Illustration by Benedetto Cristofani
It is understandable if you are paying less attention to your brokerage account these days, given the current market malaise. But the recent slide in stock and bond prices may rep-resent a “generational investment opportunity,” Ron Baron, a manager of several Baron funds and founder of Baron Capital, recently wrote in a letter to shareholders.
In short, it’s a good time to be active as an investor. But it also pays to be selective in times like these, which makes the services offered by your online broker highly important, whether for you that means plying your brokerage’s tools to sift for hidden gems in the stock bargain bin, finding smart fixed-income strategies or even getting professional investment guidance.
With that in mind, we conducted our annual review of online brokers. This year, we have 10 contenders. Five are large, well-known brokers that cater to all kinds of investors, from novices to active day traders: Charles Schwab, E*Trade, Fidelity, Merrill Edge and TD Ameritrade. Schwab acquired TD Ameritrade in 2020, but the brokerages still work independently, and the firms asked to be reviewed separately, except in the category of advisory services. The remaining five firms are smaller in stature, but each has something to offer: Ally Invest, Firstrade, Interactive Brokers, J.P. Morgan Self-Directed Investing and WellsTrade, the brokerage arm of financial firm Wells Fargo.
Sign up for Kiplinger's FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.
Each company answered dozens of questions in seven categories, including commissions and fees; investment choices; advisory services; tools; research; and mobile, which tested the functionality of each firm’s app. We also measured what we call user experience—a general category for how many ways, and how well, a company interacts with its customers. The score in each category was based on information provided to us by the brokerage firms, which we vetted to the best of our abilities.
You’ll no doubt notice the absence of some companies you may be familiar with. To be included in the survey, a firm must offer trading in stocks, exchange-traded funds, mutual funds and individual bonds. Siebert didn’t respond to our invitations. As in previous years, T. Rowe Price, TradeStation and Vanguard declined to participate.
E*Trade won the overall survey, topping the charts in three key categories: mobile, tools and research. But Fidelity was hot on its heels. Schwab came in third this year, and Merrill Edge finished fourth.
Finally, the popularity of small brokerages that focus solely on stocks and ETFs is tough to ignore. For that reason, we conducted a truncated survey of firms that typically don’t qualify for our broader survey—namely, Betterment, M1 Finance, moomoo, Robinhood and SoFi. For more on how those firms fared against each other, see Who Are the Best Small Online Brokers.
*Schwab and TD Ameritrade were reviewed as one offering in the advisory services category.
Kiplinger
For mutual fund investors: Charles Schwab. The firm offers the widest array of solid, no-transaction-fee funds, and most come with a super-low $100 minimum for initial investments.
For options traders: Firstrade. The firm waives commissions and contract fees on options trades. Other firms typically charge 65 cents per contract. (Ally charges a little less, 50 cents a contract.)
For ESG-focused investors: Interactive Brokers and Merrill Edge. Interactive has an Impact tool that allows clients to sift for stocks that match their environmental, social and governance priorities—gender equality, say, or fair labor. Merrill’s Idea Builder tool provides sustainability-minded investors with a variety of investment suggestions tied to certain ESG ratings from MSCI. The “responsible consumption and production” list includes 439 ideas (top stock performers on that list over the past 12 months include Switch and Resolute Forest Products); the “sustainable cities and communities” list includes 169 ideas (Tenneco and PS Business Parks are among the top performers over the past 12 months). You can also filter for ESG leaders in specific sectors or in specific climate change issues, such as carbon emissions, supply-chain labor standards or corporate behavior.
For margin traders: Interactive Brokers. No other firm beats the interest rate that Interactive Brokers charges on margin accounts—2.33% at last report, no matter the account balance.
For investors who want professional advice: Fidelity, E*Trade and Schwab/TD Ameritrade. Stick with the big guns if you’re thinking of getting advice. That’s because these firms offer multiple tiers of service, from digital advice only to a dedicated adviser.
For crypto buyers: Firstrade and Interactive Brokers. There are exclusive crypto exchanges that offer these services, but if you want to make your traditional investments and crypto purchases in one place, both Firstrade and Interactive Brokers are possibilities.
