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Online Brokers Drawing More Investors
Andrew Leckey
Blind-faith investing is dead in 2009.
Market volatility has driven home to Americans the reality that they are ultimately responsible for their own investments. It also prompted backlash against giant brokerage firms that exacted sizable commissions but gave clients little to show for their money but losses last year.
The image of the full-service brokerage firm, with its tradition of giving clients individual attention and direction in exchange for higher commission charges, has taken a hit. Not even a market rebound can erase some lingering distrust.
Discount brokerage firms, known for lower commissions and less individual attention, continue to cut into the full-service business. While some discounters have significantly expanded their own services, those offering the cheapest online trades are growing the fastest.
Consider the generational impact of the Internet: Only 17 percent of investors 63 years of age or older use online brokerages, compared with 29 percent of "Generation X" investors age 33 to 44, according to a study by
"The difference between full-service brokers and discount brokers is pretty clear, but the line between discount and online is getting blurry," said
The "big five" discount brokers with online sites are Fidelity, Schwab, E*Trade,
"The brokers in the first group have more than 5 million customers each, while those in the second group each have customers in the hundreds of thousands primarily because they're newer," he said.
Here's how Schehr sees the investor mix:
Fully-advised investors are willing to pay for customized brokerage advice and guidance; self-directed investors want to do absolutely everything themselves; and "a bigger group in the middle" likes to execute trades on their own but would still like a little guidance.
Wherever you fit on that continuum -- and all are justifiable depending on your personality and confidence -- be sure to get what you pay for.
Members of the
"Our member surveys about discount brokerages found that price is the No. 1 concern of about 50 percent of the respondents," said
The second investor consideration voiced by members is convenience, said Scatizzi, such as how easy it is to log on to the Web site, how fast a trade can be made and how easy it is to navigate. Some sites had been confusing, with too many items on the screen, but they've streamlined to make trade executions much easier, she said.
"The third issue for our members involves the services offered, such as analyst reports and stock-screening tools for mutual funds," Scatizzi said. "Anything that makes it easier for an investor to get information about a potential investment."
Various performance ratings of online brokers are plentiful, with
"Investors are definitely making decisions about brokers based on their online experiences," said
Gomez, known for its performance-tracking software, compiles rankings by emulating the typical contact a consumer would have with a brokerage firm.
Here are its recent rankings of top online brokerages and Poepsel's explanations of each measurement:
(1) Availability.
"Was the investor able to log in, find the stock price for a given position and begin the trading process?" Banc of America Investment Services and E*Trade tied for first place, followed by
(2) Response time:
"How long did it take to go from page to page? That's measured in seconds and you obviously want the fastest." Scottrade ranked first with a 3.78-second response, followed by Fidelity, E*Trade, TradeKing,
(3) Consistency:
"If you were fast for investors on the
Among full-service brokers, Smith Barney ranked first in availability, followed by UBS,
"If a customer can't get a research report online, that customer will pick up and call the broker," said Poepsel, stressing the importance of efficiency. "Now that broker -- or his firm -- will have to spend time and money to serve that call, as opposed to what it would have cost online."
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Investing - Online Brokers Drawing More Investors
(c) 2009 Andrew Leckey