Who is the best online broker? Kiplinger's Personal Finance has released its rankings of the Best Online Brokers of 2017.
The magazine surveyed seven major firms that offer online trading of stocks, exchange-traded funds, mutual funds and individual bonds, along with providing retirement planning tools and advisory services.
Daren Fonda, associate editor of Kiplinger's Personal Finance, explained how Kiplinger chose these seven firms: Some are "obvious choices because they're so large and well-known," some firms declined requests to participate, and other firms were excluded that focused primarily on active day traders.
From there, Kiplinger ranks the firms on seven categories: commissions, investment choices, tools, research, ease of use, mobile access and advisory services.
"In the areas of commission, it's become extremely competitive," Fonda told ThinkAdvisor. "With Schwab lowering its prices earlier this year and Fidelity then lowering its prices to undercut Schwab and then Schwab lowering its prices again to match Fidelity's … you've had a little bit of a price war breakout in the area of commissions."
In other categories, Fonda said there are bigger differences. For example, he said, Kiplinger really likes Merrill Edge for its breadth of research.
"Clients of Merrill have access to all of the firm's stock research, which is pretty extensive and covers hundreds of big-name stocks along with smaller companies and MLPs and REITs and things like that," he explained.
Other brokers, like E-Trade and TD Ameritrade, also fare well because they offer third-party research from firms like Credit Suisse and CFRA. However, Fidelity does not rank well in the research area.
"[Fidelity] provides very little stock research and bond research. Most of what they provide is technical analysis, which is of limited use in our opinion," Fonda said. "That's a key differentiator in that area."
Here are the seven firms and how they rank, according to Kiplinger:
7. Ally
- Minimum to open an account: $0
- Stock commissions: $4.95
- Total commissions score: 3.5 stars
- Breadth of investment choices: 2 stars
- Tools: 2.5 stars
- Research: 2.5 stars
- Ease of use: 2.5 stars
- Mobile access: 2.5 stars
- Advisory services: 2 stars
Overall score: 2.5 stars
Ally Financial, which got its start as an online-only bank, bought the TradeKing platform in 2016.
The brightest spot in Ally's rankings is its commissions, according to Kiplinger.
"Ally's base rate of $4.95 lands it on the leader board for stock trades, and the firm trims that rate to $3.95 for clients who make at least 30 trades a quarter," according to Kiplinger. "Ally also charges a relatively low $9.95 to buy or sell mutual funds."
However, Kiplinger notes that Ally doesn't offer any no-transaction-fee mutual funds or ETFs, which it says is "a big drawback that could cost you quite a bit in fees if you buy and sell a lot of funds."
6. Vanguard
- Minimum to open an account: $0
- Stock commissions: $7
- Total commissions score: 2 stars
- Breadth of investment choices: 3.5 stars
- Tools: 3 stars
- Research: 2 stars
- Ease of use: 3 stars
- Mobile access: 2 stars
- Advisory services: 4.5 stars
Overall score: 3 stars
"There's a lot to love about Vanguard's fund offerings and low-cost approach to investing, but it's harder to say good things about its usefulness as an online broker, particularly if you lean to trading stocks," Kiplinger states.
Kiplinger cites pricey commissions and fees, and tools that aren't user-friendly, as areas where Vanguard fails. However, Kiplinger notes that customers can "load up" on all Vanguard mutual funds and ETFs without having to pay sales charges.
Vanguard does rank high in its advisory services. According to Kiplinger, "if you'd like some guidance with your investments, Vanguard is eager to help."
Kiplinger also ranks Vanguard as the best online broker for retirees.