What commissions? A laser focus on low investment fees, together with fierce competition among brokerages to win your business, means it now costs almost nothing to do practically anything at your online broker. That’s a big reason this category accounts for just 10% of the overall score in this brokerage review. That said, several companies stand out here.
We judged the firms on how much they charge, or save you, in three different areas: trading costs (for mutual funds, bonds, options and broker-assisted trades); interest rates on margin accounts, which allow investors to borrow money to purchase shares; and executing stock trades of well-known large companies at the best available price or better.
The overall category winner was Firstrade, with low trading costs that led the field. Unlike the other firms we reviewed, Firstrade charges no commission or contract fee to trade options. It also levies below-average fees for broker-assisted trades of stocks and options, and charges below-average interest rates on margin accounts.
Interactive Brokers shone, too, with the lowest interest rate charges on margin accounts—at last report, 2.3% on balances of less than $100,000. Plus, the firm says that 100% of its trades for stocks in the S&P 500 index are executed at the best quoted market price, called the national best bid and offer price. The NBBO represents the best available “ask” or offering price when you buy securities and the best available “bid” price when you sell. The other brokerage firms we surveyed, by contrast, execute an average of 96% of trades for S&P 500 stocks at the NBBO (that figure excludes data from J.P. Morgan and WellsTrade, because the firms didn’t disclose them).
But on price improvement in particular—which happens when firms improve on the NBBO and execute your trades at even better prices—Schwab and Merrill stood out. Schwab reported that on average it saves $27.68 per order on trades for 1,000 shares of an S&P 500 stock. On a similar trade, Merrill saved its clients an average of $24.60. Merrill also won extra points for executing 99% of its trades for S&P 500 stocks at NBBO or better.
J.P. Morgan and WellsTrade brought up the rear in this category. Their scores were pinched in part because they didn’t disclose trade-execution details, such as price improvement. But Wells and J.P. Morgan don’t accept payment for order flow, which is a plus in our book. Payment for order flow can pose a conflict of interest because it refers to compensation a brokerage receives for funneling trades to a certain firm, called a market maker, to fill your order. (Fidelity and Merrill don’t accept payment for order flow, either.
Fidelity offers the broadest range of investment opportunities. Whether it’s corporate or municipal bonds, mutual funds available without a transaction fee or access to initial public offerings, the Boston-based financial services firm offered the largest array of investments overall. (This category accounts for 15% of the final score.)
Like last year, firms that offer fractional-share trading—allowing you to buy partial shares of certain stocks and ETFs—stood out. That feature helped Fidelity, Interactive Brokers, E*Trade and Schwab rise to the top in this category. Note that while E*Trade gets credit for offering fractional-share purchases, they’re accessible only through its automatic-investing tool, which allows clients to set up recurring contributions to an investment account from a checking or savings account or a paycheck (more on that later). And a heads up: J.P. Morgan says fractional-share trading is in development.
For mutual fund investors, there’s no better place than Schwab. The firm, through Schwab OneSource, offers the greatest number of funds without a load or transaction fee—4,471 of them—and almost 3,000 boast three-star or better ratings from Morningstar, which means they have average to above-average risk-adjusted annualized returns relative to peer funds. What’s more, the minimum investment required for funds in the firm’s OneSource network—just $100—is less than other firms’ typical requirement.
The ability to trade cryptocurrency was another differentiator. Interactive allows you to trade bitcoin, bitcoin cash, ethereum and litecoin through crypto-brokerage services offered by Paxos Trust Company. Firstrade, which finished in the middle of the pack in this category, uses Apex Crypto to offer its clients access to 41 digital currencies.
The more tasks you can manage using a mobile app, the better. Can you trade stocks, funds, bonds and options? Transfer funds? Pay bills? Does the app let you easily access in-depth research reports about a stock, mutual fund or ETF? Find articles or videos about investing and the markets? These days, many of us are more likely to reach for our phones than a computer to manage our investments. We want all the functionality and information that’s available on a brokerage’s desktop platform packed into its mobile app. Hence, this category accounts for 20% of the final score.
