Barron's (Part 2)
Nearly half of the brokers reviewed this year fell into the 3 1/2-Star category. Each has a particular strength, but also lacks one or two items that keep it out of the top tier. If you don't need everything in one place, or have a particular investing style, one of these brokers will serve you well.
If there was an award for "Broker Most Responsive to a Barron's Review," it would have to go to Wall Street Electronica. After having reviewed this site just a few weeks ago for Barron's Online ("Wall Street Electronica Adds Service to Tech Savvy," February 15), the broker already implemented a half-dozen changes based on our criticisms.
Wall Street offers three levels of service, depending on how much human assistance you'd like. Commissions for online orders are the same for each of the levels (fully automated, Valet or Full Service); having a human place an order for you invokes a $20 surcharge plus a per-share fee. One area where WallStreetE stands out is options order entry. Spreads are automated; you can execute both parts of the transaction on the same screen. You can also trade naked puts and calls, and trade options on margin. Broker/dealers can license WallStreetE's services and provide their customers with online brokerage access, and can also manage multiple accounts.
WallStreetE is not trying to be the cheapest online broker; indeed, in some cases it's among the most expensive after per-share fees are tacked onto the base commission. But its built-in error checking during order entry is well done, as is its real-time buying power and margin debt calculations.
Scottrade lands into the 3 1/2 Star group thanks to its range of offerings online, and its low fee structure, and my ability to borrow a neighbor's account. (Scottrade declined to answer my requests for a test account.)
The broker recently added online bond trading to its mix of services, and its commission structure ($7 trades) and margin fees are among the lowest around. It's beefed up research offerings in the last year, but this isn't a one-stop shop for news and charting junkies.
Still, the Scottrade site is very easy to navigate, with the list of items (such as trading and research) arrayed along the top of the screen using the familiar folder-tab metaphor, offering quick access to what's available. The Active Streamer is a relatively new feature, pushing real-time quotes onto your screen. Scottrade also offers an extensive list of unit investment trusts.
For an additional $10, you can place trades with a live broker, and account holders are assigned a personal broker so they don't have to wait in a long phone queue when there are questions or concerns.
Morgan Stanley Dean Witter Online, next on the list, is one of the few that hasn't made many changes in the last year. It's added the ability to transfer money into and out of your account online, using eCheck Secure. The trading screens have actually regressed a bit; you can't get a real-time quote while entering your order. But the research reports are good, as are the industry analyses accessible by customers.
We like the municipal bond search capability, as well as the stock screener. Still, MSDW needs to pump up its offerings, including real-time portfolio and buying power reports, to stay even with the rest of the online tribe.
At TD Waterhouse, the goodies kick in for active customers. If you make 36 trades in a calendar quarter, you qualify for Select status, which brings you lower commissions, streaming quotes, and real-time portfolio reports. Research is on the light side, and portfolio-analysis reports need to be improved, but the service is easy to navigate. We like the ability to view monthly statements for the last three years. Waterhouse's planning sections, with specific recommendations for small business, college savings, retirement, and so on are well done.
Sheldon Cohen, a Barron's reader from Knoxville Tennessee, wrote to complain that a recent change in handling mailed-in funds results in an eight-day lag between the time the check leaves his house and the appearance of the money in his Waterhouse account. "Owing to the three-day rule, this means that if I want to cover a purchase I have to mail the check 4-5 days before the purchase, which precludes buying a stock on sudden weakness…I'm satisfied with their online service, but not their off-line infrastructure." Non-IRA accounts can get around this problem by using TD Waterhouse's "TransferDirect" feature, which enables online transfer of funds from a personal checking account, and makes the money accessible in two days.
Merrill Lynch Direct slipped 1/2 star this year owing to how we rate the trading experience. Though its research and reports are top-notch, the trading screen needs improvement. Merrill recently added online options trading to its lineup, but complex option trades still have to go through a broker. Merrill Mobile is flexible and offers more than just wireless trading and quotes.
Both Merrill and E*Trade, the next broker on the list, offer extensive banking capabilities to their customers. E*Trade, the No. 2 broker in terms of trading volume and No. 3 in numbers of accounts, has also added a tax tracking feature, GainsKeeper, to the site. High-account-balance holders at E*Trade get preference for initial public offerings, but they're still tough to come by. Our telephone researcher sat on hold waiting for an answer at E*Trade for a total of an hour over three different calls, which knocked its "Customer Access" rating down.
Fidelity Investments, which has the most online accounts -- 4.93 million versus Schwab's 4.3 million -- has made a big push in customer service in the last year. In addition to its wide range of wireless services, Fidelity has focused on two key areas: research and account consolidation. Fidelity executives found that their firm's customers were going elsewhere for research, and then returning to place trades, so they added numerous tools and content to keep them in one place. Portfolio analysis reports are still a weak area for Fidelity, however, and the trading screens need an overhaul.
Quick & Reilly, which now includes the recently eliminated Suretrade, steps into the next spot with its well-designed order entry screens and execution reports, long list of tradable equities, and terrific third-party research and charting capabilities. It loses points because of a lack of portfolio analysis and tax reporting on the site. There is no wireless access either.
The last two spots in the 3 1/2-Star group go to A.B. Watley's "WatleyTrader" and Mr. Stock, two sites that appeal to frequent traders looking for low commissions. Watley customers can use the same account login for their Ultimate Trader platform, a direct-access service we plan to review in the near future. Light on research and portfolio and tax reporting, Watley nonetheless is a good site for frequent stock and options traders. And trade they do: an average of 98 times in the last quarter, according to J.P. Morgan.
