The online brokerage business is concentrated enough that the biggest brokers can overshadow others. In the 2017 Best Online Brokers report by Investor's Business Daily and TechnoMetrica Market Intelligence, the analysis focused on six stock brokerages that had at least 125 of their customers participating in an investor survey.
But sometimes noteworthy companies fly a bit under the radar. For the first time this year, IBD also took a look at the best of the rest of the brokers, examining those with 85 to 124 clients in the survey. Of 24 brokerages specifically named in the survey, six fit this description.
Among these six smaller brokers, TradeStation emerged as a clear standout, both overall and in most of the survey categories. Merrill Edge and Vanguard also ranked in the top three brokers overall within this broker group. The three earn Honorable Mention for their performance.
Despite their size, smaller brokers can still compete and succeed in the brokerage industry. Vanguard believes it distances itself from the competition "by continuing to lower the cost of investing for our clients and putting the best interests of our clients first by providing expert and unbiased service," said spokeswoman Emily Farrell.
Other brokers in the comparison were TradeKing, OptionsHouse and OptionsXpress, which was acquired by Charles Schwab (SCHW) in 2011. Each broker's scores are based on how highly its own customers rated it on 13 critical features. (For more details, read our article on the survey methodology.)
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The rankings suggest investor preferences and investment strategies play a large role in how each broker places in a specific category. A broker's strengths might favor long-term investing vs. short-term trading, or equities vs. options.
Some investors desire high-quality institutional research and are willing to pay a premium for it, while others have their own investment ideas that they want to implement at a discounted rate.
Known for catering to the active trader, TradeStation is making strides to appeal to a more diverse set of investors. The company plans to bring its institutional-quality trading platform to individual investors as an ongoing mission.
Its emphasis on trading tools means it's no surprise that investors gave TradeStation the highest rating in equity trading tools among the six brokers. In the last few years, investor preferences have grown to place a premium on "on-the-go" trading tools, such as placing trades or checking portfolio values from a tablet or smartphone. TradeStation paid attention to this changing appetite and replicated its desktop tools in the mobile arena. The efforts paid off, and it had the highest score in mobile platforms and trading.
In general, the firm's clients were pleased with its services. TradeStation scored more top scores in the 13 categories than any of the other five brokers.
In fact, of the 13 categories, the lowest ranking TradeStation held was third, in options trading platform, investment and retirement planning tools, and low commissions and fees. That made TradeStation the most-well rounded broker of the six.
Regarding its options platform, OptionStation Pro, TradeStation has plans to upgrade the system in the coming months. Changes include simplifying the interface and adding features for more advanced options traders.
Being part of Merrill Lynch, a traditional brokerage house, can provide advantages, at a low cost, that other online brokers are unable to match. Merrill Edge launched in 2010 after Bank of America (BAC)'s acquisition of Merrill Lynch in 2008.
Merrill Edge is a provider of Merrill Lynch's global analyst research reports, so it was no surprise that Merrill Edge had the top scores in investment research, research tools, and portfolio analysis and reports.
Merrill Edge had mostly positive results. It showed in the top three in 11 of the 13 categories, including placing high in equity trading tools, low fees, and investment and retirement planning tools.
As much as investors want to be independent and self-directed, they still see the need for professional investment advice. In response, the firm has introduced Merrill Edge Guided Investing, which seeks to blend online investing with a professionally managed portfolio through the use of a robo-advisor. A robo-advisor queries a client regarding risk tolerance, investment goals, time horizon and other investing attributes to recommend a diversified portfolio of ETFs to reach a desired asset allocation.
Vanguard is the largest provider of mutual funds, so chances are if you have a retirement plan, like a 401(k), you've seen Vanguard funds as a potential investment option.
John Bogle, founder and retired CEO of the Vanguard Group, espouses an investment philosophy of index investing. Essentially, instead of attempting to beat the benchmark index while incurring high costs, an index fund would track the performance of a specific index over the long run at a low cost.
The company's brokerage site mirrors and prioritizes that investment philosophy, and like-minded investors seem to like it that way. Vanguard earned the highest client rating among the six brokers in investment and retirement planning tools and in low commissions and fees. It also had the top scores in trade reliability and customer service and was in the top three for five other factors.
With such a long-term investment orientation and its focus on retirement, the broker's trading platforms might strike some investors as surprisingly basic. Vanguard earned low ratings for its equity and options trading platforms and research tools.
TradeKing, OptionsHouse, OptionsXpress
TradeKing neither ranked in the top nor bottom of any category. But it was in the top three in ETF choices, investment research, and research tools.
Options investors have different needs, and OptionsXpress and OptionsHouse naturally warrant a look. Out of the six brokers, they captured the highest scores in the options trading platform category.