E*Trade finished at the top in this category, though Interactive Brokers was not far behind. In addition to basics such as photo check-depositing, paying bills from a brokerage account and transferring money from another bank, the apps of both offer robust charting tools and in-app access to research reports on the markets, individual stocks, ETFs and mutual funds. It’s worth noting, however, that we had difficulty navigating Interactive Brokers’ app—we had to go back to the firm twice to get directions to find the ETF, stock and fund screeners.
Among the rest of the field there are pluses and minuses worth noting. WellsTrade, for instance, finished seventh in this category. Its mobile app lacks educational videos, and it doesn’t have much in the way of stock research. But its app is the only one to offer screens for ETFs, stocks, mutual funds and bonds. And the app has a charting tool packed with technical indicators that’s easy to navigate. J.P. Morgan’s mobile app is one of only two (Interactive is the other) that allows for bond trading, but the app doesn’t offer real-time stock price quotes.
Firstrade brought up the rear. Mobile app users can’t access screeners or research reports on stocks, ETFs or mutual funds, and the app doesn’t offer any information on which in-vestments are short- or long-term holdings—a handy detail at tax time.
Investing can be fun. And the tools, calculators, charts and screens at your brokerage can make it easier and feel more accessible. They can also help you analyze your portfolio and make smart investment moves. That’s why the points in this category account for 20% of the final score. E*Trade won the day here, finishing well ahead of the competition. Second, third and fourth place fell in a tight range among Merrill Edge, Fidelity and Schwab.
E*Trade offers dozens of savings, tax and retirement calculators, including tools that help you figure out whether you’re better off with a Roth IRA or a traditional IRA, assess your retirement savings plan’s probability of success, and calculate the required minimum distribution from your IRA every year. You can also analyze your portfolio to see how it might perform—as well as which positions will react more—in a big market move. E*Trade customers can even simulate options and stock positions and see how those holdings might impact their overall portfolio.
Finally, there’s the firm’s automatic investing tool, which allows investors to set up recurring contributions to an investment account from a checking or savings account or from a paycheck. Clients can choose among 100 ETFs to invest in and select the frequency of contributions—weekly, twice a month, monthly, quarterly, every six months or once a year. A single plan can include up to 50 ETFs (if you want more, simply create a new plan), and clients can set up to 10 automatic investing plans. That’s nifty.
Merrill Edge, Fidelity and Schwab each offer hearty screening tools for ETFs, bonds, mutual funds and stocks. The stock screeners at Schwab and Fidelity include more than 120 different criteria; Schwab’s ETF screener is just as robust. Merrill earned an edge with its Idea Builder tool, which helps investors winnow down investment ideas for stocks (and sometimes funds and ETFs) along certain themes, such as climate change or stocks and funds that pay high dividends. The tool can also structure ideas around companies with high environmental, social and corporate governance (or ESG) ratings.
The laggards in the tools category were Ally, Firstrade and WellsTrade. Ally and Firstrade, for example, don’t provide a bond ladder tool, which should be a basic offering. These two firms also don’t provide the ability to pull in other data from outside accounts and see an aggregate view of their finances.
And WellsTrade, despite its substantial technical charting capabilities that won extra points for being novice-friendly, isn’t much of a competitor in this category overall. One reason: It doesn’t offer much in the way of tools to invest in options. For example, while every other firm in our survey, including Ally and Firstrade, offers an options screener, WellsTrade does not.
The quality of research available at your brokerage firm matters more than quantity. Investors interested in the fundamental qualities of a company, say, prefer to read in-depth reports from analysts who pore over balance sheets and income statements and talk to company executives. But there’s value in technical and quantitative research as well. We looked for both kinds of research in our brokerage-firm queries. And, as in past years, we found that the big brokers do a better job of providing truly informative research than the smaller ones do. This category accounts for 20% of the final grade.
E*Trade excelled in this area. With Morgan Stanley research available on stocks, markets and the economy, its platform is chock full of investing insights. It also offers Morningstar stock and fund research, including sustainability reports for ETFs and mutual funds, plus an easy-to-find list of thematic ETFs and strategies and numerous news feeds.
