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How to Pick the Online Broker That's Best for You

Ryan Ermey, Associate Editor, Kiplinger's Personal Finance

When it comes to satisfying their clients, brokerages are aiming at a moving target. And considering that different investors may have wildly different needs, maybe it's fairer to say that brokerages must hit several moving targets.

SEE ALSO: See Kiplinger's 2019 Online Broker Rankings

Our 2019 online broker ranking recognizes that no brokerage can hit the bull's-eye for every type of client, and that the firm with the broadest appeal may not meet your specific needs. But ultimately, we favored firms that could do the most for most investors.

This year's winner: E*Trade, with Interactive Brokers and Fidelity close behind. The results show, however, that many firms have excellent services to offer. In the seven categories we used to rate the brokerages, six different firms won the top ranking.

As investor needs and preferences change, brokerages must adapt. Brokerages' mobile apps have grown more sophisticated as more clients have demonstrated that they like to do business on the go. And as investors have demanded lower costs, brokerages have trimmed commissions and fees across the board.

But brokerages also need a keen ear for clients' particular needs. Some clients want to be left alone to do their own thing, while others want their hand held. Some want to pay as little as possible to invest, and others are willing to pony up enough in assets to gain access to their own personal planner.

Ally Invest president Lule Demmissie, for instance, says her firm's clients value simplicity, and a major focus of the firm's continuing platform overhaul is to make it easier for clients to understand Ally's products. The buzzword often heard in a recent meeting with Ally representatives: de-jargoning. By contrast, the average TradeStation client is an experienced trader in search of sophisticated tools that will help him or her gain an edge in active trading.

Nearly every broker says mobile investing has become essential, and mobile functionality received slightly more weight in our ranking calculation this year, as did tools and research, which are valuable no matter what kind of investor you are.

To be included in our survey, firms had to clear a few hurdles, such as offering a mobile app and allowing clients to trade stocks, mutual funds, exchange-traded funds and bonds. Firms that didn't qualify may still be worth considering. Among firms that declined to participate in our survey: eOption, T. Rowe Price, Vanguard and You Invest by J.P. Morgan. Read on to see how firms performed in seven categories.

Commissions & fees

Thanks to ongoing price wars, the cost of investing these days is lower than ever. So how does a broker separate itself from the pack when even the pricier shops charge the price of a side salad to trade stocks and ETFs? By offering free trading.

At some brokerages, what you'll pay in commissions may vary depending on the size of your account and how often you trade. At Firstrade, the calculus is simpler: Customers pay no commissions to trade stocks, ETFs, mutual funds and options, making it a runaway winner in the category.

A few other brokers offer a fixed price for stock and ETF trading, regardless of the assets in your account or how many shares you trade. Of those, TD Ameritrade is the most expensive ($6.95 per trade), followed by Fidelity and Charles Schwab (both $4.95).

E*Trade lowers its $6.95 standard commission to $4.95 for investors who make 30 trades per quarter. If you trade that frequently at Ally Invest (or hold at least a $100,000 daily balance in your account), you'll get $1 off the standard $4.95 commission.

WellsTrade and Merrill Edge might slash your fees based on your relationship with their affiliated banks. WellsTrade customers who link their account to a Portfolio by Wells Fargo checking account see their commission knocked down $3 from the standard rate, to $2.95. Customers enrolled in the Bank of America (Merrill's parent) Preferred Rewards program with a minimum of $20,000 in combined assets qualify for at least 10 free trades per month, avoiding the standard $6.95 rate. The firm lowered the qualifying asset threshold earlier this year from $50,000. As a result, according to Merrill, more than 80% of trades on its platform are commission-free.

Interactive Brokers and TradeStation offer excellent deals for frequent traders. Customers at both firms can pay as little as a fraction of a cent per share, depending on the pricing plan they choose and the quantity of shares traded. Costs can add up if you don't trade much, however. Interactive Brokers customers with less than $100,000 in their account who fall short of $10 in commissions per month pay the brokerage the difference. TradeStation investors paying by the share are subject to steep inactivity and low-balance fees.

