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One More Reason to Buy Online -- Barron's -2-

18 Mar 2017 10:00 am

BUT LET'S GET TO the real excitement of our rankings. For 2017, Barron's reviewed 16 firms, each of which supplied us with a large amount of data and hands-on trading accounts. As has become customary, Vanguard once again rejected our overtures. We considered resorting to other means because so many readers are interested in seeing how Vanguard would stack up. But since much of the data we request is difficult to find without a firm's help, we decided to move on.

Two brokers we've examined for many years, Scottrade and TradeKing, stepped away this year due to acquisitions. (In TradeKing's case, the buyer was Ally Bank.) But we have two newcomers: Planner Securities and Tradier, each of which has an interesting story to tell.

To analyze 2017's top brokers, we took a hard look at the value they offer to clients, analyzing security, mobility, and social-media features as well as the depth of their investment tools and their trading capabilities. Our primary consideration in judging these 16 firms is how they work for our readers, who are high-net-worth active investors. Price-improvement statistics are built into our Trading Experience and Technology category.

The ability to set up a personalized experience, both on a computer and with a mobile device, is a key area of focus. We want to see how smoothly the system moves from idea generation to trade ticket, and then on to reporting the results of one's hard work. Customizable reporting is a concern. We think it's important for investors and traders to understand which of their strategies work -- and which need a little more work.

Three firms earned 4 1/2 stars, and our winner, Fidelity, was a repeat from 2016. Its margin was a bare 1/10th of a point over longtime favorite Interactive Brokers. TD Ameritrade moved up one spot to No. 3. Five brokers, each with unique strengths, earned four stars: OptionsHouse, Charles Schwab, Merrill Edge, TradeStation, and E*Trade.

Because there are so many different trading styles, Barron's also pinpoints top online brokers in six categories -- frequent trading, in-person service, investor education, long-term investing, services for novices, and options trading -- to help you decide where you might want to open an account or transfer an existing one (see table). We also show the brokers that were at the extremes when we calculated the monthly cost of trading for infrequent traders, as well as for those who trade multiple times per day.

You can read about our methodology at Barrons.com in "How We Ranked Our Online Brokers," and review the categories that informed our analysis in the tables " Barron's Online Broker Survey: How the Brokers Stack Up," the most comprehensive comparison we're aware of listing the tools and services each firm provides. This year, we expanded the tables displaying research and news based on reader requests. Those requests are extremely helpful in our research, so please keep them coming.

Fidelity Investments (4 1/2 stars) wins because of its excellent mobile tools and assistance available whenever you want it. The firm is one of the rare brokerages that maintained access to international markets when others walked away. Now that the company has lowered its base commission to $4.95 and its per contract options fee to 65 cents, Fidelity's full suite of tools and services is also a terrific value.

Fidelity is leading the way in making the quality of its trade executions more transparent. We're fans of the Fidelity report that displays after every execution showing how much price improvement its trading engine generated.

As one of the three brokers that participate in the Financial Information Forum's voluntary extended reporting program, which is working to standardize execution quality reports (the others are Schwab and Scottrade), the firm also puts out quarterly reports that show the percentage of orders that were price-improved, and the average savings per order. In the fourth quarter of 2016, a 500-to-1,000 share order of a stock listed on the S&P 500 attained an average savings of $10.25 per order at Fidelity. That gives you more back in price improvement than you pay in commissions.

On its Website and in mobile apps, Fidelity's design mandate is to create a unified customer experience, so that you don't feel like you're in a different universe on your tablet compared with your desktop.

Its exchange-traded-fund screener now includes technical pattern recognition powered by Recognia, which lets you look for particular price events, such as a moving average crossover or, perhaps, a bullish engulfing line for candlestick enthusiasts. The screener will display all of the technical events you've chosen, then narrow down the choices further by fundamental items, such as market capitalization, or pricing characteristics such as volatility. Fidelity also has an ETF Compare tool, which shows you similar funds and lets you compare them side by side. ETFs that trade commission-free -- 91 in all at Fidelity -- are indicated with an icon.