Fidelity and Merrill Edge were close behind E*Trade. Fidelity’s research library includes access to company ESG ratings from financial firm MSCI, which may be a draw for investors who want to invest sustainably. And Merrill Edge gets a shout-out for its easy-to-digest Stock Story research tool, which allows investors to get all of the essential information about a company’s business without having to slog through its Form 10-K filing (the comprehensive annual report filed by public companies that is required by the Securities and Exchange Commission). The firm also has similarly formatted “fund stories” for ETFs and mutual funds.
Good research has to be easy to find as well. This is where Interactive Brokers missed the mark, in our view. We spent 20 minutes, on average, digging (okay, scrolling) through news feeds to find a Morningstar analyst report on Apple. (We never found it, though others popped up, including one from Zacks Investment Research. Later, a company spokesperson told us there is a way to search for Morningstar reports.)
This category measures the many ways you can reach out to contact someone at your brokerage firm. How many registered representatives, who are licensed to buy and sell securities, work full-time at the firm? How long do you have to wait on the phone before someone picks up to answer your question about whatever? Does the online chat service have you going in circles with a chatbot, or can you message a real human being for help? These questions and more informed the ranking in this category, which accounts for 10% of the final score.
Schwab won this category. Although the firm’s network of 417 branches (with TD Ameritrade) isn’t as large as Merrill Edge’s (4,056) or J.P. Morgan’s (4,790), it has an army of 4,500 registered representatives at work in them. (Merrill Edge has 3,608; J.P. Morgan has about 4,300.) Schwab also reported that it takes just 10 seconds for its brokerage customers to reach a customer service representative on its phone lines, and its typical response time by e-mail is 4 hours, 37 minutes—both well below average compared with the rest of the brokerages we surveyed. The firm earned extra points for having a live person behind its virtual assistant (instant message) service, and the average execution speed for a trade of an S&P 500 stock was an unbeatable 0.04 second.
Ally was a surprise second-place finisher. The online bank doesn’t have any branches at all, and it has a fraction of the registered representatives (275) that Schwab has. But customers don’t wait long for a response by phone (21 seconds), e-mail (roughly 12 hours) or chat (13 seconds), according to Ally.
By contrast, Firstrade’s score in this category suffered in part because the firm doesn’t offer a chat service on its platform at all, and it reported an above-average wait time to get a response by phone (60 seconds) and by e-mail (within 24 hours). WellsTrade, unfortunately, elected not to answer the questions in this part of the survey, so the firm came in last.
We give less weight, just 5% of the overall score, to this category because do-it-yourself investors may not consider this a key brokerage service. It is an added benefit, however, so we queried each firm about the variety of advisory services available to clients, from digitized, automated advice to more-personalized, one-on-one work with experts, and everything in between. Firstrade doesn’t offer any advisory services, so it came in last.
Not surprisingly, the two biggest firms, Fidelity and Schwab/TD Ameritrade, offer the widest range of services—at low costs—and came out on top. (Schwab and TD Ameritrade were reviewed as one offering, at the firms’ request.) Both Fidelity and Schwab/TD Ameritrade offer multiple tiers of service—a digital-only advisory program, a hybrid service that combines digital advice with some access to a human, or personalized investment account management, as well as expert advice on fixed-income strategies and estate planning. Schwab’s robo-advisory, Schwab Intelligent Portfolios, doesn’t cost anything, which is a boon. But its $5,000 minimum to open an account is a high hurdle at the outset compared with Fidelity’s Fidelity Go, which requires just $10 to get started.
E*Trade came next. We liked the breadth of portfolio choices in its robo-advisory service, including core, socially responsible and tax-efficient portfolios. It is one of just three brokerages (the others are Schwab and WellsTrade) to offer tax-loss harvesting in taxable robo accounts. We like, too, that E*Trade’s most aggressive robo portfolio holds 99% of assets in stocks (that’s appropriate for investors with a long time to invest and a high tolerance for risk). Also, since Morgan Stanley acquired E*Trade in 2020, the brokerage’s professionally managed accounts—which can hold a variety of assets, including stocks, bonds and ETFs, for higher-net-worth individuals (the minimum is $500,000)—have shifted into high gear.
Kiplinger is part of Future plc, an international media group and leading digital publisher. Visit our corporate site www.futureplc.com
© Future US LLC, 10th floor, 1100 13th Street NW, Washington, DC 20005. All rights reserved.
About Author
