD Ameritrade had two three-star categories, every other broker had only one).
Here were the concerns (and my comments) about the top five:

  1. E*Trade [10]: None listed, they are so perfect.
  2. Fidelity: Commissions were on the high side, at $10.95, I agree. Though I don’t really consider Fidelity a discount broker (in 2007, they were considered “premium”).
  3. TradeKing [5]: Weaker fund selection, though they were noted for low commissions ($4.95 a trade).
  4. TD Ameritrade: No negatives listed, though they only gained three stars in banking services. Their interest rate on cash of 0.1% was the lowest of all the sixteen listed brokers by far (second lowest was #9 Scottrade at 0.5%)
  5. Charles Schwab: Is Schwab really a discount broker? Commissions run $12.95 a pop, hardly “discount” prices, but they had only three-stars in customer service.

Zecco: 14th of 16th – Ouch!

What about #14 Zecco [11] with their free trades? (they get a lot of blog press) They scored very weakly across the board for each of the five categories (one star in Trading Tools, Research, and Customer Service) though they received special citation for the worst customer service of the bunch. The $0 per trade offer is a compelling offer but if you’re looking for some hand holding, you won’t get it. Tou get what you pay for ($0). If you only need a broker to enter your trade into the market, Zecco is a good deal; if you’ll ever need to talk to someone about anything… you might as well slide up the commission price chain and go with someone like #6 Firstrade ($6.95 a trade) or #3 TradeKing ($4.95 a trade). You shouldn’t be trading so much that much anyway (though Sharebuilder [12], the epitomy of buy and hold, took dead last).

There you have it, another year, another brokerage survey from SmartMoney. If you’re looking for a bank and brokerage in one, I personally recommend E*Trade because they make it easy to link up the two (open up one account and you can open the other within minutes online), which can be a good or a bad thing.

Source: SmartMoney’s Annual Broker Survey [SmartMoney [13]]


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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/smartmoneys-2008-best-discount-brokers.html

[3] broker rankings: http://www.bargaineering.com/articles/best-online-discount-brokers.html

[4] SmartMoney 2008 Broker Survey: http://www.bargaineering.com/articles/smartmoney-2008-broker-survey.html

[5] TradeKing: http://www.bargaineering.com/articles/r/tradeking.php?tag=SM2008BrokerFull

[6] tables from 2007: http://www.smartmoney.com/brokers/index.cfm?story=august2007

[7] tables from 2008: http://www.smartmoney.com/brokers/index.cfm?story=smartmoney-annual-broker-survey-2008&pgnum=4

[8] E*Trade: http://www.bargaineering.com/articles/r/etrade-broker.php?tag=SM2008BrokerFull

[9] 2003′s rankings: http://www.smartmoney.com/brokers/index.cfm?story=2003-basic-table

[10] E*Trade: http://www.bargaineering.com/articles/r/etrade.php?tag=SM2008BrokerFull

[11] Zecco: http://www.bargaineering.com/articles/r/zecco.php?tag=SM2008BrokerFull

[12] Sharebuilder: http://www.bargaineering.com/articles/r/sharebuilder.php?tag=SM2008BrokerFull

[13] SmartMoney: http://www.smartmoney.com/brokers/index.cfm?&pgnum=1

Thank you for reading!