Consumer Reports America’s Best Brokers

On The Money, the personal finance show on CNBC hosted by Carmen Wong Ulrich, recently had a little web extra spotlighting Consumer Report’s list of best brokers. In their brief piece, they talked about the top three: USAA Brokerage Services, Vanguard, and Edward Jones.

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Which is the Best Broker for an IRA?

Retirement Nest EggsOne of the most frequent questions I get is “Where should I open an IRA?”

Short answer: Anywhere, just open one! If you want mutual funds, open an account with the company that offers the funds you want, like Vanguard, Fidelity, etc; because they will let you buy and sell the funds for free. If you want stocks, open an account with a company that offers the lowest fees.

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Zecco’s New Commission Plan: $25,000 Balance Required Free Trades

Zecco just sent out a message to their account holders – Starting March 1st, to qualify for 10 free stock trades per month, you need to have an account balance of $25,000 or more. This is a ten-fold increase from their prior requirement of $2,500, which was itself an infinite increase from their initial offer of unlimited free trades. Another way to get ten free stock trades is to have 25 or more total trades a month, which cost $4.50 a trade.

When your balance gets above $25,000, you immediately get ten free trades you can use until the end of the month. Should your balance fall under $25,000, then you still retain your ten free trades until the rest of the month. With the 25 trades qualification, once you make 25 trades, you get ten free until the end of the month. That next month, you get ten free trades to start and need only 15 more to retain the ten free trade status for the following month.

Zero Cost Commissions, the meaning being Zecco, is slowly losing its meaning. It used to to be unlimited free trades. Then it was lowered to ten free trades if you had a $2,500 balance. Now it’s ten free trades if you have a $25,000 balance or if you make 25 trades ($112.50 in commissions). If all things were equal, I’d say that Zecco gave a pretty good offer, but things aren’t equal. Zecco has consistently been rated as worst in customer service! Smart Money’s 2008 Best Discount Broker survey rated Zecco 14th out of 16 and there are a slew of negative comments about Zecco’s customer service. This is amazing considering TradeKing, rated amongst the best discount brokers, has had stellar reviews and they charge only 45 cents more per trade, only $4.95 a trade.

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 Personal Finance 

Winners of the 2008 Recession & Credit Crisis

One of the things I’ve learned during this credit crisis is that despite all the stock market losses, despite all the foreclosures, and despite all the doom and gloom… someone had to have benefited from the carnage that has been the last year. In listening to one of the most well know This American Life stories, The Giant Pool of Money, and how these mortgage lenders were making bank ($75k a month!) doing liar loans, I knew I could find a few more winners in the ugliness that was (and still is).

So who won?

CEOs & Investment Firm Bonuses

Morgan Stanley CEO: John Mack
Everyone who got a bonus in the housing boom did so on what essentially were lax rules. The rules were changed so home values could be inflated, people got rich off bonuses for financial wizardry, and those that pulled out of the system are the real winners. Morgan Stanley, now dead, gave CEO John Mack $40M in stock and options for 2006, the largest bonus awarded to a Wall Street CEO. Not to be outdone, Lehman Brothers, also now dead, gave its CEO, Richard Fuld, a $41M bonus in shares and a $18.8B bonus pool for the entire staff. While many of them don’t have jobs anymore, how many million do you really need before you retire?

In all fairness, there was a measure of clawbacking going on – such as WaMu cutting their CEO’s 2007 pay package by 66% to around $5.25M (oh the horror!) amidst rumors of its own demise.

Small Indiscriminant Mortgage Lenders

Golden West Financial Corp
Let’s say you know a guy down the street who absolutely loves apples. He’ll pay you fifty cents for any apple you have regardless of the condition. He’ll pay you fifty cents for an apple other people would only pay you a quarter. You also know this other guy who will sell you all the rotten apples from his orchard for a nickel a piece. What are you going to do? You’re going to get as many garbage nickel apples as you can so you can sell it to the sucker willing to pay fifty cents.