SEE ALSO: What Your Financial Adviser Isn't Telling You

Most brokerages charge $1 per bond to trade municipal and corporate debt. Under this scenario, an investor who purchased 20 Lockheed Martin bonds at $142.94 apiece (for a total face value of $2,858.80) would pay $20 in commissions. There are a few exceptions. WellsTrade and Firstrade both trade bonds on a "net yield" basis, folding a markup into their bond pricing. Interactive Brokers charges 0.1% of corporate bonds' total face value on the first $10,000 in face value and 0.025% thereafter (the percentages are lower for munis and Treasuries). On the same bundle of Lockheed bonds, for example, an investor would pay $2.86 in commissions. Four brokers-- E*Trade, Fidelity, Merrill and Schwab--charge nothing to trade Treasury bonds; the others' fees vary. TradeStation isn't geared toward bond investors, charging a $14.95 commission plus $5 per bond of any type.

Investment choices

Any brokerage worth its salt gives customers a wide array of investments to choose from. The top firms in this category go further by providing deep rosters of high-quality investments that customers can get on the cheap.

TD Ameritrade boasts the largest number of mutual funds that customers can purchase with no sales or transaction fee: 4,102. E*Trade, Fidelity, Firstrade, Interactive Brokers and Schwab all reach the high 3,000s or better. E*Trade claims the most funds--3,137--with a three-star rating or better from investment research firm Morningstar, with Schwab, Merrill and Fidelity not too far behind.

Firstrade boasts the largest list of commission-free ETFs, with an astonishing 2,200. The totals at TD Ameritrade, Schwab and Fidelity number in the 500s, with a steep drop-off after that. Fidelity's commission-free ETF roster is full of low-cost options, coming in with the lowest average expense ratio of the bunch, at 0.36%.

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No brokerage offers more corporate and municipal bond trading on the secondary market than Interactive Brokers. E*Trade reigns supreme with new-issue corporates, and Fidelity has the most new-issue munis. International investors will appreciate that Interactive Brokers offers trading on 85 exchanges in developed and emerging markets; Schwab comes in second with 61. Fidelity made the most U.S. initial public stock offerings available to investors--271 over the 18 months ending June 30. Second place: TradeStation, with 55.

Mobile apps

Brokerage reps say their customers interact with their mobile platforms more than ever before. High marks in this category went to brokers whose mobile apps offered customers the functions and convenience of traditional websites tailored to the devices on which, studies show, people spend some 20% of their waking hours.

Of the brokerages we surveyed, only Interactive Brokers' mobile app handles stock, mutual fund, ETF and bond trading. Fidelity does not offer bond trading on its mobile app, but otherwise, the apps at Fidelity and Interactive hit practically every mark we looked for. You can trade options or trade on margin (that is, using a loan from the broker), for instance, and both apps allow customers to pay bills from their brokerage accounts, provide real-time streaming quotes and send news alerts on stock positions. Interactive Brokers' app offers robust charting, with 70 technical indicators for users to apply to their charts. (Only Firstrade's mobile chart has more indicators to choose from, but because the app lacks key functions, such as mobile check deposits, it brings up the rear in the category.)

SEE ALSO: See Kiplinger's 2019 Online Broker Rankings

E*Trade, Merrill Edge and Schwab also score well in this category, with all offering most of what we looked for (minus bond trading) as well as handsome mobile interfaces. E*Trade lost a few points for its relatively basic mobile charting. Merrill's score suffered because users can't make ACH fund transfers, and Schwab got dinged because users can't pay bills from a brokerage account through its app. A major blow to the scores of Ally, Firstrade, TD Ameritrade, and TradeStation: None of their apps allows for mutual fund trading.

