Investing 
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Smart Money 2009 Best Online Brokers

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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 Investing 
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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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 Investing 
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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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 Investing 
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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 
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SmartMoney’s 2008 Best Discount Brokers

It’s always fun to see discount broker rankings. Last week, I wrote about a little preview to the SmartMoney 2008 Broker Survey 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 did not retain the top spot they enjoyed the last two years (third place isn’t bad!).

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 Investing 
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SmartMoney 2008 Broker Survey

Smart Money reviews brokers every single year and they recently just gave a preview to their results. Rather than give the straight ranking, they discussed some headline categories (Commissions & Fees, Research, Trading Tools) and then listed the best and worst from each category.

For best commissions and fees, they listed Interactive Brokers, a brokerage firm I hadn’t heard of but does charge pretty rock bottom fees (half a cent per share on equity trades). They also showed the spread was anywhere from $4.95 for TradeKing to $112.50 for Fidelity on broker-executed trades.

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 Personal Finance 
34
comments

Best Online Discount Brokers

Open a TradeKing account todayIf you visit the E*Trade homepage, you’ll see a big yellow star that names E*Trade the #1 premium broker of 2007 by Smart Money magazine and “Best of the Breed” in Money Magazine in August 2007. If you visit the Scottrade homepage, you see a blurb about a J.D. Power and Associates Award for “Highest in Investor Satisfaction with Online Services” award. And if you visit Zecco homepage, they don’t have any awards posted. Does that mean E*Trade is better than Scottrade and Scottrade is better than Zecco? Maybe, maybe not! So I wanted to match up all the awards and ratings and come up with my own ranking of the best online discount broker.

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 Personal Finance 
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Beware The Allure of Free

Zecco offers 10 free trades a month. Buffets offer all you can eat, which means you can get as much as you want for no additional cost. Casinos offer you all sorts of free “comps” to get you to come back into their casino. All this stuff is free, but it doesn’t meant that you should take advantage of it!

With Zecco, free trades sound great in principle because free is always good but they’re actually bad for most of us. The prevailing attitude, to which I subscribe to, is that you should be buying and holding, not actively trading a lot. If you’re a day trader with your finger on the pulse on the market, perhaps free trades is right for you. However, if you’re a “check your stocks at work for a few minutes each day” type of person, then ten trades a month is too much and feeling compelled to use them is dangerous. Buying and holding is preferable because you let time smooth out the volatility in the market, you let time lower your tax liability, and you let time temper your emotions so you don’t make rash decisions. Free trades are great, as long as you don’t feel compelled to use them.

How about buffets and their great all you can eat nature? For a while I would feel stuffed after going to buffets because I felt compelled to “eat my money’s worth” and eat as much as I could. If I paid one flat price and could eat as much as I could, I would try to eat as much as I could! Except that’s horrible! I’d feel bloated, then tired, then lazy the rest of the day… all because I felt compelled to take advantage of the free offer. Buffets are great, as long as you don’t feel compelled to actually eat all you can eat.

Lastly, casinos give you complimentary items just to get you to come back. They’ve done they math, they realize that every person they get into the casino will earn them a certain number of dollars. If they can get you back for the cost of a breakfast, that’s a win-win for both sides. You get the breakfast, they get the business, everyone wins… except for you because you probably will lose more than the cost of the breakfast right? :) So, comps are great, as long as you recognize what they’re trying to do (I can’t possibly say, don’t gamble because that’s how you got the comps in the first place!)

So… next time you see something advertised as FREE, think about it for a second. It might be no cost financially at the moment, but is it really the right decision?


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