Freddie Mac and Fannie Mae were those suckers and companies like Golden West Financial Corp. were those sellers. In fact, Golden West Financial Corp. did so well, Wachovia acquired them for $25.5 billion (you know someone made out on that deal)… then collapsed this year under mounting mortgage losses. Wachovia is now owned by Wells Fargo. (Check out this This American Life story about the housing crisis, it’s an hour long audio but well worth listening)

Net Home Sellers

Home Foreclosure SIgn
Anyone who sold a home during the boom and didn’t buy a new one was a winner. Home prices were ridiculous, everyone knew we were in a bubble, and some people cashed out either because of prudence or life changes. Retirees were downsizing, trading in a single family home for a smaller, more manageable condo or apartment. People moved. Whatever the reason, if you sold your house in the boom and didn’t get yourself into a new one, you were a winner and kudos to you. You won’t find anyone bitter and upset over your good fortune.

Stock Brokers

Stock Market Ticker
Brokers make money when the stock market is up, when the stock market is down, and when the stock market is sideways. In fact, the more people talk about the stock market, the more brokers make. Brokers love activity, whether it’s stories about the market breaking 13,000 or the market breaking 8,000 – brokers win when people trade. The biggest winners are probably the discount brokers catering to the cost conscious individual investor like Zecco, TradeKing, and E*Trade. They’re the house, they win when there’s action.

President-Elect Barack Obama & Democrats

President Elect Barack Obama
Barack Obama probably would’ve won the 2008 Presidential election even if the credit crisis hadn’t reared its viciously ugly head, though it was certainly very poor timing. President Bush’s approval rating was abysmal, political sentiment had already swung towards the Democrats after the mid-term elections, but the margins were probably helped by the timing of the collapse. John McCain stating that the “fundamentals of our economy are strong” didn’t hurt the Democrat’s chances either.

There are certainly other winners but those were the first five that came to mind.

(Photo: Barack Obama by bethcanphoto)


Kiplinger’s Best Discount Brokers

In the latest issue of Kiplinger’s Personal Finance, they rated a dozen discount brokers on a variety of factors including commission, research & tools, fees, investment options, “easy of use,” and customer service. The results were pretty close to the results of Smart Money’s 2008 ranking of the best discount brokers.

Kiplinger’s Best Discount Brokers

  1. Fidelity
  2. Charles Schwab
  3. Muriel Siebert
  4. TradeKing
  5. E*Trade
  6. OptionsHouse
  7. TD Ameritrade
  8. WellsTrade
  9. Firstrade
  10. OptionsXpress
  11. Zecco
  12. Scottrade

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2007 J.D. Power Satisfaction Ratings in Finance

J.D. Power & Associates puts out annual customer satisfaction surveys in all types of industries from automobiles to finance to insurance to travel (and many more in between). When they published their annual scores for finance companies late last year, I wanted to write about it to see how some of the companies I work with performed against their peers.

Author’s Aside/Note: I know it’s a little late but this one had been sitting in the hopper and I felt that I should post it anyway.

The Finance category itself is broken up into retail banking, mortgage related, and credit card groups. At the time I first wrote this, I didn’t think the mortgage ratings were that interesting so I skipped over it. I chose to focus on the two services I used more – retail banking and credit cards. While I don’t discuss the mortgage ratings, go check out how well Countrywide Home Loans did (hint: not well). 🙂

Retail Banking

The Retail Banking scores were rated based on geographic region:

  • Mid Atlantic: Commerce Bank (Bancorp)
  • Midwest: Commerce Bank (Bancshares)
  • Southeast: Bancorpsouth Bank
  • Southwest: Wachovia Bank
  • West: Bank Of The West

If you happen to have a Commerce Bank nearby and are a current customer (and you have kids), they’re running a summer reading program where kids can earn $10 for reading ten books.

Online savings account darlings WaMu and HSBC made appearances on the list as well (I looked primarily at the Mid Atlantic listing because that’s where I live, I suspect the scores are similar for the same banks). WaMu scored four points in overall satisfaction (with the highest score of 5 points under the Fees category) and HSBC scored three points. This past weekend we went to a wedding in Williamsport, PA, home of the Little League World Series, and saw scores of Sovereign Bank branches. Sovereign Bank scored a mere two points overall (and across the board). It was also funny to see M&T Bank’s whole name written out, Manufacturers & Traders Bank; I use them for my business banking and they’ve kept me very “satisfied.”

