The Year of the Reality Check

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The online brokerage landscape changed dramatically in 2017 with the massive price cuts put in place by most of the big brokers. But 2018 was a rough year, with several of the largest selloffs in the market’s history, in terms of points lost. Many brokers had outages in February 2018 during two of the days that saw the biggest market drops, preventing their customers from joining the selloff. Investor anxiety pushed many to the sidelines. December 26 brought us the single largest one-day point gain in the history of the Dow Jones Industrial Average. In short, volatility was back after years of a slow and steady bull market, sparking an international “fight or flight” response.

Brokers spent 2018 shoring up their infrastructure, doing whatever they could to bring traders back. Interactive Brokers, which attracts frequent traders, saw the number of accounts grow 22%, but annualized trades per account dropped from 430 in January 2018 to 320 in January 2019. Schwab’s customers shed their mutual fund holdings, pulling 13% of those investments out while adding 4% to exchange-traded funds (ETFs) between Q4 2017 and Q4 2018. Equity investments were off 6%, but fixed income investments were up 25%.

Fee compression and lack of activity makes online brokers work harder to pull their customers back into the markets. Most of them spent the year upgrading the pieces of the trading landscape that are not visible to the naked eye. The major changes we saw over the year involved making their platforms more stable and able to respond to surges in trading activity. Brokers who charge commissions want you to hit that Trade button, so they addressed their infrastructure shortcomings to make their platforms faster and more resilient to surges in trading activity. Brokers who don’t charge commissions want you to trade too, since some of their compensation comes from selling your order flow to market makers. 

The number of brokers who don’t charge commissions grew last year, when JP Morgan’s You Invest app was launched in August. You Invest customers can place 100 commission-free stock and ETF trades in the first year after opening an account; customers with high balances in their Chase checking accounts can qualify for 100 or more free trades per year after that.

 JPMorgan Chase

 Another commission-free platform is moving into beta test in March with a mobile app, and this one has an exciting pedigree. Watch for our hands-on review when it goes public.

The features arms race has slowed considerably. There wasn’t a huge push forward in terms of tools for traders, but quite a few brokers made the effort to make their platforms easier to use. The first 15 years of the 2000s saw brokers add features and tools, and some of those additions could best be described as haphazard, spawning new windows that felt disconnected from the rest of the platform.

Over the past three years, we’ve seen the multi-level menus get flattened out. Now you don’t have to click on five different choices to go from a chart to a trading ticket, and a “mobile first” development philosophy has led to more similarity between desktop and smartphone experiences. Third party research provided by most of our top brokers is seamlessly integrated, leading to a more comfortable experience for investors.

Charles Schwab

Michael Ellison, president of Corporate Insight (corporateinsight.com), a research firm that advises companies in the financial sector, noted that online brokers are collapsing their menu structures with an eye to making the user experience as easy as possible. “Brokers want to keep their clients on the site,” Ellison says. 

Cryptocurrency as an asset class brought some excitement to traders, and brokers responded to that interest in ways that ranged from, “Oh, no, not yet, we don’t think it’s suitable,” to “Sure, here, go ahead and trade this stuff.” Customers of Charles Schwab, E*Trade, Interactive Brokers, Lightspeed Trading, Sogotrade, tastyworks, TD Ameritrade and TradeStation can trade Bitcoin futures, while Robinhood’s clients can trade six cryptocurrencies in their brokerage account. Fidelity’s clients can display their Coinbase portfolios on their Fidelity positions page, but cannot trade the currencies or their futures. TD Ameritrade has made an investment in ErisX, a new cryptocurrency exchange, which provides a transparent and regulated way to access that asset class.

There were few changes in pricing during 2018, but several brokers eliminated minimums for opening a cash account. (A $2,000 deposit to open a margin account is a regulatory requirement.) The most dramatic was Interactive Brokers dropping their $10,000 minimum to $0 over the summer though there’s a catch: accounts with less than $100,000 must generate a minimum of $10 per month in commissions, or pay the difference as an activity fee. 

Other cost changes for investors included reducing expense ratios on exchange-traded funds (ETFs) and mutual funds. Fidelity and Vanguard engaged in a protracted duel, with Fidelity launching four zero-expense ratio index mutual funds. 

