Fed up with your broker yet?
Lots of folks are right now. Many who trusted a professional to guide them through the ups and downs of the markets are opening their statements or logging in now and seeing huge losses -- half or more of their portfolios, in many cases.
What did you pay all those fees and commissions for, anyway?
To be fair, market drops are part of life when you're a long-term investor, and lots of five-star mutual funds and high-flying hedge funds run by (supposedly) the best managers in the business have taken huge losses as well.
But consider this: Instead of paying thousands in hourly fees or commissions, you could place your money with an online broker, use its automated tools to come up with a sensible asset allocation on your own time (instead of paying your investment advisor a few hundred bucks to run similar reports on a similar automated system for you), and then buy a basket of index funds or exchange-traded funds (ETFs) for, at most, $10 or $15 a trade (versus the $100 or more -- each -- a full-service broker might charge you).
No 5.25% loads, no 12b-1 fees, no bills for "advisory meetings" at an eye-popping hourly rate.
And with a little research and knowledge, you might even do a lot better than you did with the adviser. And not just by adding all those fees back into your portfolio.
Wait. I thought online brokers were for day traders!
Nope. Or, rather, they're not just for day traders. There are certainly brokerages that cater to sophisticated, active traders -- TradeStation (Nasdaq: TRAD), ThinkOrSwim (Nasdaq: SWIM), and Interactive Brokers (Nasdaq: IBKR) are three of the big ones -- but you don't need any specialized knowledge to get the significant benefits of managing your own investments.
Lots of ordinary long-term, buy-and-hold investors manage their own portfolios with the tools and educational content provided by the twin titans of full-featured online brokerages: Fidelity Investments and Charles Schwab (Nasdaq: SCHW).
Brokerage without the broker
Simply put, Fidelity and Schwab both aim to give you all the education and planning help you'd get from a broker at a high-end firm like Merrill Lynch (NYSE: MER), but via the Internet -- and at a tiny fraction of the cost.
Both have extensive educational content and tools, with written guides, short videos, interactive tools, and online tutorials and tours to guide you through everything from IRA set-up to asset allocation to the intricacies of option strategies.
The most recent rankings in publications like Kiplinger's and Barron's give Fidelity the edge, but the two have been neck-and-neck competitors since well before the dawn of the online brokerage era. Either firm can provide you with just about anything you'd want from an investment adviser, including access to a vast range of no-load mutual funds from many different providers.
One note: Fidelity, which is a mutual fund firm first and foremost, seems commendably unbiased about the third-party funds it offers through its network, though its own products understandably get the prime real estate on the site. But caveat: You can buy nearly any mutual fund through Fidelity, but if it's not in its network -- which, to be fair, includes more than a thousand funds from a long list of providers -- you'll pay a rather steep $75 commission.
Fidelity and Schwab can also provide you with in-person consultations and portfolio management services, in some cases, at fairly low cost, as can E*Trade (Nasdaq: ETFC), a long-time discount leader that has been evolving toward a more robust offering in recent years.
But …
Of course, you'll pay for it. Although the fees at Fidelity and Schwab are a fraction of what you'd pay a traditional broker, they aren't the lowest-cost providers out there. If you don't need quite as much educational content -- if, for instance, you know that you can get plenty of free, unbiased help here at the Fool -- then a lower-cost broker can save you a bit more money. Siebert Financial Corp. (Nasdaq: SIEB) is a good choice here, with lots of third-party stock research and a wide selection of mutual funds, as is TradeKing, a low-cost leader that regularly wins high marks for customer service.
Making the choice
Take the time to tour a few of these sites. Get a feel for the range of products available, see whether the site feels easy to use, and get a read on the firm's overall tone and personality. Consider whether you can get much of the education and planning content elsewhere -- here at the Fool, for example -- and what you're willing to pay extra for.
In the end, though, remember that pricing isn't all that important. Almost any online broker will save you a huge amount of money over a full-service broker or advisor. If you're only making five or six trades a year, $12 a trade versus $8 or $6 just isn't that much money. It's much more important to find the company that will give you the support you need in a way that feels right to you.
To learn more about how to choose a broker:
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