Best Brokerage Firms
What Do Brokerage Firms Offer Investors?
Opening an account at a brokerage firm allows you to buy and sell stocks, bonds, mutual funds, and other types of investments. There are two broad categories of brokerage firms: traditional and discount (often called “online brokers”). Traditional brokerages are what typically come to mind when people think of financial advisors: professionals who guide you through financial decisions. They offer a comprehensive range of financial planning services, including investing advice, tax advice, retirement and estate planning, and much more. Most of the major banks like Bank of America Merrill Lynch and JP Morgan Chase offer traditional brokerage services. While traditional brokerages provide a highly personalized experience, it comes at a cost. They often charge annual fees amounting to 1-2% of the assets they manage.
Discount brokers simply provide the online platform that enables you to trade securities. It is entirely up to you to make the investment decisions. Some discount brokers like TD Ameritrade offer in-person advisory services, but because these are not part of their core product offerings, they are far less comprehensive than those offered by a traditional broker. That said, the cost of a discount broker is dramatically lower. In fact, most discount brokers don’t charge yearly account fees, and just charge a $5-$10 commission on the trades you make. Discount brokers are a more affordable option for the majority of investors, so we will focus on them. But if you want to learn more about traditional brokers, check out our Ask an Advisor platform for more information.
Where to Open an Account
Before you open an online brokerage account, it is important to have a clear financial objective in mind. Different brokerages are tailored toward different types of investors. Most people are investing for long-term goals like retirement or buying a home. For these investors, a broker should offer a variety of mutual funds and ETFs, provide quality customer service, and not charge account inactivity fees. On the other hand, more active investors will care about other factors, such as the price of trades, research offerings, and data tools. We have broken out the main points that you should pay attention to depending on your investment style and level of experience.
- Commission-free mutual funds and ETFs with low expense ratios
- Customer service (with access to brick and mortar branches)
- Easy-to-use online interface
- Low account minimums and no account inactivity fees
- Large variety of low-cost mutual funds and ETFs
- Basic tools and research reports
- Customer service and mobile access
- Low commissions (under $7 per trade)
- Low costs (trade commissions, price per option, exercise fees)
- Asset class availability
- Great trade execution and after-hours trading
- Sophisticated research, data analysis tools and real time data
Best Broker for First-Time Investors: TD Ameritrade
Easy-to-use with great customer service
TD Ameritrade is also our pick for best overall broker for new investors because it has consistently high customer service ratings and offers a full suite of trading, research, and educational tools. They offer more than 100 commission-free ETFs and thousands of no-transaction fee mutual funds. For those who value in-person interaction, TD Ameritrade has over 100 branches across the U.S.
Best Broker For DIY Investors: TradeKing
Provides similar tools and capabilities as larger brokers at half the cost
TradeKing offers similar tools and capabilities as its larger competitors, but commissions are far cheaper at $4.95 per trade. The company has a simple user interface and differentiates itself with an active community forum where investors share and discuss ideas. TradeKing’s research offerings have dramatically improved since its merger with Zecco. An investor looking for a lower-cost version of TD Ameritrade or Scottrade should consider TradeKing. One thing to watch out for is a $50 maintenance fee that TradeKing will slap on any accounts that have an account balance less than $2,500 and have been inactive for a year.
Best Brokers For Active Investors: Lightspeed
Cheapest trades, great execution, and no frills
Active traders want extremely low commissions, and Lightspeed provides that with ETF and stock commissions at $0.0045 per share and a $1 minimum per trade. Other deep-discount brokers like Interactive Brokers also have very low costs, but Lightspeed edges them out through better customer service. Lightspeed provides direct access to ECNs and exchanges, which is important for active traders. Lightspeed also has a robust trading analytics platform, but it is very complex and has a very steep learning curve to master. Overall, Lightspeed is a great option for day traders and professional investors who need cheap executions, but if you only trade occasionally or use a buy-and-hold strategy, consider the other options above.
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