Security continues to be a concern, but the good news is that online brokerage platforms are among the most secure. A search of the Identity Theft Resource Center shows that there were about the same number of breaches in the finance and banking sector in 2018 as there were in 2017 – 135 vs. 134 – but the number of records exposed dropped from 3.2 million to 1.7 million. Fidelity had a couple of minor breaches in one of their branch offices, and a small number of Ally Bank customers who applied for a home loan had personal information transmitted incorrectly. Some of those bank customers may also be Ally Invest clients. 

Online brokers are responding to security worries by being more up front about how they protect their clients. Several offer customer guarantees, including Fidelity, Charles Schwab, TD Ameritrade and E*Trade. Scott Ignall, Fidelity’s senior vice president for independent investing, says that his firm closely monitors the online environment, and has a range of measures and multiple levels of security in place. Ignall says, “Our measures include multi-factor authentication and monitoring activity to protect against unauthorized account access.” He notes that customers have to do their part too, saying, “While Fidelity has protective measures in place, security is a shared responsibility.”

 TD Ameritrade


Picking the Right Broker For You

Which online broker is right for you? We studied the offerings of 70 online brokers and assigned points across ten categories. You can read the detailed description of our methodology here. Fourteen of the brokers cooperated with us extensively, providing us with data and test accounts that let us take deep dives into their platforms. We created video walk-throughs of 11 of the platforms so you can take a look for yourself, which you can find at the bottom of the individual review pages. Vanguard chose not to participate, but due to their size, we included them anyway.

In order to rank the brokers, we assessed their trading experience, trading technology, usability, mobile capabilities, range of offerings, research amenities, portfolio analysis, customer service, education, and costs. Top brokers provide an easy-to-navigate trading experience while routing orders to generate price improvement for their customers. They offer multiple asset classes for clients to trade online, and supply meaningful ways to analyze portfolio performance. Customer service, both online and on the phone, is prompt, and research, news and charting is of the highest quality. There are planning tools and educational resources available to help customers improve their investing skills, and costs are what the average individual investor would consider reasonable.

After six months and thousands of hours of user testing, we are proud to announce the overall winners:

Be sure to watch our video platform walk-throughs too, which you can find on the bottom of the broker’s review page. Besides our overall ranking, and understanding that individual investors have varying needs, we have curated lists of the brokers who are best for a variety of trading needs and styles. Here is the complete list of those categories:


From Customization to Personalization

Where is the industry moving in the next year? tastyworks’ Tom Sosnoff is pushing back against the flow of assets into robo-advisory services. He sees a mass exodus from passive to active investing, stating, “Any time you have such a high concentration of wealth, decision making and risk assessment, individual investors in passive situations around the world will not sit still when the global unwind of this wealth concentration [in passive assets] starts to take place.” He believes that platforms (like tastyworks, of course) that provide streaming, real-time strategic content and tools will benefit the most.

Ellison believes that brokers will move away from customization options, which few clients use even when they are available, to personalized service. “The platform will watch what you’re doing, and learn how you use the platform,” he says. Over the next 18-24 months, he projects that brokers will offer up the relevant tools to their clients based on their investing habits. 

Victor Jones, a former product manager at TD Ameritrade, says, “You can’t just throw data and tools at people and tell them to figure it out.” Jones believes brokers need to build technology to help a new generation of investors avoid making the typical newbie mistakes, and that a good trading platform should anticipate the customer’s next move, serving up content and services before any confusion sets in. Some of the brokers we reviewed, including Interactive Brokers and tastyworks, keep the tools used by the client in places to make them easily accessible, but it’s fairly rare. We shall certainly keep watch for this trend.

Younger investors and the need to attract them will continue to drive platform innovation. “Mobile first” development is now the industry standard and all brokers with mobile apps reported significant increases in trades placed via mobile devices as well as overall customer engagement. Several of the larger brokers told us that they have a growing number of clients who prefer connecting via mobile device only. David Poole, head of Merrill Edge’s Advisory and Client Services, says, “We focused heavily over the past year in enhancing our mobile offering for our clients. We expect this trend to continue and we will ensure that clients have access to all the features they need to manage their investments while on the go.” 



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