What Works on the Best Overall Brokers for 2001

A new year, a new broker?

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Click here to see Monday's and Tuesday's features

If you are thinking of switching brokers or of starting to invest online, you've got scores of broker alternatives. As part of TSC's year 2001 outlook package, What Works offers its assessment of the best online brokers. As always, let me know if you agree or disagree.

How Do I Judge?

To do my analysis, I relied in part on TSC's prior reader satisfaction surveys. These surveys include views from thousands of TSC readers on their broker experiences. I then added some of my own analysis. I'll let you know where that comes into play, so if a feature is less or more important to you than to me, you can veer off and choose a different broker.

Finally, I'm limiting myself here to the seven brokerages that consistently get the most votes in the survey: Ameritrade, Datek, DLJdirect, E*Trade, Fidelity, Schwab and TD Waterhouse. While there are more than 100 others, these are the ones I have the most information on from our surveys. Also, with the arguable exception of Datek, these are all "full-service" online brokers, so it's a nice apples-to-apples comparison. If you're looking for a very specific service, like options or direct-access trading, this analysis won't be helpful to you. (See Mark Ingrebretsen's treatment of the options and direct-access topics.)

Since I started covering these brokers in 1996, they have improved dramatically. Today you can't go too wrong with any of these seven firms. But since you've got to put your money somewhere, I'll try to help you weed some out to arrive at a choice.

Ta-Ta to TD Waterhouse and E*Trade

Waterhouse has to be first to go. It took last place in almost all of readers' most important categories in our two surveys in 2000. It's not the last place that bothers me, but the consistency. Of all the firms, Waterhouse has demonstrated the least effort at improvement for online investors, or perhaps has shown the least success. What recent developments have we seen? They raised the price of online limit orders from $12 to $15 and discontinued stop-limit orders online. Reader complaints keep coming in.

"Waterhouse gives endless promises about improving customer service, where, in reality, their phone 'support' is deplorable, they're raising online trading rates when everyone else is lowering them to be more competitive, and they're eliminating features they used to tout (such as no more online stop-limit orders) ... are they serious?!? Giving less ... charging more ... hmm ... what's wrong with this picture?!? The time has come for a new broker!," wrote a reader in our most recent survey.

E*Trade is a tougher call. E*Trade has long had a bad rap for customer service. In my view, customer support is something that's either inherent to a corporate culture or not. Plus, E*Trade's had a weak track record in our survey on reliability -- a sister to customer service.

Still, E*Trade is trying to turn around. It has beefed up its customer service and technology over the past couple of years, and it's starting to show in reader feedback. "E*Trade rocks vs. where they were last year. They were down to their last chance with me, but they have really turned the corner with their reliability, speed and site upgrades," one reader wrote. Says another: "I've used E*Trade for a few years now and they are getting better."

It's all good to hear, but if it were my money, there are other brokers with fewer scars and basically equal services. I'd wait a while to see if this new E*Trade era sticks.

One exception on both Waterhouse and E*Trade: banking. With Waterhouse owned by Toronto-based TD Bank Financial Group, and E*Trade having recently purchased online bank Telebanc (now E*Trade Bank), these two brokers offer strong banking services, our readers have attested. If that's important to you, consider them.

Ameritrade

Ameritrade has been climbing the charts in our surveys over the years. While Ameritrade didn't do well on customer service back in '98, it took third place in both of our surveys this year on this important feature. And on reliability this year, it jumped from fifth to third.

My issue with Ameritrade is that it's not a standout in any respect. At $8, its market orders are cheaper than at any of our seven firms. But stop and limit orders at Ameritrade are an extra $5. If it's cheap trades you want, you might be better off at Datek. It charges $9.99 for market and limit or stop orders. Plus, Datek has some better features for commission-sensitive active trades, including a portfolio tracker that updates in real-time; with Ameritrade, it's an overnight update.

On the fuller-service end, the broker lacks some full-service type features, like Wall Street research and IPO access.

Ameritrade has improvements in the works. A streaming quote service (no "refresh" needed), for example, is expected to be in place early next year. But Datek already has that. If I were opening a new account right now, I wouldn't find this firm the most compelling.

Datek

If Datek is right for you, it's very right. Essentially a trader's service, it's done well in our surveys for best executions, real-time quotes, fast order confirmation, easily implemented complex trades, and after- and before-hours trading. If Datek doesn't execute your market order in 60 seconds, it'll eat the commission. Recently, it added a "direct-access"-type service that could improve order executions even further.

But Datek is more niche than full service. Datek's customer service is decidedly middling. They push you to use "AskJeeves"-like search technology that is a waste of time. I input, "Do you have a stock screener" and got nowhere, when it, in fact, has a real-time screener. Plus, Datek fell from third to fifth on reliability in our most recent fall survey - not the right direction. Very low-frills, Datek didn't offer options trading until this fall, and you won't find wireless trading or, say, retirement-planning tools.

So if you're a Datek type, go with it. But if you're not, read on.

Fidelity, Schwab and DLJdirect

This is the toughest call. All three of these firms are full service, and they're all pricier, commissionwise, than the first four we've looked at. Fidelity's main attraction is that it has consistently ranked tops in our survey on customer service. The firm has 77 "investor centers" for live human help, and it's less costly than Schwab. While its basic commissions are hefty, the active trader discount kicks in quicker and deeper than you'll find at Schwab. Still, readers have said its Web site is slow and difficult to navigate.

Schwab has ranked second to Fido in customer service. For branch fiends, it's got more than 350 offices. But Schwab's got those Cadillac commission costs, as the chart below shows.

Costly Commissions
Broker	Regular Customers	Basic Active Trader Discount	Active Customer Definition
DLJdirect	$20/1,000 shares, $.02 each add'l share	$20/5,000 shares, $.02 each add'l share	Customers with $1 mil in assets at DLJdirect
Fidelity	$25/1,000 shares, $.02 each add'l share, plus $5 for stop/limit orders	$14.95/1,000 shares plus $.02 each add'l share, plus $5 for stop/limit orders	Accounts that trade stocks, bonds or options 12 or more times in a rolling 12-month period.
Schwab	$29.95/1,000 shares, $.03 each add'l share	$19.95/1,000 shares plus $.02 each add'l share	31-60 trades in prior quarter
Source: Broker Web Sites

DLJdirect strikes a nice balance between services and price. Unlike Fido, for example, it's got real-time portfolio updates for all users, not just "power" customers (Schwab does, too, if you hit "recent transaction"). And while regular account holders have to pay for its streaming quote service, at least it's not restricted to active customers.

DLJdirect is repeatedly tops in reliability, a critical trait. It's done average on customer service in our survey, which is not good. But I find the Web site to be one of the clearest in explaining features and services. (I've also found a couple of mistakes on there too, which they've acknowledged when I've pointed them out.)

At $20 a trade, DLJdirect has the lowest commissions of the three. However, if you like access to an actual office, this firm is not for you. It has only recently started opening branches.

All told, DLJdirect's a good choice unless you crave human contact.

For Further Research

These brokers change all the time. To find out the latest, check www.gomez.com, and a helpful site run by one fellow, www.sonic.net/donaldj. Online Investor, a newsstand magazine, is also a good source. And TheStreet.com will continue its surveys in 2001.

Finally, if there's a feature that's really important to you, call the customer service number at a broker you're considering and ask about it. Then, hang up, redial, and ask someone else, just to make sure you're getting the right information.

Besides, if a broker can't get the facts straight, maybe you don't want to place your trades with them.