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From First to Worst: Ranking 8 Online Brokerages Based on Customer Loyalty

By Chuck Saletta - Aug 21, 2017 at 6:00AM

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If customer loyalty leads to outperformance, the online brokers at the top of this list have an incredible opportunity in front of them.

A dial with the word invest on it, pointing to "Stocks" on a list that shows several different investment types

Image source: Getty Images

Brand Keys recently updated its Customer Loyalty Engagement Index  on top online brokerage firms. That index attempts to determine which companies may outperform their peers based on having better customer loyalty and thus less trouble retaining customers and turning them into advocates.

In today's competitive era of shrinking brokerage commissions, those brokerages that can retain loyal customers may have the best shot at protecting their own income streams. Read on to find out if your broker made the cut and, if so, how and why.

Scottrade office; glass building set behind trees and bushes.

Image source: Scottrade.

 

No. 8: Scottrade

Scottrade has long been known as the home of $7 online commissions and no fees for inactivity or account maintenance. The company combined low-cost online broker fees with reasonable local services (at higher prices) across a network of more than 500 branch offices to establish its market position.

Scottrade is in the process of being bought out by TD Ameritrade  (AMTD), which appears in a stronger position later in this list. As part of that acquisition, both TD Ameritrade and Scottrade reduced their commissions to $6.95, suggesting that price-based brokerage competition will continue. As a somewhat low-frills discount broker, Scottrade makes the list but is far from topping it.

Screen captures from various E*Trade "don't get mad, get E*trade" commercials.

Image Source: E*Trade.

 

No. 7: E*Trade

E*Trade (ETFC) is still well-known for its former spokesperson, a talking (and trading) baby, which was meant to convince watchers how simple it can be to buy and sell stocks online. Today's commercials are more focused on the lifestyle you could ultimately have if you invest successfully. 

E*Trade traces its history back some 30 years, and it lays claim to the first-ever online stock trade made by an individual investor. E*Trade has grown through acquisitions over the years, with its most recent being the purchase of fellow online broker Options House. E*Trade's commissions start at $6.95, but they drop to $4.95 for more active traders. 

E*Trade's catchy commercials go a long way toward attracting its customers, but new customers aren't necessarily the most loyal customers, earning it the No. 7 spot on this list.

Picture of Charles Schwab, founder of Charles Schwab brokerage

Image source: Schwab.

 

No. 6: Schwab.com

Charles Schwab (SCHW 1.30%) started out as a physical discount broker back in the 1970s as brokerage commissions were deregulated, allowing fees to be decided by market competition. Schwab has evolved over time to include a substantial online trading presence. The brokerage's commissions for stock trades start at just $4.95.  The company's heritage of strong customer service at reasonable prices helped it land a slot near the middle of this list.

A picture of the Ally Financial Center, looking up the building with the sky in the background

Ally Financial center. Ally Financial owns TradeKing. Image source: Ally Financial.

 

No. 5: TradeKing

TradeKing has been purchased by Ally Financial (ALLY 5.76%) and is now known as Ally Invest. As a stand-alone company, TradeKing was known as a pioneer in incorporating social media into its investing platform, which helped it introduce unique (at that time) features that kept its clients engaged.

TradeKing/Ally Invest has commissions starting at $4.95, and they drop to $3.95 for active traders or those with at least $100,000 invested via the platform. The combination of innovative features and low commissions earn it some of the most loyal customers in the industry.

A bank of America service center with a MerrillEdge Office

A bank of America service center with a MerrillEdge Office. Image source: Bank of America

 .

No. 4: MerrillEdge

Now owned by Bank of America (BAC 3.39%), MerrillEdge provides online brokerage services for Merrill Lynch. One of the only online brokerage services associated with a full-service, old-school broker to make this list, it did so with an incredibly impressive pricing plan. If you have at least $50,000 invested in MerrillEdge, Merrill Lynch, and/or in a Bank of America account, you get up to 30 commission-free trades a month. 

If your account isn't at that level, online trades are a mere $6.95 -- a far lower price than traditional brokers charge for their services and fairly competitive with the others on this list. For those who want access to the hand-holding and guidance of a traditional brokerage firm at the low cost of an online platform, MerrillEdge also offers guided investing services and one-on-one advisory services as well.

Picture of TD Ameritrade's headquarters at night

TD Ameritrade's Headquarters at night. Image source: TD Ameritrade.

 

No. 3: TD Ameritrade

Scottrade customers disappointed by their brokerage's eighth-place spot on this list can rejoice in the fact that they may be moving up the list as TD Ameritrade completes that acquisition and integration. TD Ameritrade is no stranger to lowering the cost of trading: It traces its roots back to First Omaha Securities, one of the first traditional brokers to join the ranks of discounters back in the 1970s. 

In addition to its fairly low commissions (now $6.95 for equity trades), TD Ameritrade is known for both building and buying innovation in its trading platforms. It offers several different platforms, including the advanced thinkorswim trading platform it acquired earlier this decade. The variety of platforms enables it to cater to multiple client types, earning it a spot near the top of this list.

Man checking his cell phone. Caption reads "Two out of five millenials trade options at least monthly -- more than any other age group

E*Trade now owns OptionsHouse. Image source: E*Trade.

 

No. 2: OptionsHouse

Now part of the E*Trade family, OptionsHouse caters to options-oriented investors. It offers an advanced trading platform for complex options spreads, fairly low commissions -- which E*Trade agreed to honor as part of the acquisition -- and no inactivity fees or account minimums.

Thus far, E*Trade has kept the key OptionsHouse functionality intact as part of the integration. If E*Trade does as well integrating OptionsHouse as TD Ameritrade has done with thinkorswim, E*Trade may find itself moving up the list to around this slot in the future.

Two businessmen shaking hands superimposed over an urban setting

Image Source: Getty Images.

No. 1: Fidelity.com

Privately owned Fidelity tops this list of online brokerages based on customer loyalty. With its heritage as a low-fee index fund provider, Fidelity knows the importance of keeping costs down when it comes to enabling clients to build their wealth. Between its low-cost funds, tiny trading commissions ($4.95 for equity trades), and the opportunity for one-on-one advice and guidance, Fidelity offers investors a lot for a very small price tag.

Fidelity can afford to do this because it has over $6.2 trillion in assets under administration, allowing it to spread its costs out over a huge asset base. Investors like what they get for their money, which makes them fiercely loyal to Fidelity. 

Chuck Saletta has the following open options positions on Bank of America: Synthetic Long, Jan 2018 @ $17 and a Short Strangle, Jan 2018 @ $17/$22. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$35.07 (3.39%) $1.15
TD Ameritrade Holding Corporation Stock Quote
TD Ameritrade Holding Corporation
AMTD
E*TRADE Financial Corporation Stock Quote
E*TRADE Financial Corporation
ETFC
The Charles Schwab Corporation Stock Quote
The Charles Schwab Corporation
SCHW
$69.94 (1.30%) $0.90
Ally Financial Stock Quote
Ally Financial
ALLY
$34.86 (5.76%) $1.90

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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