Online Brokers Making Their Customers Happy

Like C students prodded to live up to their potential, online brokers have improved their once-dismal performance, according to TheStreet.com's second reader survey of online brokers.

Exactly one year after online brokers failed to pull their weight on Gray Monday, Oct. 27, 1997, TSC asked readers to tell us just how their brokers are doing these days. More than 3,300 readers filled out the survey and affirmed that brokers spent the spring and summer making things better. Though the young industry is still far from perfect, the survey shows that overall it's doing a better job satisfying customers than it did just six months ago when we did our first survey.

"Ameritrade is much improved over just a couple of months ago," wrote reader Joseph G. Malnar in his survey. Noted reader Berrie Boyse: "Schwab has improved a lot in the last six months. Overall, I am quite satisfied and I expect Schwab to continue improving in the future."

That's the good news.

What's disappointing is that once again, nobody managed to hit on all eight cylinders. Brokers had distinct strengths and weaknesses. Datek was our overall winner. But it had its gaps. It's toward the back of the pack in terms of reliability, apparently plagued by continuing access problems at the opening bell. And some brokers, like Ameritrade, performed poorly in more categories than they performed well in. We gave that firm two TSC Stinker Awards (more on those later) for its scores in reliability and order confirmations.

Best Overall Five was the best-possible score. Rank Firm Score 1 Datek 4.1 2 DLJdirect 4.0 3 E*Trade 3.9 3 Fidelity 3.9 3 Waterhouse 3.9 4 Schwab 3.8 4 Discover 3.8 5 Ameritrade 3.5

With no broker outstanding, choosing the best online broker remains a complex series of trade-offs that forces investors to identify priorities and sacrifice some features to gain others. This survey pinpoints brokers' particular strengths to help you make your choice.

Time for a Change

It's been a pivotal six months for online brokers. In the third quarter, daily online trades averaged 253,000, a 33% increase over the first quarter of the year, according to Credit Suisse First Boston. More people, including many who aren't active traders, have started to trade online, bringing a host of new demands with them. And traders, now more experienced, expect better and more services.

In response, many brokers have worked to improve their technology and trading systems, adding capacity to accommodate heavy-volume days and improving hardware and software to speed things up. Many have added new features, including robust mutual fund trading, institutional research and more news and tools. Some have also revamped their sites to make research and investment easier and faster. Others, however, haven't kept up with the pace of change.

"They have made significant progress since October '97," says analyst Bill Burnham at Credit Suisse First Boston. But "there's still a long way to go."

It's those changes, or lack thereof, that we aimed to gauge in this second online brokers readers survey. We matched what survey-takers told us were important in choosing a broker with how the most-used firms performed in those categories. In short, readers picked the winner.

Getting Better Every Day

The eight most-used brokers (these are the "primary" brokers of 5% or more of the readers; it's the same list as in April) increased their scores in the categories that were most important to readers. For example, DLJdirect, a unit of Donaldson Lufkin & Jenrette (DLJ Quote), was No. 1 in reliability in both surveys, but its score rose to 4.1 from 3.4. In order execution, Datek went to 4.1 from 3.4 as well. In addition, 62% of respondents said their online broker had improved in the past six months. In the reliability category, which respondents once again rated the most important feature influencing their choice of broker, the average score jumped to 3.7 from 3.1.

As services have improved and traders have grown accustomed to trading online, traders' priorities have shifted. No longer are commissions the focus they once were. Overall, trade execution is more important to respondents than commissions and is second only to reliability. Order confirmation ranked fourth, with easy-to-use service and customer service next.

What's to Come

To give a clear picture of the seemingly voluminous survey results, we've put together a package of stories to help readers figure out which broker is right for them in the evolving online-trading market.

Today, we're writing about Datek, the broker that scored the best, though just barely. We also explain how we crunched the numbers from over 3,300 responses.

Tuesday

Check out how the top brokers did in the categories that were most important to TSC readers, and which brokers haven't made the necessary improvements. The firms that really underperformed their peers in given categories got a TSC Stinker Award. Outstanding performers received the Bull Award. Finally, we provide snapshots on the eight most-used firms, summarizing their strengths and weaknesses.

Also on Tuesday, we'll be answering questions about the survey and online brokers in general on a chat at 5 p.m. EST on Yahoo!. Join in, with your questions, at http://chat.yahoo.com. (It's free!)

Wednesday

Get an idea of just who's trading online. What type of traders are TSC readers? How much do they trade and what size trades do they make? What brokers do they use and do they use another type of investment service as well?

Plus, with the help of the survey results, TSC options writer Dan Colarusso takes a look at options traders' choices among the online broker crowd.

Thursday

We delve into the still-simmering No. 1 issue in traders' minds -- reliability. Things have improved, but would you want a broker that still had access problems lasting longer than an hour?

Friday

We take a look at five smaller brokers usagewise and how they did on important issues. These brokers didn't generate enough traffic to be included in the top eight but had enough responses to make the data worth a look. (How we made the distinction is explained in Monday's methodology piece.)

Overall, if there's one thing this survey demonstrates, it's that traders know best. And that's still true even though this particular survey is finished. So please join us at the chat and send us your comments on the survey -- what you found helpful, what you thought was missing -- as the week rolls along.