Bargaineering.com relies on a mixture of advertising and affiliate marketing to generate income. Part of the affiliate marketing piece is that we get paid when someone signs up for accounts, such as a trading account with Zecco.com (not everything, just some things). A lot of personal finance bloggers pay the bills and generate income this way. Until about a month ago, no company has tried to influence my opinion until Zecco.

About a month ago, Zecco’s affiliate manager notified me that I would no longer be compensated for leads sent to Zecco because I had negative reviews about them on Bargaineering.com. I was told that I had to “remove any negative reviews of Zecco and [I] can resume promoting and sending orders.” They phrased it in a way that seemed like I was unfairly picking on them, so I said I’d take a look if they told me which posts they found to be negative.

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I’m not sure how much it costs to execute a stock trade but it doesn’t appear to be all that much. When I first opened up my first brokerage account, it was with Vanguard. Vanguard has two main types of investor accounts, one where you invest in their family of mutual funds and one where you can invest in stocks, bonds, ETFs, etc. When I opened up my Roth IRA as a teenager, I did it with Vanguard and paid a then staggering $20 a trade. Twenty bucks! Nowadays, you can buy and sell a stock twice with TradeKing and still have twenty cents left over to get some Bazooka Bubble Gum. That’s a cheap stock trade right there.

So what defines cheap? Ultimately it comes down the dollar amount because you’d have a difficult time arguing that $12.99 is cheaper than $4.95. However, I think that just looking at the cost of the stock trade may be a mistake. Certain brokers charge you less but they offer you less in terms of tools, service, or both. Sometimes you have to review all the factors to make your decision.

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When Zecco first appeared on the discount broker scene, everyone celebrated their $0 stock trade commissions. I know it caught my attention, there are very few things that beat free. Even when reports of customer service woes rolled in, I still thought their offer was the best of the bunch. If you are paying $0 per stock trade, you can’t expect them to have an army of customer service reps there to answer your every call. You get what you pay for and you pay nothing.

Then I learned about TradeKing, which charges $4.95 a trade. $4.95 isn’t free but it’s certainly cheaper than E*Trade, where I was paying $9.99 a trade. Not only were the trades cheap, but TradeKing had been winning best customer service awards and best discount broker awards for years. So when Zecco stopped offering no-strings attached free trades, I knew we needed to compare the two straight up to get a better idea of which one was tops.

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A few years ago, when the housing market was sizzling hot, everyone and their mother talked about how their home was a fantastic investment. They talked about how a home that sold ten years ago had quadrupled in value over the last five and cursed themselves for not buying more. I knew someone who owned four rental properties, all bought on ARMs, and was making a “killing” on the rents and appreciation. I knew someone else who was looking at his paper riches and marveling at how wonderful homeownership was.

Then the housing market stalled. ARMs reset. People were in rough shape. Those who overextended learned something the prudent have always understood, as much as your home is a great place, it’s not an investment.

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$2.95 a trade.

That’s how much it’ll cost you to make a trade at OptionsHouse.

That’s pretty cheap. TradeKing is currently my go-to broker and they charge $4.95 a trade, 67% more than OptionsHouse. Zecco, which is free if you meet their stringent requirements, is the only one that’s cheaper and they can never seem to get their customer service issues resolved.

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My wife’s Roth IRA currently sits at a TD Ameritrade account, where it’s been sitting for the last three or four years. With the majority of it in cash, mostly because we lost track of the account, we want to invest it in our retirement investment of choice, an index fund. Our index fund of choice happens to be the Vanguard 500 Index Fund because most of our retirement funds are with Vanguard. Vanguard does not have the cheapest index fund, I believe that title now resides with Fidelity’s Spartan 500 index. Paying the extra 0.08% seems reasonable considering we can manage it all in one place.

The only downside about this entire process is that TD Ameritrade has a $75 outbound full account transfer fee. Fortunately Vanguard does not charge you to transfer in an IRA (to my knowledge, no one does).

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Another year, another Smart Money broker survey! We’ve been reviewing SmartMoney’s best broker series for several years now (here’s 2008) and it’s always valuable to see how the different brokers fare from year to year. In the 2009 broker survey, we didn’t see too much change compared to 2008.

Unlike last year, which featured a merging of the discount and full service broker lists (in which TradeKing lost a #1 ranking they enjoyed for several years), they didn’t make any big changes to the way they analyzed the brokers. (here’s the list if you want to take a peek)

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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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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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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.