Consumer Reports Discount Brokerage Ratings 2012

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I recently started subscribing to Consumer Reports magazine again, and the February 2012 issue included an article about the major financial brokerage companies (subscription required, press release). The first part was an investigation about the big firms (ex. Citibank, Fidelity, Schwab, T. Rowe Price) and their pre-packaged investment plan advice, and the second part was a survey on the quality of service from discount brokerage firms (ex. E-Trade, Ameritrade, Scottrade).

Consumer Reports is always unique because they don’t take any advertisement money at all, and so they sent in their own staffers anonymously (by this I mean they didn’t disclose they were writing this article) and then had the resulting advice analyzed by independent financial planners. Here were my takeaway notes:

  • Many firms will offer some level of “free advice” if you have a certain level of assets with them, usually $100,000+.
  • Good news: In general, the free advice is okay, but not surprisingly it tends to be boilerplate stuff.
  • Bad news: Most people you talk to won’t provide you fiduciary duty. Most of them avoided disclosing how they were paid, and one researcher got pitched a complicated variable annuity after just a brief initial consultation.

I think fiduciary duty is a big deal, as I see no point in paying even a penny for financial advice if they won’t even promise it is in your best interest. Just seems like common sense to me. I don’t think I would bother to take them up on this free advice unless they were fiduciaries.

Self-Service Brokerage Firm Reviews

The Consumer Reports survey revealed that readers were “very satisfied” with 10 of 13 major brokerages, but it also left out a lot of the cheaper guys like OptionsHouse ($3.95) and TradeKing ($4.95). They seem to run this survey every few years, so here are the publicly-available May 2009 ratings:

One new change was that they separated out the “full-service” brokerage firms like Ameriprise, Edward Jones, and Morgan Stanley. In comparing the remaining “discount/online” brokerage firms, it’s noteworthy that the top 4 stayed the same for both 2009 and 2012, although the order changed slightly:

  • USAA Brokerage – $8.95 trades at basic tier. Also offer banking and insurance products, although insurance is limited to the military-affiliated. Good all-in-one choice for military-affiliated.
  • Scottrade – $7 trades, limited free ETF trade list. Large physical branch network. Has more active-trader tools than others on this list.
  • Vanguard Brokerage – $7 trades at basic tier, all Vanguard ETFs trade free. Best known for low-cost index mutual funds.
  • Schwab – $8.95 trades, limited free ETF trade list. One of the original “discount” brokers, also expanding into banking.
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  1. Nice summary. Do any of the online discount brokerages with a free ETF list allow you to automatically purchase a security with your periodic funds transfers? I can’t seem to fine one. You can basically do this with Sharebuilder but the fees really start to add up. Doesn’t seem like it should be that hard to program their websites to let an investor dollar-cost average with free ETFs without having to log in.

  2. I noticed Zecco didn’t even make the list. That’s because they suck.

  3. Vijaianand From says

    Informative report. I thought Ameritrade has one of the best tools like Strategydesk but surprised to see Scottrade since their tools don’t go that far.

    @Jason, I think Vanguard do have automatic transfer option which you should be able to buy their ETF’s. I haven’t tried buying their ETF but tried their auto transfers.

    @Jonathan, you missed “r” in FREE – Vanguard Brokerage – $7 trades at basic tier, all Vanguard ETFs trade FREE.

  4. Jason, I’m looking for the same thing! Sharebuilder and FolioFN are all I’ve found, but I think their fees are too expensive for a small number of automatic purchases.

  5. I used to have Zecco for my IRA account… with over 25k asset you get free trades (25?) every month. That’s more than enough for a buy and hold account like IRA. After the free trades went away, I moved to ThinkorSwim, whose customer service is top notch and the desktop interface is very sleek… the commission is negotiable, too.

  6. I just switched from E-Trade to Interactive Brokers. E-Trade has a lot of bells and whistles, but I got tired of the commissions and didn’t need all of the extras. IB has an excellent trading platform and rock-bottom commissions.

  7. @Jason, Loren – Dollar-based recurring purchases are still more easily made with mutual funds other than with Sharebuilder and FolioFN. The main appeal of ETFs is intraday trading and lower expenses, but with commissions and bid/ask spreads the expense difference may not matter as much. What ETFs are you trying to buy that isn’t served by a mutual fund?

    Also, with Vanguard mutual funds you can convert your fund to ETFs later if there is an ETF option.

  8. I’m going through trying to find the best broker now. I had accounts at E-trade, Vanguard and Schwab and wanted to consolidate somewhere. (I also login frequently to Fidelity as I manage an account for someone there.)

    I would LOVE people’s opinions on this board as to who to go with as many of us are on the same page. (An asset allocation of low cost ETFs diversified amongst many asset classes.)

