Great investors don't succeed all by themselves. Even if you're the most independent, self-motivated investor you can be, you still need to have the best information and research resources, as well as access to the investments you want and flawless executions when you pull the trigger and invest.
Having the right partner on your side can make a huge difference. That's why it's so important to your investing success to choose a discount broker that understands the needs of independent investors and gives you everything you're looking for from a financial services company.
The best broker for your happiness
A recent survey from J.D. Power and Associates sought to discover exactly which discount brokers excel in working with self-directed investors who don't get assistance from financial advisors. The survey judged brokers on a range of factors, including customer service interaction, trading costs and other fees, availability of account information, investment offerings, research resources, and problem resolution.
The results of the survey included the following findings:
- Vanguard and Schwab (NYSE: SCHW ) landed in the top echelon of brokers, scoring perfect fives on J.D. Power's Power Circle rankings. The survey indicated that Vanguard scored particularly well on account offerings and information, while Schwab excelled at customer service interaction and investing resources.
- Coming in third place was Scottrade, which had good performance in trading costs and fees. Also scoring 4 out of 5 were Fidelity, ING's (NYSE: ING ) ShareBuilder, T. Rowe Price (Nasdaq: TROW ) , and TD AMERITRADE (Nasdaq: AMTD ) .
- E*TRADE Financial (Nasdaq: ETFC ) scored slightly below the industry average, with a rating of 3 out of 5.
- Bringing up the bottom of the list were Bank of America's (NYSE: BAC ) Merrill Edge brokerage and Wells Fargo (NYSE: WFC ) , scoring just 2 out of 5 in the Power Circle rankings.
So based on these results, should you run out and open an account at Vanguard or Schwab? Should you close your Wells Fargo or Merrill account? The answer isn't quite that simple.
What you need
The problem with any broker survey is that it's only as good as its methodology. Just a few months ago, SmartMoney did a similar survey that put Fidelity, E*TRADE, and TD AMERITRADE on top, with Schwab and Scottrade in the No. 4 and No. 6 spots, respectively. Rankings like these are extremely subjective.
More importantly, your individual needs are never going to match up perfectly with the average survey-taker. With trading costs coming down throughout the industry, you'll no longer find the price disparities you used to see. So the prime differentiator becomes quality issues such as service, research, and execution. But you'll weigh each of those factors differently from other investors, so the perfect broker for you may not be the right one for someone else.
For instance, many brokers have incredibly sophisticated research tools. But if you have solid independent sources for financial information, then those research tools aren't necessary. Having 24-hour customer service is incredibly useful to some people, but if you don't plan on consulting with an in-house broker for advice on trades, then it's virtually worthless to you. Quality trade execution is vital for frequent traders, especially in light of the flash crash -- but if you only trade a few times a year, then saving a fraction of a penny per share on a trade isn't going to make or break you.
Get the right broker
With so many discount brokers to choose from, it's important to do your homework to pick the one that's right for you. But don't get caught up too much in rankings and surveys. Although they can provide a useful point of view, they only represent a general opinion based on investors who don't necessarily share your particular needs. The best way to make sure you have the perfect broker is to know what you want and find a broker you're comfortable with that will give it to you. That's the secret to happy investing.
Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.
If you're in the market for a broker -- or just want to check out the competition -- make a visit to the Fool's Broker Center. You'll find a handy comparison table that will help make picking the best broker a piece of cake.