With the overall scores from our survey pretty clustered, it might seem like the top online brokers are practically the same. But those scores actually mask some significant spreads between brokers on certain features. This piece examines how our eight most-used brokers fared in the six categories that were most important to respondents.
Respondents scored reliability, order execution, commission price, speed of order confirmation, ease of use and customer service the most important features in choosing an online broker.
Ranking these features from 1 to 10 was perhaps the most time-consuming part of the survey for readers. But the effort not only makes the survey results more useful, it also represents an important step in choosing an online broker.
Traders "need to look at what it is they want," says Peter Ellison, president of
, a market research firm that monitors online brokers. "Then they can judge, 'Am I willing to spend this much to get the speed or service that I want?'"
Here's how the key categories break down.
Reliability hangs over online brokers' heads like the '98 election floats around
. After brokers failed miserably during the volume and volatility of late October 1997, the fear of another meltdown is always present.
With everything from sporadic access problems to chronic reliability issues still plaguing most brokers, it's no wonder traders still rate reliability the No. 1 feature they consider when choosing an online broker. Reliability was the most important feature in the last
survey in April 1998 as well.
Overall, brokers had a score of 3.7, an improvement over a score of 3.1 in the first survey.
, a unit of
Donaldson Lufkin & Jenrette
, won the category again, this time with a score of 4.1.
That's a big improvement over its score of 3.4 in the first survey, and it gained the most points in this category, along with
, a unit of
"DLJdirect is a very reliable service," wrote reader
in the comments section of the survey.
Blake Darcy, DLJdirect's chief executive, says the broker has spent millions working to increase capacity and add backup systems and redundancy. "We're continuing to fine-tune the system," says Darcy. "There's an awful lot of work accomplished in the background."
In addition, almost half the respondents who said they used DLJdirect said they used the broker's software to trade instead of its Web site.
, another DLJdirect customer, wrote: "I think their software is what has been the dominant factor in my not moving to other, less expensive brokers." The software speeds up access to trading and information, though it doesn't necessarily improve reliability.
placed second with a score of 3.9.
was at the bottom with a score of 2.7, a slight improvement over its dismal score of 2.4 last time.
problems began hurting reliability as early as the spring. "We've had systems that we outgrew," says Michael Anderson, president of the online brokerage, in an interview last week. "And it's not as easy as going to the store and buying a new Pentium PC." The firm is working on the problems, and some Ameritrade customers wrote that the broker had improved its services in the past few months.
"Ameritrade is cheap, but you get what you pay for ... access during high volume is terrible and executions can be suspect for sure," wrote
. The broker's (continued) poor performance in this category wins it a Stinker Award. (Please see our separate Stinker/Bull awards
; also, reliability is examined in a separate
Order execution is becoming a more important issue for online traders. In our first survey, commissions were voted the second-most important issue and executions the third. This time, they've switched spots.
As price wars have waned and commissions have dropped, online traders have a multitude of cheap trading options. But they're realizing that poor execution can cost them more money than high commissions. (For a discussion of why executions are so important, see our
piece from April.)
In this survey, respondents rated their brokers' execution performance 3.7 overall, compared with 3.2 last time. With
reputation for attracting day traders, its grabbing the top spot should come as little surprise. The firm touts its execution quality and speed, advertising that if a marketable trade isn't executed in 60 seconds, Datek waives the commission. It's a repeat performance for Datek -- it came in on top in the last survey with a score of 3.4.
"When all is well with Datek, trades are fast and prices are good," wrote
in his survey.
Below Datek, five brokers are clustered with solid results. Ameritrade came in last with a score of 3.4. All eight brokers improved from the spring survey.
E*Trade gained the most points, after Datek, thanks in part to the installation of a new technology platform over the summer. The system is designed to improve all aspects of trading and people's interaction with the site. Tuesday, it introduced a new service called Power E*Trade that aims to improve performance for active traders.
Discover Brokerage Direct
Morgan Stanley Dean Witter
unit, gained the fewest points.
Commission prices are still considered a top factor in choosing an online broker, especially among readers whose average trade is less than $5,000. Let's face it: Low commissions are a primary reason people trade online. In the last survey, however, low commissions were picked as the second-most important factor. This time they ranked third.
Across-the-board price-cutting by online brokers has stalled this year. According to
Credit Suisse First Boston
, average commissions remained steady at $15.75 from the second to third quarters, compared with $15.53 in the first quarter. Several brokers, including Fidelity and DLJdirect, have implemented tiered commission structures that favor active or high net worth traders.
Overall, respondents were satisfied with commissions, rating them on average 3.8, compared with 3.4 on the last survey. Datek users were the most satisfied: Their firm enjoys an impressive 4.8 rating. Its commission for online trades of up to 5,000 shares is $9.99, so it has low, but not the lowest, commissions. Ameritrade, which has an $8 base commission, also had a score of 4.8. Ameritrade and Datek came out on top in the last survey as well.
With a base online commission of $29.95 for up to 1,000 shares,
brought up the bottom with a score of 2.6. That score wins it a
Stinker Award. Comments on the survey that its commissions were just too high for frequent traders were not uncommon. In the first
survey it also came in last with about the same score.
Despite those marks, Schwab has repeatedly said it has no plans to cut commissions, saying that customers get a lot of value for their commission fees, including a wealth of investment information online (there's a link to
, among other publications) and several trading channels. Considering Schwab's hold on about 30% of the online trading market, it seems many customers agree.
"With Schwab, I pay more in commissions (relative to online competitors) in exchange for a greater comfort level in trading," wrote Chris Karlin.
A standout on commissions was
Brown & Co.
(a "League B," broker in this survey; please see our
piece). Despite the relatively small sample size, Brown & Co. came out undisputedly ahead of all other brokers with a 5.0 rating. Its rating matches its commission price -- $5 for market trades up to 5,000 shares. "It's not a commission, it's a tip," says Chairman and Chief Executive George Brown on the Brown & Co. Web site. (You can read more about Brown and four other smaller brokers on Friday.)
Please take a
at Part 2 of our category breakdowns.
The technical side of this online brokers survey was conducted by
, October 1998.