BROKERAGE SURVEY FORMAT

This post is a deeper dive into the format used to critique each brokerage firm.  The post after this one contains a summary of the grades, which is followed by posts that provide some expanded details on each of the brokerage firms reviewed in this survey.  The commentary on each broker is divided into two sections: (i) a summary of key fees and related matter and (ii) a discussion on the firm in question, which includes any response from the company.

Account Minimum

This figure (or figures) is the minimum deposit that you have to make to open an account.  Some brokers have two or more trading platforms and the account minimum may differ for each; where there is a difference two or more numbers are included in the survey and the details are touched on in the discussion section.  Companies require a deposit of at least $2,000 for a margin account; any number lower than this figure usually means the amount required for a cash account.

Account fee

Some brokerage houses charge monthly, quarterly or annual fees.  Any recurring fee is noted in this section: be it monthly or some sort of inactivity.  There are often ways in which fees can be waived; that information is provided in the discussion section for the brokerage firm.

Commission type

One of the complicated features of drawing comparisons among brokers is the diverse ways in which they charge commissions.  There are three categories:

• Flat means a simple fee that covers a set amount or an unlimited number of shares;
• Tiered means that there are two or more levels that depend on factors such as where the shares are traded (major exchange or on the Pink Sheets), the volume of trades placed by the customer or other factors; these items are addressed in the discussion section;
• Staggered means that the commission is dependent on the number of shares traded or linked more directly to the volume of business provided by the customer.

Some firms have really complicated commission structures, which are highlighted in the discussion section.

Stock Commission

This section shows the commission.  Where there are three numbers, they should be read as follows:

• Standard commission for a limit or market order
• Lowest commission that a customer might expect
• The highest commission that a customer might incur

Details are provided in the discussion section.

Mutual Funds

If the company offers mutual funds, the commission is listed.  Where different commissions are applied, the first figure is the lowest likely commission, the second, the highesst.  Mutual funds are tricky, because some are no load, some are load; there are also no fee funds, etc.

Foreign Ordinaries

Yes, if the firm allows you to buy or sell directly shares that are traded on a foreign (non-US) exchange.

DRIPs

If the firm will reinvest dividends as shares of common stock in the issuing company.  If there is a fee, it is noted here or in the discussion.

Investment Clubs 

Yes, if the company offers Club or Partnership accounts

Option commission

Options can be tricky because commissions depend on a number of factors; however, there are two figures provided in this section.  The first is the standard ticket price followed by the fee per contract.  Where different commissions or fees occur, the highest cost is provided in this section.

ACAT fee

If you decide to close your account and move your holdings to another brokerage firm, the ACAT fee is listed here.

DTC Receipt

Believe it or not, some companies charge if you deposit shares electronically into your account; that fee is noted here.

IRA annual fee

If the company charges an annual maintenance fee for an IRA account, it is noted here. |

IRA termination fee

If you decided to move your IRA to another broker, there may be an additional fee charged; that fee is noted here.  Some firms charge the ACAT fee on top of any termination fee.

It should be stressed that nothing in this article is a recommendation or endorsement of any of the companies highlighted.  Information changes regularly and errors occur, so please verify any information yourself on a given brokerage firm before making a decision.

A few more comments

Commissions: At many brokerage houses, commissions are negotiable.  I highlight the fact that TDAmeritrade, a favorite of many long-term investors, will reduce the commission if asked correctly.  I have found Schwab to be more stubborn.  Muriel Siebert stresses the point on her website.  If you don't like what you're paying it's worth asking.

Fees: Fees can be negotiable too, including maintenance, platform and software fees.  Brokers live on commissions and margin interest generated from accounts, so deep discount brokers are probably unlikely to concede on a request for a reduction if you don't create business for the company.  In this survey, we've given special attention to companies that don't nickel-and-dime buy and hold customers.

ACAT fee: This fee is charged when you move your account from one broker to another.  There are two things to keep in mind, one obvious, the other not.  What's obvious is that the receiving broker will often reimburse this fee to you to get your business.  The willingness to reimburse may depend on the size of your account.  You may be offered additional trades, free access to prime research for a limited period or some other incentive; you have to decided it it's worth it to take something other than cold hard cash.  The other, less obvious way to avoid an ACAT fee is to transfer your assets from one account to another through the clearing brokerage firm.  This option may be available if both brokers use the same clearing firm.  Almost all of the deep or shallow discount brokers founded in the last few years use Penson Financial Services.  Companies such as TradeKing, Zecco, Just2Trade, eOption, etc are, in fact, what's called "Introducing Brokers."  Your broker is actually Penson or the other clearing firm in question.  There is a form available from Penson that allows you to request that shares be transferred from one firm to another through a journal entry.  You have to create a target account first with the new broker, then complete the paperwork with Penson to have the shares moved.  I haven’t done it, but those who have state that it’s a painless and ACAT-free process!

IRA annual fee: The IRA annual fee is often negotiable too.  If you're paying one to your brokerage firm right now, why not ask them to rescind it.  If that doesn’t work, ask if you can write a check directly to the company rather than have the funds deducted from your tax deferred IRA account?  It helps you keep the money in the account, by paying the fee from a checking account.  I think this option is still “legal,” if there are IRS implications here, let me know.

Direct Market Access

One development that is welcomed is Direct Market Access or DMA.  DMA allows investors like you and me to interact directly with the specialist (NYSE), the market maker (NASDAQ), or select a specific ECN (electronics communication network) rather than dealing with a broker.  We're essentially working directly with the order book.  DMA should, in principle reduce costs.  Whenever you see a broker that quotes transaction on a per share basis, you're typically dealing with DMA.  Many, many discount brokers now offer DMA.

DMA has spawned a new industry of software writers for trading platforms.  These platforms are often integrated directly into the website of the broker; however, increasingly, you can buy off-the-shelf software and integrate it yourself into the website of your broker.  Increasingly, there are links on the sites of some discount brokers for developers.

DMA probably has little value for the long-term investor; it's certainly useful for traders.  However, anything that reduces transaction costs is good for us all.  When looking at websites, however, be careful of one thing: some exchange-related fees are passed through directly to the customers.  We don't see these costs on traditional discount brokers, but if you're dealing directly with a specialist or market maker you have to cover them.  There are upsides in that DMA can result in better pricing, because you can pick where you want the trade to execute, and the speed of the execution.  (Note, for a trader a quarter of a millisecond might be a big deal, for us 25 years is a quarter!).

There's one final note that makes DMA valuable to some: liquidity: actually, liquidity rebates.  It's not of much concern to us with discount brokers, but if you're dealing directly with the point of trade, you can actually generate revenue by creating liquidity, by decreasing that bid/ask spread which is often a penny or less on most NASDAQ and NYSE listed companies.  Dealing with a broker, we don't get those rebates.  Liquidity rebates is one way that some companies can offer low commissions.

Updates since 2011

A few changes have occurred since last year.

• Zecco has jettisoned free commissions for all customers and now charges a flat rate of $4.95 for most listed securities; $6.95 for OTBCC and companies on the Pink Sheets
• optionsXpress is now part of Charles Schwab & Company
• SoGoTrade is now part of Wang Investments
• MyTradz is now part of Folio Investing; MyTradz is no longer accepting new accounts, so was removed from the survey
• WallStreet*E ceased operations and was removed from the survey

Important Disclaimer

No recommendations are being made for any brokerage firm.  Efforts have been made to ensure that the information presented in the posts/articles on this subject are accurate, but they may not be timely.  Before making any decision, it is your responsibility to research the brokerage firm in question and base the decision on the information you find.