Ratings Methodology for Brokers

NerdWallet rates brokers on a scale of 1 to 5 stars, with 5 being the best possible score. The ratings are incremented in tenths of a star — for example, 4.7, 4.8 and so on. Detailed information about how we rate brokers and the factors we consider in our assessments is below.

How our broker ratings work

Our ratings formula calculates a base rating for each broker overall, from 1.0 to 5.0 stars. The rating is based on core features of the broker — the factors that matter most to the average investor and directly affect how investors choose a broker and use their accounts. Those are:

• Investment selection
• Trading platform, mobile app, research and data
• Fees
• Customer support
• Board diversity
• Cash sweep rates
• Account minimum

We then apply a standard adjustment to the final score to account for factors we consider table stakes offerings. If the broker doesn’t offer these, they do not get an adjustment. For the broker’s overall score, this standardized adjustment applies if they earn five stars in our account minimum, inactivity fee and annual fee categories, which require them to have an account minimum of $25 or less and charge no inactivity or annual fees.

Data collection and review process

We collect data from providers and observe provider demonstrations as necessary. Our process starts by sending detailed questionnaires to providers. The questionnaires are structured to equally elicit both favorable and unfavorable responses. They are not designed or prepared to produce any predetermined results. The questionnaire answers, combined with product demonstrations, interviews of provider personnel and hands-on research by our specialists, make up our proprietary assessment process that scores each provider’s performance across more than 30 factors.

The final output produces overall star ratings. Ratings are rounded to the nearest tenth. These overall star ratings appear on roundup pages and the provider’s review. We then undergo an additional evaluation process to create lists of the best brokers for certain types of consumers. This evaluation adjusts the weighting of factors (and may eliminate or add factors) to emphasize those that matter most to the consumer targeted by the list — for example, our list of the best brokers for beginners heavily weights factors like educational support and website ease of use. Because of this, a provider’s overall star rating is not always the primary factor that determines inclusion in lists or NerdWallet’s awards program.

Information updates

Our writers and editors conduct broker reviews on an annual basis. Throughout the year, we maintain contact with providers and update any changes to their offerings.

Factor weightings

The weighting of each rating factor is based on our team’s assessment of which features are most important to consumers and which ones impact the consumer experience in the most meaningful way. Providers earn an overall score based on the factors and weightings detailed on this page. However, as described above, the factors considered and how heavily those factors are weighted is then adjusted to create lists that target specific types of consumers, like beginners, advanced traders or IRA investors.

The review team

The review team comprises seasoned writers, researchers and editors who cover stocks, bonds, mutual funds, index funds, exchange-traded funds, alternative investments, socially responsible investing, financial advisors, retirement, and investment strategy. In addition to appearing on NerdWallet, the work of our team members has been published in The New York Times, The Washington Post, Forbes, USA Today, Bloomberg News, Nasdaq, MSN, MarketWatch, Yahoo Finance and other national and regional media outlets. Each writer and editor follows NerdWallet’s strict guidelines for editorial integrity.

The combined expertise of our investing team is infused into our review process to ensure thoughtful evaluation of products and services from the customer perspective. Our writers and editors together have more than 50 years of experience in writing about finance

Account minimum

We considered whether providers require an account minimum (the lowest dollar amount you can open an account with) and if so, how much the minimum is. An account minimum of $25 or less earns the highest rating, which is 5 stars, and an account minimum of $2,500 or higher earns the lowest rating, 1 star.

Investment selection

This category takes into account the following from each provider:

Tradable securities: If a provider offers stocks, mutual funds, ETFs, bonds, options, cryptocurrency and futures or forex, they earn the highest score (5 stars) in that subcategory. If a provider doesn’t offer at least stocks, mutual funds, ETFs and bonds, it earns the lowest score.

Number of no-transaction-fee mutual funds: If a provider offers more than 4,000 no-transaction-fee mutual funds, it earns the highest score. If it offers none, it earns the lowest score.

Availability of fractional shares: If a provider offers fractional shares, it earns the highest score. If a provider does not offer fractional shares, it earns the lowest score.

Margin rates: If a provider’s maximum margin rate is under 10%, it earns the highest score If the broker does not offer margin trading, it earns the lowest score.

Trading platform

This category takes into account the following from each provider:

Platforms and capabilities: We consider how many features each provider offers customers. If a provider offers advanced analysis and screening tools, technical indicators and studies for charting, and a large variety of streaming news and research free to all customers, it earns the highest score. If it offers no trading platform, it earns the lowest score.

User experience: This is based on the reviewer’s hands-on experience related to opening an account, funding it, learning how to place a trade and navigating the platform. Platforms with cumbersome signup processes and confusing interfaces received the lowest score, while those with the smoothest onboarding and most intuitive experience received the highest score.

Execution quality: If a provider’s reported execution quality (defined as the percent of orders executed at or better than the National Best Bid and Offer) was above 98%, it received the highest score. Providers who declined to share their execution quality received the lowest score.

IPO access: If a provider offers clients access to IPOs, it receives the highest score.

OTC access: If a provider offers clients full access to over-the-counter (OTC) stock on the OTC Bulletin Board with zero commissions, it receives the highest score.

Trading hours and market access: Providers that offer 24/5 trading access receive the highest score, while providers that only let clients place trades during specific windows receive the lowest score.

Payment for order flow: Providers that receive “payment for order flow,” defined as payments a broker receives from a market maker in exchange for routing orders to them, receive the lowest score.

Default sweep interest rate

The default sweep interest rate is the interest customers receive on their uninvested cash. Providers that offer clients more than 5% on their uninvested cash, without requiring the client to enroll in any additional programs or take any additional steps, receive the highest score. Providers whose interest rates on uninvested cash are below 0.5% receive the lowest score.

Board or executive diversity

We believe a diverse group of governing voices is essential for making financial services more accessible. We asked each provider how many members of their board or executive team self-identify as an underrepresented racial or ethnic group. Using the same definition as the annual SpencerStuart S&P 500 Board Diversity Snapshot, underrepresented racial or ethnic groups include Black/African American, Asian, Hispanic/Latino/a, American Indian/Alaska Native, Native Hawaiian/Pacific Islander or two or more races (multiracial). Providers with four or more board members who self-identify as an underrepresented racial or ethnic group receive the highest score.

Account fees

This category analyzes the following:

ACAT partial transfer fees, annual fees and inactivity fees: If a provider does not charge these fees, it earns the highest rating. Fees of $75 or more earn the lowest rating. ACAT transfers allow customers to transfer assets to a different brokerage firm without liquidating them.

Account closing (ACAT full transfer) fee: If a provider charges no fee to close an account and transfer out assets, it earns the highest rating. If a provider charges more than $100, it earns the lowest rating.

Trading costs

This category considers:

Stock trading costs: If a provider charges no fee to trade stocks, it earns the highest rating. If a provider charges more than $5, it earns the lowest rating.

Options trading costs: If a provider charges less than 50 cents per contract to trade options, it earns the highest rating. If a provider charges more than $1, it earns the lowest rating.

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