Fidelity has made a concerted effort to go after the millennial market, including repackaging educational content onto its mobile site. There are 12 programs available now, with more being added monthly. The Planning and Guidance center is designed to allow customers to focus on the future, planning for any kind of goal from college tuition to retirement to taking a long vacation. Fidelity Go, the firm's robo-advisory service, is clearly aimed at the younger set.

Fidelity has also added a site that allows guest access for 30 days and includes its premium research. When the 30 days are up, you can decide whether to open an account.

Interactive Brokers (4 1/2 stars) maintains its position near the top of the charts. IB is aiming at more than just the hyperactive trader these days. In order to ease a new customer onto its flagship trading platform, the downloadable Trader Workstation, or TWS, IB has launched a layout library that includes 20 predefined setups for different styles of trading. There are templates for options traders, fundamental research, and traders who focus on the news. You can set up as many layouts as you'd like and switch among them using the tabs at the bottom of the screen.

To keep from getting lost in the complexity of the Trader Workstation, IB introduced an artificial-intelligence-enabled assistant named IBot, which responds to plain English questions. IBot can answer queries about price quotes, option chains, order placement, upcoming corporate events, and market activity, among other things.

The trader's journal has been enhanced significantly, allowing you to organize your notes by underlying symbol so you can see all of your notes in one streaming view. These notes are stored on IB's server, so you can access them whether you're using the desktop, Web, or mobile version of the platform.

IB also offers 10 low-fee robo-advisory portfolios from its Covestor Smart Beta Portfolios unit. The portfolios combine automated investing with human oversight, and their risk-return profiles are potentially more profitable than passive index trackers. Rather than being invested in ETFs, the portfolios, which are rebalanced quarterly, include a wide range of individual stocks. The minimum investment is $5,000, and the portfolios may include fractional shares of some of the stocks. Fees top out at 0.08%.

TD Ameritrade (4 1/2 stars) moved up into the top three this year by enhancing each of its platforms. On the Web, the experience of analyzing stocks has become more personalized in the My Stocks Overview section of its research section. The firm's thinkorswim platform added global indexes to the charting package, as well as Federal Reserve data. Technical traders can use an enhanced scanner, which looks for classic and candlestick patterns. You can even set up a scan graphically, by dragging and dropping components into the tool.

One of the creature comforts we appreciate is the way TD watchlists can be generated quickly from the output of a screener and then made available to all platforms -- including mobile. You can have a multiscreen setup that includes your mobile devices, and all of your data and watchlists are instantly synchronized.

The designer crew at TD has made thoughtful changes to the mobile experience, including the way long watchlists are sorted on smaller devices. Some other brokers don't allow you to access real-time streaming data on multiple devices simultaneously, mainly because of the cost of supplying the data. "We're good at negotiating with data providers," notes a technical manager at the firm. With 20% of trades occurring on mobile devices, the focus on mobile is appropriate.

Over the past year, TD launched its own robo-advisory service, Essential Portfolios, via its advisory affiliate, TD Ameritrade Investment Management. Goal-setting is a key piece of this service, with five diversified model portfolios recommended by Morningstar. Slider bars allow the client to make adjustments at any point in the investing cycle, and display the updated results. For clients who are not projected to hit their targets, up to three tips are presented to help them get back on track.

OptionsHouse (4 stars), which was acquired last year by E*Trade, continues to operate as a separate entity but will be integrated into a single platform this year. The combined firms are targeting the summer for the completion of the process, which will offer the OptionsHouse platform to E*Trade customers, and vice versa. OptionsHouse's Steve Claussen assures us that the platform will not be going away, and will be developing additional tools for analyzing and trading futures. When the merger is complete, OptionsHouse customers will be able to utilize E*Trade's extensive education offerings as well as its recently-launched robo-advisory.

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March 18, 2017 06:00 ET (10:00 GMT)

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