Discount Broker Rating Summary

Discount broker ratings are published by both the American Association of Individual Investors (AAII) and SmartMoney.com. The AAII review published in the June 2010 issue of Computerized Investing covers the 5 brokers identified as "most frequently used" according to a survey of AAII members. This survey is ongoing. If you are an AAII member, you can both view the results and participate in the survey.

The five covered by AAII (Schwab, e*Trade, Fidelity, Scottrade, and TD Ameritrade) and twelve more are included in the SmartMoney 2010 Broker Survey. The discount brokers evaluated by AAII were in the top 6 of the SmartMoney discount broker ratings.

The AAII member survey rated the brokers by overall satisfaction and the AAII staff added an overview of the products and features of each. In addition to trading costs, tools, customer service, and research, the SmartMoney discount broker rating included banking services and investment products.

The 2011 Barron's online-broker review provides additional insight into discount brokers such as an active trader perspective. Like SmartMoney, they ranked TradeKing as a top choice. Like AAII, an overview of each broker is provided. Their ranking criteria (last page of their article) must be considered when looking at their results.

In alphabetical order, the top rated discount brokers are:

• Charles Schwab Offer stock screeners, low fees and local offices in many areas. Banking is available. Merging with optionsXpress (see below). Reviewed by AAII, Barrons and SmartMoney.
• E*Trade Financial Received high marks from both but is geared to active traders (150 trades per quarter). If you are not an active trader, the fees will be higher than most of the other brokers listed here. Offer international versions of the site. Reviewed by AAII, Barrons and SmartMoney.
• Fidelity Their WealthLab screener offers backtesting as well as screening to any client with US$25,000 in assets and who trades 120 times per year. Check to see if one of their local offices (Investment Center) is in your area. Reviewed by AAII, Barrons and SmartMoney.
• Scottrade My experience with this discount broker is generally positive. Although they offer a stock screener, it is not much better than the available free screeners. Their site seems a little slow but their trade execution is fine and their fees are low. They do have local offices if that is important to you. Reviewed by AAII, Barrons and SmartMoney.
• TD Ameritrade The ThinkorSwim platform is now available to clients as well as their screener. TD Ameritrade has brick and mortar offices and may have one near you. Reviewed by AAII, Barrons and SmartMoney.
• Their discount broker rating is the highest of the group that is not included in the AAII review. They are also the least expensive of the top 6. Tools include a stock screener and back-testing. Reviewed by Barrons and SmartMoney.

Although not included in either the AAII or SmartMoney survey, Folio Investing and OptionsHouse are listed here because of their offerings and commission structure. Note that Barron's did review OptionsHouse and rated them highly for options.

• FolioInvesting Their unique approach may have excluded them from being considered in discount broker surveys, but their fees for standard online trading are less than some in this list. Their real strength is a flat fee approach to trading if you are willing to participate in a "window" trade with others. The flat fee allows extensive diversification without prohibitive trading costs. We publish both a public folio and a private folio there and are very satisfied with their approach. One of my favorite brokers. Worth a look.
• OptionsHouse I am not sure why this online broker was not included since they seem to offer very low fees. Many of their tools are options related, but they do offer a stock screener. Probably worth a look if trading costs are important to you.

More Discount Broker Ratings

An overview of 10 additional discount brokers with recent public reviews.

Customer service

Customer service is often in the eye of the beholder. Having said that, it is interesting to note there are some significant differences in customer satisfaction in the SmartMoney and Barron's broker reviews. This is not the case in the five discount brokers rated by the AAII, Barrons and SmartMoney.

Surveys are not the only way to generate discount broker ratings. An interesting review by Weiss Research considered the financial stability of the brokers. Since this is where you money will live, it may be worth considering.

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