Credit Cards

In the Credit Card Satisfaction category, American Express edged out Discover for the highest rating in overall satisfaction and received the JD Power & Associates award. I personally use the American Express Costco TrueEarnings card because because I shop often at Costco and because it gives me 3% cash back on gasoline purchases (we also use a Discover Open Road card but that card caps rewards). My wife used to like their AMEX Blue card but it was recently replaced with the Citi CashReturns card because of the unlimited 1% cashback (and it once offered a 5% cashback on everything for the first three months).

The three companies that led up the rear with two points (out of five) were Capital One, Bank of America, and HSBC. I’ve never had a credit card from any of those companies. It’s interesting that when you arrange them by Overall Satisfaction (by clicking the sort arrows), HSBC appears below Bank of America. Bank of America has 2 points in all five categories while HSBC has three points for Rewards Program yet still appears below BoA. There must be some granularity within those points not captured somewhere.


Finally, the investment broker category was the last of the categories I was interested in and it was broken into Full Service Investment Firm Ratings and Online Investment Firm Ratings. Raymond James took home the award in the Full Service Category and Scottrade (barely edging out Vanguard) took top honors in the Online Investment Firm Ratings.

I thought it was interesting that the only other “discount” online broker that made the list (TradeKing, Zecco, and many others didn’t make the list) was E*Trade Financial and they scored only two points.

With it being August, the 2008 ratings should be coming out soon in a few months. It’ll be interesting to see how much shifting around occurs with some of these scores.


On Zecco’s Poor Customer Service

Smart Money named Zecco the worst in customer service in their 2008 Smart Money Best Broker Survey and many of the comments on my Is Zecco A Scam? post seem to echo the experiences of Smart Money’s reviewers. If you read the comments, they range from “Eh, you get what you pay for, it’s not bad.” to “Zecco sucks and Zecco is only for non-serious amateur traders arguing over couple of bucks here and there.” (Lee)

I said I’d fund my account there but I never did. One reason was because I was confused by the two separate logins, one for the community and one for my brokerage account. Then, the comments about the poor customer service starting rolling in and Zecco changed from free trades to 10 free trades if you had over $2,500 in your account, so I decided it wasn’t worth the trouble. The reality is that I opened a high yield savings account and brokerage at E*Trade ($9.99/trade) and then a TradeKing account ($4.95/trade) to write a review of TradeKing. With two brokerage accounts plus my retirement accounts, I figured another one with reported bad customer service wasn’t worth it (especially if I’m trying to simplify my personal finances! I’m going the wrong way!).

In truth, I think that people expect too much from Zecco. While the change in free trades to 10 free trades with a minimum balance was a bit “bait and switch”-y, you’re still getting ten free trades worth at least $50 a month (assuming 10 trades at $4.95 each at competitor TradeKing). But the maxim of “You get what you pay for” still rings true. If you want better customer service, pay the $4.95 a trade (or more); if you don’t care about customer service, then Zecco might be right for you.

On the other hand, should you be trading ten times a month? Most people shouldn’t be trading ten times a month, so your actual total benefit isn’t $50 a month, it’s less. In fact, I haven’t made a stock trade in several months (not that I’m the poster child for a disciplined investor). If you’re more a mutual fund type, you can trade those for free if you open an account at that brokerage. At Vanguard, you can invest in many of their no-load funds without any transaction costs whatsoever. Free trades at Vanguard!

So your trade-off of poor customer service is for a couple of trades a year, which is not worth it in my opinion. And that’s why I never funded my account.

 Investing, Reviews 

TradeKing Review: $4.95 Trades, No Minimums

Tradeking - Discount Online BrokerI could only avoid the siren song of $4.95 trades for so long, here are my opinions of TradeKing in 2,144 words and 4 screenshots. Last week, I joined the masses and opened a TradeKing brokerage account. I did so partly because I wanted to understand the process and answer some of the emails I’ve been receiving, and partly because I was impressed by their Options Education Center and wanted to dip my toe in the waters of something I never really understood. I had heard that TradeKing offers the easiest way to pull off multiple options related transactions (because they’re often used as hedges) at once. More on that later, let’s get to the basics.

Until the end of November, TradeKing is running a $50 new account bonus promotion where you can get $50 for opening an account, funding it with at least $2,500, and making one trade. Click the link to learn more or email me and I’ll refer you.

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