    I opted to move everything to Schwab, but am now regretting it. Here is why.

    1. Schwab doesn’t allow you to look at account balances from other institutions to get a picture of your net worth. Vanguard DID allow this and it was a nice feature.

    2. You are limited to something like 4 “target” asset allocations based on your risk tolerance. I like the idea of of having a target asset allocation that will alert you when you are off track, but thinking 4 pre-sets will meet the needs of a diverse set of clients is ridiculous. As I want to include asset classes like REITs, Micro-caps and Commodities, I pretty much have to export this data manually to track myself, but Schwab is worse than most.

    3. While Schwab does have access to their free ETFs (which have low management fees) the liquidity on these products is VERY low. If you wanted to do any sort of options trading, (e.g. selling a put to get a premium and possibly a lower entry price) it is just not effective. Vanguard ETFs are much more liquid in this sense.

    So why didn’t I move everything to Vanguard? They are at their heart a mutual fund company and their brokerage has always been a step behind. I hated that if I wanted to buy ETFs and mutual funds in my IRA there, I had to open TWO separate accounts. (An IRA brokerage account and and IRA mutual fund account.) It made things a complete mess. Also, their brokerage fees and interface weren’t as slick as true trading interfaces like StreetSmart from Schwab or E-trade which is fantastic.

    So what am I doing now? I’m considering moving everything to Ameritrade of all places. Their trading platforms are constantly being updated with the latest technology and they offer 101 of the most popular and liquid ETFs for free. (They really are the best of breed ETFs.)

    Anyone run into similar issues? What system does everyone use out there and do you like it?

  9. Also, here is Kiplinger’s report on the subject which is free. Ameritrade is #1 there…

  10. Jonathan,
    Do you have an account with Vanguard? Is their brokerage service similar to Fidelity (i.e. there is a way to trade stocks besides buying mutual funds)?

  11. I assume that red circles are good and black circles are bad?

    I have a Scottrade account. Their website design is not the best I’ve seen but it works well enough. They also have local branch offices which is a huge convenience. I’ve been very impressed with their phone support as well.

    I have Fidelty on my 401k through work and they are great. My wife has Schwab for one of her 401k accounts and she likes them a lot too.

    I had E*trade years ago and they were awful. Apparently they’ve improved since then but their service was quite bad when I had them.

  12. Jonathan – the ETFs I’m interested in are available as mutual funds, but the fees are much higher. For example the mutual fund fees on Vanguard’s emerging market fund are higher, plus a purchase and redemption fee apply vs. lower annual fees and no purchase fee for the ETF with Vanguard brokerage. Also you basically get admiral class (lower) fees with small investments in the ETF. REIT ETFs are also a good bit cheaper vs. their mutual fund counterparts. With the free trading, low expenses and lack of an annual fee, I think Schwab is best for me, but it’s weird that I have to log in after each paycheck/automated funds transfer to buy. Anyway, I agree with you that right now it’s a trade off (ease of investing vs. low fees), but that’s only because none of the brokerages that offer no-fee ETF trades also offer the chance to pre-program asset purchases on a funds-available basis. First one to do it will have an advantage, so it’ll happen, but it’s a pain in the meantime.

  13. @Harish – I do have a taxable VBS account where you can trade stocks and ETFs. It’s basically a separate account from the mutual fund account, but it all shows up on the same page just separately online. It’s not designed for active traders, but it works fine for me. I didn’t open up a VBS accounts for my IRAs.

    @Jim – Yes red circles are good (full best) and black is bad, white is middle.

    @Jason – I get your problem, but I wouldn’t hold out too much hope for the auto-market trades, especially dollar-based ones. Sharebuilder is doing okay but I don’t see all that much demand and the profit isn’t really there for the brokers.

    Keep in mind that Admiral shares of VEIEX at $10,000 have the exact same expense ratio as the ETF. If you buy say $400 at a time, the 0.25% purchase fee for the mutual fund is just $1, and you can convert to the ETF later unless you want to wait until Admiral.

  14. had horrific experience trying to open roth 401k with Etrade. Sent in their huge application (they’re too cheap to send postage paid envelope, should have tipped me off there what they think of their customers). Waited 3 weeks, zero contact from them, so i call and told my app is on hold for missing a page. I confirm that is all they need and mail it in. Another 2 weeks, get a phone call that i am missing pages, but when i call them am told call was a mistake. Another 2 weeks not one word from them, i call and app is on hold again for “missing” more pages i was never told about. Over a month of this nonsense and still no etrade 401k. With vanguard now, well worth the $20 fee.

  15. This article is misleading. Consumer Reports released 2012 ratings, but the graph is from 2009.

  16. @bill – I can’t show you all the details from the article without copyright infringement, as they obviously want it to be subscriber-only (I am a paying subscriber, and you can see it too if you are as well). But i did share my overall response as well as that the rankings for 2012 aren’t all that different from 2009, and the top 4 discount brokers are the same for both year.

