Going bonkers choosing a broker? These Web tools can help.
As I wrote
earlier this month, online brokers are desperately trying to find the right mix of service and price in order to win and hold customers. As a result, new deals are constantly being fielded -- everything from free DSL service (from
E*Trade.com) to commission-free trades (at
FreeTrade.com, among others).
Besides their special offers and come-ons, online brokers also offer a baffling array of services and features. The commissions they charge are only the beginning. Margin rates differ widely. Some give you access to thousands of mutual funds; others force you to pick from a pretty short list. Some answer the phone just moments after you call for help or advice. Others will put you permanently on hold.
Fortunately, some good Web sites out there can help you compare and contrast the many features offered by online brokers. If you don't mind doing a little homework, you can find out things like: What are the most common gripes people have with brokers? Or, how fast does a particular broker serve up pages to your screen? There are even a couple of online data-mining tools that allow you to build a search for the ideal broker based on your own preferences.
Let's start with the big picture. If you're a regular
reader you'll probably recall this site's own
broker survey last April.
as the best overall online broker. But they also said all online brokers -- although improving -- still suffered too many system crashes. They also complained that not enough brokers offered decent access to IPOs, and not enough provided streaming real-time quotes. The link above will take you to a series of articles that provide background on the current state of the brokerage business.
Gomez.com, of course, has carved out a potent niche as the
of Internet shopping -- and that applies to shopping for an online broker as well. The thing I like best about this site is that it defines different categories of traders and suggests what brokers best cater to this group. All right, maybe it's a little simplistic, but Gomez.com still helps you know thyself. For example, you are a "hyperactive" trader if you trade so often you don't want to enter your password each time you enter an order. You're a "one-stop shopper" if you want insurance, banking and trading all at a single Web address. Gomez.com also provides capsule reviews of major online brokerages. The key word here being "major." No site on the Web seems able to keep track of the exploding number of new brokerages.
Winners and Sinners
Finally, Gomez.com allows you to review comments about online brokerages left by other visitors. Read through them and you'll quickly see that there's a lot of anger out there over things like outages and inconsiderate customer service. But don't let one or two comments deter you. Instead, look for patterns in the complaints. And search for other opinions. Just enter the brokerage name and do a search of the discussion threads at
Yahoo! Finance and
Silicon Investor. And, of course, both the
Securities and Exchange Commission and the
Nasdaq maintain lists of brokers who have allegedly committed more serious
Money.com -- as in
magazine -- also separates brokers by the type of traders they cater to. Plus, the site features a simple online quiz that helps you select a brokerage. But when it comes to reviews,
Don Johnson at
Online Investment Services
may do a better job than either Gomez or Money.com. The retired university professor has come up with his own specialized categories of brokerages -- those that cater to options traders, daytrading brokerages, discount brokerages and so forth. His reviews are some of the most thoughtful and thorough on the Web.
CyberInvest allows you to quickly compare online brokers via a chart that takes up your entire screen. (I hate to reveal my sources, but this is a great place to get side-by-side comparisons for lots of different categories of financial sites -- from investment supersites to Web sites for mutual fund investors.) CyberInvest's charts come with articles to help you choose an online broker.
Charts and articles by themselves are somewhat static and pre-Internet in their approach. Wouldn't you agree?
Xolia.com goes the next step with its "Online Broker DecisionMaker." Just answer a series of questions and --
-- the online tool narrows down a list of 60 brokers. You can then call up an extensive list of each broker's services or make side-by-side comparisons of up to four online brokers.
Time and Money
Keynote Web Brokerage Index. Each week the site tests the performance of major online brokers. Just enter a broker's name and you get to see how fast its pages download vs. the competition. Keynote uses a super-fast T-1 connection to simulate trades at various broker sites, but it doesn't actually buy the securities outright. So investors may not see the same results at home.
OK, you're probably thinking all of this is a lot of work. However, consider the importance of even the small differences that distinguish one broker from another. Say you read about some turbo-charged new fund and you're hot to buy it. Then you find out your broker handles only the top 3,000 or 4,000 mutual funds. Or say you decide to make options an important part of your investment strategy. Prices for options trades can run at $15 per order at
Dreyfus Brokerage Services, while
Morgan Stanley Dean Witter Online charges a minimum of $35 per order. Long term, these differences in fees can greatly affect your returns, especially if you're an active trader. In other words, it pays to do your homework.
One nice thing about switching to an online investing account: You don't have to explain your reasons to a live broker who will act like he or she is taking it personally.
Mark Ingebretsen is editor-at-large with
Online Investor magazine. He has written for a wide variety of business and financial publications. Currently he holds no positions in the stocks of companies mentioned in this column. While Ingebretsen cannot provide investment advice or recommendations, he welcomes your feedback at