Tools

Brokerages that offer an array of high-quality, low-cost investments give their customers many ways to invest to help meet their goals. But most investors need help charting a path toward those goals and narrowing down the investments that are best for their particular portfolios.

Most of the brokerages offer plenty of tools aimed at helping investors do just that. Nearly all of them offer a tool that shows a client's progress toward a goal, and all but a few show users an aggregate view of disparate accounts, giving them a holistic view of their financial life. All but Firstrade and WellsTrade show investors how their portfolio's performance stacks up against appropriate benchmarks. Five firms--E*Trade, Fidelity, Interactive Brokers, TD Ameritrade and TradeStation--offer some form of virtual trading, so you can test-drive strategies before putting them into action.

The leaders in this category are committed to educating their clients. Schwab hosted more than 5,000 live educational events for clients in 2018 on saving and investing topics ranging from estate planning to behavioral finance. Merrill Edge has more than 3,600 educational videos and webinars on its site. TD Ameritrade has eight or nine educational webcasts and two blog posts daily, in addition to the 7.5 hours of live market commentary that runs weekdays on its proprietary TD Ameritrade network.

For investors with some expertise, virtually all of the top performers in the category offer stock charts as well as stock, mutual fund and ETF screens with dozens of data points to help you narrow down your investment search. Kudos go to TradeStation, whose scanner allows traders to screen stocks, mutual funds and ETFs for more than 2,000 data points. E*Trade, Fidelity, Merrill Edge, Interactive Brokers and TradeStation all allow investors to screen stocks based on broad investing themes, such as cloud computing or robotics.

Research

Investors who want basic research on a stock, bond, mutual fund or ETF can likely find what they're looking for at most brokerages, whose summary and quote pages all include common data points, such as earnings, revenues, interest payments and expense ratios. But the more sophisticated you are about your investments, the more clear, high-grade research you'll need.

All but two firms--Ally Invest and Firstrade--show consensus corporate earnings estimates from Wall Street analysts. Only Firstrade and TradeStation don't provide any sources of bond market research. All but Fidelity, Interactive Brokers and TradeStation offer some research from Morningstar that is usually available only to Morningstar's premium customers. Ally Invest and Firstrade offer full Morningstar analyst reports on stocks, mutual funds and ETFs.

Interactive Brokers reported the most sources of investment research in our survey, followed by Merrill Edge, Fidelity, TD Ameritrade and Schwab. But both Fidelity and Interactive Brokers boast a quantity of research that belies a lack of quality, with most of the reported research missing in-depth analysis in favor of quantitative, oftentimes computer-generated reports.

SEE ALSO: Need Financial Advice? How to Choose Between Robo and Human Help

Interactive Brokers does score a few points, along with Ally Invest, Merrill Edge, Schwab and TD Ameritrade, for offering stock analyst reports from investment research firm CFRA. Firms also earned points if they provided stock research from an investment bank. For example, Schwab and TD Ameritrade include reports from Credit Suisse (E*Trade makes Credit Suisse reports available for customers with more than $100,000 in assets). WellsTrade offers reports from Wells Fargo Securities, and Merrill Edge provides research from Bank of America Merrill Lynch Global Research.

For investing ideas curated by a professional, six of the 10 (all but the bottom four scorers in this category) boast lists of suggested mutual funds handpicked by analysts from Morningstar, investment banks or the brokerages' affiliated advisories (or some combination of the three). Merrill Edge, Schwab and WellsTrade provide their own in-house lists of stock recommendations as well. Stocks in Merrill Edge's U.S. 1 and Endeavor lists, for instance, are chosen by Bank of America Merrill Lynch research analysts.

Advisory services

Firstrade and TradeStation don't offer advisory services, and WellsTrade declined to compete in this category. The rest of the brokers surveyed offer some form of advice to clients. Depending on your investing preferences and account assets, you may find yourself following the lead of an algorithm-based "robo" adviser, a real-life financial planner (some certified financial planners, some not) or some combination of the two.