  17. I’m pleased to see that TradeKing didn’t make the cut. Contrary to a surprising consensus otherwise, I found their service poor, starting from how endlessly long it takes to deposit money for trading.

  18. I have been a Scottrade user for about 3 years. I have contacted my local branch offices on numerous occassions for technical questions and they have always been very helpful. They offer introductory trading classes and are a good networking opportunity to meet people within the industry.

  19. Surprising that Fidelity scores lower than Vanguard. I recently moved all my holdings to Fidelity away from Vanguard since I found it better.

    For instance, Vanguard requires 2 accounts if you want both mutual funds and ETFs, which is annoying.

  20. I’d also be interested in your overall thoughts on CR. I’ve thought about subscribing but it’s unclear how much benefit it is over free stuff online.

  21. Cabron James says

    do you do “custodian diversification” & hold accounts at 2 or more custodians such that if any 1 custodian fails ala MF Global (however unlikely), you do not lose most your nest egg, or lose access for some time period to most of your nest egg? Especially in the US, as 1 may need to randomly access their nest egg due to a sudden personal/family healthcare crisis. (BTW Jonathan, it would be interesting to get your take/blogpost on the notion of “custodian diversification”).

    I’ve been very satisfied with Vanguard, to the point where my preference if available for any financial/insurance/real estate (“FIRE”) service is the “client-owned”/mutual/credit union organization, as opposed to a shareholder-profit corporation.

    However, for investment account custodians, do any organizations other than Vanguard exist, if I wished to do custodian diversification?

    USAA – apparently 1 has to have legitimate personal or family connection to military which I don’t

    TIAA-CREF – from quickly browsing their page, their offerings & fees seem horrible relative to Vanguard. Furthermore, I may not even be eligible anyways, similar to the USAA “membership” issue.

    If no suitable client-owned custodians are available, I suppose the Private corp org model of Fidelity might be superior to the Public stock corp org model of Schwab. Perhaps Fidelity is less likely to screw customers to make Quarterly Rev/Profits, less likely to be acquired & subsequently change their offering/prices, etc.

    I am happy that Vanguard exists, but wish 2 other Vanguard-ish custodian orgs also existed.

  22. Cabron James says

    I am surprised at that 2009 Consumer Reports “moderately poor” rating of Vanguard’s Phone Service.

    Vanguard phone reps were excellent during the Rollover process of moving my old job 401k into Vanguard. They agreed to do a vital call “conference call” style with myself, the Vanguard rep, & the clownish old job 401k org rep. This made me feel confident that I would not get screwed over by incompetence or malice by the clownish 401k org during the rollover process.

    Initially, I was disappointed that Vanguard did not have local offices, but the excellence of the Phone Service obviates the benefit of local offices imho.

    since opening my Vanguard VBS account, I notice a qualitative superior difference bt Vanguard & the typical FIRE (finance, insurance, real estate) service phone rep.

    First off, the “wait on hold” process is much less at Vanguard. It is also simple to talk to a real person, not the endless “phone tree” automated system hell just to talk to a real person.

    Second, the Vanguard reps have been very informative & very patient in answering my detailed questions. This despite the fact that am I likely younger & poorer (account size) than the median Vanguard customer. Vanguard must have a good quality control/hiring/training process for their Phone Reps, because they have been uniformly competent. also there hasn’t been a confusing maddening case where what 1 phone rep said was contradicted by what the next phone rep says the next time I called, a problem I’ve seen with other FIRE companies.

    At the risk of sounding fan-boyish, I’d say Vanguard is a reference “gold standard”/template example of the type of financial service, consumer finance advocates like Clark Howard & Elizabeth Warren are advocating for.

  23. I have to agree about USAA. Everything they do is customer centric.

  24. Wondering about the benefits of subscribing vs the free stuff from the library or the web via the library?

  25. CR tries to portray themselves as being as pure as the wind-driven snow, but the fact is, they still get their money somewhere, otherwise they wouldn’t be in business. And where they get their money is the government, which drives a clear bias in their articles.

    Every reviewer has biases, some are just more upfront about them.

  26. Impatient – From where do you get the idea that CR gets funding from the government? They don’t. Their funding is from subscriptions, donations and grants, with none of it being from manufacturers.

  27. I wonder why Interactive brokers doesn’t make to any of these lists which offers lower fee than any of these top 10.

    So far, I have used Etrade (high commissions, quarterly maintenance fees & poor customer service), Fidelity, Think or swim (Good till it was taken over).
    After trying all these, I moved my most active account to Interactive brokers. I still have my tax deferred accounts with other brokers that I am planning to consolidate.

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