The Right Broker for Right Now

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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 saw huge losses during the worst of the financial meltdown. 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. (Compare that to the $100 or more, per trade, that 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.

With a little research and knowledge, you might even do a lot better than you did with the advisor -- beyond simply 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), optionsXpress (Nasdaq: OXPS), and Interactive Brokers (Nasdaq: IBKR), among others -- 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 online brokerages. As you can see in our broker collection, firms like ShareBuilder, Scottrade, TD AMERITRADE (Nasdaq: AMTD), and E*TRADE Financial (Nasdaq: ETFC) offer different tools and educational content to help investors at all levels. Others, such as Vanguard and Fidelity, leverage their strong positions in the mutual fund industry to gain brokerage customers, while longtime discounter Charles Schwab (Nasdaq: SCHW) does its best to hold its own in a highly competitive industry.

Brokerage without the broker
Simply put, these online brokerages aim to give you all the education and planning help you'd get from a broker at a high-end firm like Morgan Stanley (NYSE: MS), but via the Internet -- and at a tiny fraction of full-service commission rates.

Most of them have a variety of written guides, short videos, interactive tools, and online tutorials and tours to guide you through everything from IRA setup to asset allocation to the intricacies of option strategies. Firms are now trying to provide you with just about anything you'd want from an investment advisor, including access to a vast range of no-load mutual funds from many different providers.

You may also be able to get in-person consultations and portfolio management services, in some cases, at fairly low cost.

Keep in mind
Of course, there's a cost for any service. You can find even lower-cost providers if you look hard -- but at some point, the cost savings may not be worth what you give up for it. Customer service may not be as important for Internet-based trading, but you still want to be sure there's someone there to answer questions or deal with problems.

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, 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.