Fidelity and Schwab sit at a virtual tie atop the category, thanks to their budget-friendly robo-advisory services. Fidelity Go comes with a minimum investment of just $10, by far the lowest barrier to entry of the group (though at $100 and $500, respectively, Ally Invest's and E*Trade's robos are an option for most investors). Fidelity Go's 0.35% management fee is the second-highest (Merrill Edge charges non-Preferred Rewards clients 0.45%) but includes expense ratios on the underlying funds that make up the plan's portfolios.

The $5,000 minimum for Schwab's robo service, Intelligent Portfolios, ties with the offerings from Interactive Brokers, Merrill Edge and TD Ameritrade as the most expensive. But once you're in the door at Schwab, things get cheap. Investors pay no management fee, and expense ratios on its portfolios are as low as 0.08%.

Schwab's service offers 36 portfolios, second to Interactive Brokers, whose advisory arm, Interactive Advisors, offers 75 choices. At Interactive, investors can elect to be placed in an asset allocation portfolio that is based on their answers to a nine-question survey, or they can choose from a menu of portfolios created by investment pros at advisers such as State Street Global Advisors and Legg Mason. Management fees range from 0.08% to 1.5%, and the average portfolio charges an expense ratio of 0.14%.

The robos at TD Ameritrade and Merrill are worthy options, but they got dinged in our ranking for requiring slightly higher minimums and charging a bit more in expenses than their peers. Merrill, Ally and Interactive Brokers lost points for lacking some of the amenities expected by high-net-worth clients, such as estate planning. All but Ally will assign an account representative to clients who meet a certain asset threshold; Fidelity, Schwab and TD Ameritrade offer a CFP. You need $25,000 in assets to access a CFP at Schwab, one-tenth of the $250,000 required by Fidelity and TD Ameritrade.

User experience

Online brokers strive to make interactions seamless, with platforms that are intuitive, transparent and informative. With that in mind, our team of investing writers tested each of the brokers' websites and mobile apps and rated their experiences.

Merrill Edge scored top marks. A makeover to the website last year slashed the number of navigation links from 149 to 75, effectively cutting in half the clicks needed to browse the site, says Merrill exec Cory Triolo. Users can summon a trade ticket from any page on the site and don't have to navigate away to execute a trade.

The platform's various "story" modes--applicable to stocks, mutual funds, ETFs and client portfolios--ask a series of questions essential to understanding the investment instrument at hand, each time providing a matter-of-fact answer along with educational content and actionable advice tailored to the individual investor. "We want to really guide you down the path and make finding ideas easy," says Merrill's Steve Lucas.

Investors will find a similar philosophy at E*Trade, which scored high marks among our testers for the intuitiveness of its platform and the ease with which users could find investment research. Stock-quote pages are full of useful research on the web and mobile platforms, and investors looking for investment ideas can start with the firm's thematic investing page, which recommends ETFs that play on themes such as cybersecurity, self-driving cars and millennials.

Schwab and TD Ameritrade post good scores in this category as well. TD customers, who could already interact with their brokerage through Facebook Messenger, Apple Chat, Twitter direct messages or by talking to their Amazon Alexa device, can, since July, access brokerage information in their car through Apple CarPlay, Android Auto and Echo Auto.

Other brokerages were hit-and-miss. Our writers loved Fidelity's robust ETF quote page, for instance, but then wondered why similar pages for mutual funds were practically devoid of information. Firstrade's website was the speediest of the bunch, and operating its mobile trade ticket was a breeze, but it was nearly impossible to find serious research on the mobile app. Ally's and WellsTrade's platforms were mostly a miss: clunky, sparse and difficult to navigate. Though Interactive Brokers and TradeStation both offer platforms and tools that are cutting-edge for advanced, active traders, neither site proved terribly intuitive to the everyday investors among us.

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Copyright 2019 The Kiplinger Washington Editors