Mr. Stock is something of a misnomer in that it is clearly aimed at the options trader, who will be pleased by the complex strategies that are automated (spreads, straddles, buy/writes.) Informative messages are provided while a trade is executing, including partially filled and partially rejected. A live broker reviews orders before they're sent to the exchange, but the delay is short -- apparently unnoticed by some of the broker's clients.
There's little to distinguish Mr. Stock for trading equities, except that it is one of the few that implement pre-filled order tickets well; when you click on a holding in your portfolio, a Sell order pops open, complete with the number of shares you currently own in the "Quantity" field.
Six brokers ended up in the Three-Star category, with offerings that will appeal to certain niches. Ameritrade, one of the fiercest competitors on the island, is adding research capabilities to its site, but the layout of the site makes some of them hard to find. We like the "Trade" button on the quote screens, which brings up an order entry screen with the ticker symbol already in place. Introduced last week, Ameritrade's Mutual Fund Finder lets you seek out among the funds offered by the broker one that meets your specific criteria. Ameritrade falls short in a common area: portfolio reporting and tax accounting.
Web Street Securities, Mydiscountbroker.com and newcomer RJT.com feature low fees and amenities that are designed for the frequent trader.
Web Street's range of offerings is extensive, but the site suffers from a somewhat muddled design that makes it difficult to wend your way from one spot to the other. Like National Discount Brokers, Web Street's trading screen is always open while you're on the site, but weak portfolio reports and a lack of tax help hurt it. High-account-balance holders get access to premium research.
Customers of Mydiscountbroker.com can't short stocks short or buy mutual funds, but other orders are filled quickly and the online help is terrific. There isn't much help for tax planning, but you can find articles in the Tax Center about investment issues.
At RJT.com, you'll find low costs and a very well laid-out trading screen, but not much in the way of portfolio analysis or tax help. This is clearly a site aimed at the self-directed investor who does research elsewhere, and accounts for portfolio changes offline. That's not too surprising inasmuch as RJT.com's customers are the most frenetic on the online island -- averaging 182 trades a quarter.
Wall Street Access and Datek Online, two very different brokers, comprise the rest of the Three-Star field.
Wall Street Access is geared for heavy options traders, and has additional research and other benefits for high account balance holders. Its phones are answered quickly, and you can opt routing an order to a specific ECN. Reports could be much improved, though, and this broker's rankings suffer from an inability to trade bonds or mutual funds online.
Datek's trading screens shine, especially with the addition of the Level II Streamer, but the site is difficult to navigate otherwise. Research offerings are disconnected from current holdings. With a site redesign, and improvement to portfolio reports, Datek, the No. 3 in trading market share, could move up the Barron's charts, with a bullet.
Earning 2 1/2 Stars are eDreyfus, SiebertNet and American Express Brokerage. Each has a major weakness that brings its overall score down.
In eDreyfus' case, the process of entering an order has major flaws. You enter a ticker symbol before going into the trading screen, but if you decide to trade something else and change the ticker symbol on the order entry ticket, you get an error message. Though you can trade most equities online (except for complex options), the site itself is poorly laid out and navigation is difficult.
Muriel Siebert's site, SiebertNet.com, has a good order-entry screen and fast executions, and the telephone help is terrific. But the research offerings are disconnected from portfolio holdings, and many are available only at a fee. Portfolio analysis here requires additional data entry, as you type all your trades into a third-party program. SiebertNet's brokers will handle your large orders personally, working to get you better prices.
American Express found out the hard way that offering free trades didn't pay. It has changed its policy to giving a limited number of free trades to high rollers, which hurt points awarded for Costs. And it's also the only broker that makes it almost impossible to view a real-time quote before placing an order. Though you get a quote on the confirmation screen, that's not much help when placing a limit order. AmEx has a limited universe of equities tradable online, which hurts its Range of Offerings rating.
While these survivors have demonstrated their mettle, we'd still like to see further improvements. Start with logging into the site: please let us define a customer name that isn't an impossible-to-remember string of numbers and letters. And while you're at it, take a look at the location of your log-in button and make it more obvious.
And to reiterate, portfolio analysis and tax reports have to improve. One customer support rep sighed during our conversation, "I wish you could see these reports online. It would make my job easier." The lack of clear information regarding cost basis (especially of mutual funds) means many investors end up having to plead for help at tax time.
Personalization of the site, so that items of importance to the customer are easily accessible, is a meaningful benefit. While many brokers are adding amenities that they hope will make their sites "stickier," they still send their customers out across the Internet to perform some basic research. How about letting customers add their own links to the broker's site so they stay inside the frame and can quickly place a trade when necessary? I'd like to see brokers integrate their research offerings more tightly into a customer's current holdings. Some brokers do a decent job of this, but many require their customers to type ticker symbols into numerous different screens.
Will there ever be a Five-Star broker? We can dream, and we'll keep pushing the ideas our readers send us. Even our top-ranked online brokers fall short in some respect.
And if experience is any guide, this year's Four-Star online brokers probably will be afflicted with a sort of winner's curse in the days just ahead. Almost invariably, we hear about difficulties reaching our top-ranked brokers right after we publish our annual rankings as new customers flood them with account applications and transfers. It's more like getting tickets to a hit show than watching a top-rated TV series. But, then again, nobody pursues the competitors who get voted off the island. |
