Zecco sent an email out to customers last Friday about a huge change in their account. It turns out that offering commission free stock trades is not a sustainable model and Zecco will be moving away from that as of March 30th, 2011. When I first learned about Zecco in mid-2007 and their offer of free stock trades, I was skeptical and wondered if Zecco was a scam (it’s not). When they moved to require a minimum $25,000 balance in an account to get 10 free stock trades, I suspected that it was only a matter of time before free trades are gone.

Businesses can lower their bottom line when they operate online and online banks have proven this with their high interest savings accounts for years. Unfortunately for brokers, stock trades aren’t free and there’s still a minimum cost associated with that transaction.

While Zecco hasn’t had the best reputation in terms of customer service (according to Smart Money), it’s clear that they care because the CEO has been active in their forums. Unfortunately for them, their new pricing structure looks a lot like that of TradeKing, 7 spots higher on the Smart Money rankings. TradeKing also offers a $150 transfer fee reimbursement… that doesn’t bode well for those looking to jump off the Zecco ship.

Here was the email:
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Every year Kiplinger’s magazine puts out a survey of the best online brokers. Every year, I take a look at the list because I’m curious how the different brokers stack up. I’d like to know if anyone has made any big changes or improvements to their service, it might change my mind about who I do business with.

Usually the lists don’t change all that much. As you scan this year’s list, you’ll see the same ones near the top, the same ones near the middle, and the same ones near the end. The meat is in the article detailing the different categories (like commissions and fees, investment choices, etc.) because it adds a little color to an otherwise robotic list.

One important thing to remember as you peruse this list: the best online broker is the broker that satisfies all of your requirements. All the bells and whistles in the world don’t matter if they don’t offer exactly what you need. With so many brokers, many of which are inexpensive, you should be able to find your best broker, online or offline, if you’re diligent.

Let’s get to the list…

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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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$3.95 a trade.

(Update 1/14/11: OptionsHouse recently increased their commission from $2.95 to $3.95)

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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