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Checking out the online brokerages
By Laura
Bruce • Bankrate.com
 Surprise!
Surprise! The semiannual Bankrate.com Online Brokerage Survey shows
it's gotten more expensive to trade stocks online since our last
look.
OK, so you expected that. What may be a surprise is
that it's gotten cheaper to trade mutual funds online. Another improvement
is that online brokerages seem to be better at answering your questions
when you call their support personnel.
The Bankrate survey looks at the top online brokerage
firms and examines them from the perspective of someone who is considering
opening an online account.
We looked at what it would cost you to open an account,
make a stock trade online, by touchtone phone or with the assistance
of a live person, what it would cost for a market order vs. a limit
order and the costs involved in trading mutual funds -- loads and
no loads.
We also talked to support personnel, asking questions
you might ask, to see whether they were knowledgeable, courteous
and responsive.
We did talk to one less brokerage this time around.
Merger and "take-over" mania isn't just in the banking
business. Quick & Reilly bought SureTrade since the last study,
and Credit Suisse acquired DLJDirect -- the new name is CSFBDirect.
Another acquisition just announced -- E*Trade has
acquired Web Street Securities. Web Street's office locations will
be transformed into financial superstores called E*Trade Centers.
Some companies have made significant changes in services.
- A.B Watley has discontinued touchtone trading,
as did Web Street Securities.
- Ameritrade and MSDW Online now offer live-assisted
trading 24/7.
- Brown & Co. is eliminating its 12 branches.
- Online brokerages offering 24/7 live assistance
for trades have increased from 48 percent (12 out of 25) to 54
percent (13 out of 24.)
- Online brokerages offering 24/7 touchtone trading
have decreased from 88 percent (22 out of 25) to 79 percent (19
out of 24.)
Trading support
If you're considering opening an account but have questions not
answered on the Web site, these employees will be your first contact.
Almost across the board, the online brokerages' call
centers handled our questions and requests better than during the
last survey.
Questions about mutual funds were the biggest stumbling
block at that time. We had so many inconsistent answers that our
researchers resorted to e-mail to try to nail down the answers.
That situation has changed dramatically. Almost always,
phone staffs were knowledgeable and courteous and, with few exceptions,
our requests for information packets were received in a reasonable
amount of time.
Minimum to open
The average minimum to open an account to trade stocks is $1,813
-- up from $1,680. As before, Brown & Co. has the highest minimum
at $15,000, but 10 companies don't require any money to open an
account. The remaining firms have minimums ranging from $500 to
$5,000.
Maintenance fees
Five brokerages -- Quick & Reilly, American Express, E*Trade,
Fidelity and Charles Schwab -- charge a fee to maintain the account.
All of them waive the fee if you maintain a balance that can range
from $5,000 to $30,000, depending on the brokerage.
Be aware that there are a variety of services that
will cost extra -- wire transfers, returned checks, legal transfers,
certificate delivery, special registration of stock certificates,
stopping a check and duplicate copies of statements. Read the Web
site carefully for a complete list of fees.
Online market and limit orders
The cheapest way to trade is to place a market order online. A market
order means you'll accept the going rate for the stock whether you're
buying or selling. A limit order allows you to specify the price
at which you will buy or sell. Many firms charge extra for limit
orders.
The average cost for an online market order is $17.36,
up 40 cents since our previous survey. Fees range from $5 at Brown
& Co., to $29.95 at four firms.
The average price for an online limit order has gone
from $18.60 to $18.97. A.B. Watley charges the least, $9.95, while
Fidelity's $30 is the most expensive.
Touchtone trades
The second least expensive way to place a trade is do-it-yourself
with a touchtone phone. The average fee for a market order is $25.98,
a 6.5 percent increase from our previous study.
The average fee for a limit order is $27.54, also
a 6.5 percent increase.
Unfortunately, five of the brokerages don't offer
touchtone trading. This eliminates a mid-tier pricing level for
trading.
Live broker
Calling your brokerage and asking for a representative to help you
make a trade is the most expensive method. The average cost of a
live-assisted market order is $36.22, up from $36.13.
The live-assisted limit order fee averages $37.41,
up from $37.35.
A.B. Watley discontinued touchtone trading services
but has dropped the price of having a representative assist you
from $23.95 to $17.95.
Mutual funds
If mutual funds are your game, the average minimum to open a fund
account is $1,962 -- down from $2,458. Three firms charge the highest
minimum -- $5,000. Two companies don't have a minimum; many simply
request whatever minimum a particular fund requires.
Once again, our survey looks at three categories
of mutual funds, so you can compare the costs side-by-side.
NTF funds: "No
Transaction Fee" funds don't charge customers a transaction
fee for the buy or sell order or a sales commission (load.) However,
many charge an early redemption fee if you don't hold the fund for
a minimum period -- usually 30 days to six months. Early redemption
fees can be as high as $75. If you know which funds or fund families
you want to invest in, be sure to see if it is rated as an NTF fund
with a brokerage that you are considering. The NTF group of funds
is not the same from one brokerage to another.
Non-NTF no-load funds:
There's no sales commission but there may be a transaction fee unless
you buy the fund directly from the fund family.
For instance, if you buy a Fidelity fund directly
from Fidelity, there's no transaction fee. But if you have an online
brokerage account with Charles Schwab and you want to purchase a
Fidelity fund, you could end up paying a transaction fee. Always
try to buy a fund directly from the company if you don't mind having
more than one account statement each month. For those who want one
consolidated statement and know which funds they want to invest
in through the online brokerage, be aware that the transaction fee
on the specific fund can vary widely from one broker to another.
The average cost to trade a non-NTF, no-load fund
is $27.95. That's down from $28.12.
Non-NTF load funds:
You'll pay a sales commission for these funds. If you pay $1,000
for a fund with a 5 percent load, $950 will go toward purchasing
shares in the fund, $50 will go for sales commission.
In addition to the sales commission, you might also
pay a transaction fee. The average transaction fee to trade a non-NTF
load fund is $13.54 -- down from $16.08.
Walk-in branches
If having a branch nearby is important to you, your options are
limited. Only a few online brokerages -- Scottrade, MSDW Online,
Quick & Reilly, TD Waterhouse, Charles Schwab and Fidelity --
have an extensive branch system that is directly available to the
online account holder.
Brown & Co., is joining the ranks of those that
have none -- closing its 12 branches. Using a branch for anything
other than dropping off checks may cost money. Be sure to ask about
fees.
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