Test Driving Zecco.com: Free Trading, But At A Price

You probably have heard about Zecco already. The name stands for ZEro Cost Commission. True to their word, they offer zero commission internet trading for stocks and ETFs, for both market and limit orders as long as the account balance is above $2,500. There is a limit on the number of trades but it’s a more than generous 10 trades/day, 40/month. Bank of America (BAC) also offers free trading to customers with a combined $25,000 in all accounts in a growing number of states. However, after comparing the other fees it was obvious Zecco was the clear winner, so I decided to give it a try.

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Source: Zecco

Application/ACH transfer
I was actually offered a Zecco account; I suppose because of my blog. I signed up for an account which lets you participate in their forum and post blog entries. Online trading requires a separate application and password.

The online application was a snap and I received approval the next day. However, I found the interface unpolished in several places. It lacks the ability to enter trailing loss or conditional orders (which BAC lacks also). Since they were upfront about this limitation, I was not too disappointed.

When it came to set up the ACH transfer, however, I found the interface cumbersome and unintuitive. For example, on Nov. 27th, I scheduled a transfer on the 29th. However, once that request was entered, I had trouble finding a record of it. I ended up emailing them on the evening of 28th (No 800 number or dedicated phone number for trading help only) and got this reply the next morning.

Thank you for contacting Zecco Trading. You will need to click on PENDING Transfers to see that we have received the request. I do show a pending ACH for your account. We appreciate your input on our ACH processes, we would like you to know that we are constantly upgrading our website and this is an area we are looking to improve.

Should you have any questions, please refer to www.zecco.com

Thank you for your interest in Zecco.

The ACH transfer did manage to go through and I was fairly happy with the way they handled my questions.

Order execution
Zecco is true to its name. Both buy and sell orders, market or limit, are free. You do have to pay the usual SEC fees upon selling. At $30.70 per million, it shouldn’t break anyone’s bank.

Zecco claims the industry standard of 30 seconds for order handling. It doesn’t offer level II quotes but through another online broker I was able to see my limit orders routed through the Pacific Stock Exchange [PACX] only seconds after they were entered. On one occasion, I modified an existing limit order and it took over a minute to appear. It’s probably faster to cancel existing orders and enter new ones rather than using the “modify” function if such things matter to you.

Zecco also offers stop market and stop limit orders, but not conditional orders.

Reader questions about Zecco
TJP asked if they offer dividend reinvestment. My original answer was “no” which was incorrect. From their FAQ:

Does Zecco Trading allow account holders to automatically reinvest dividends for equities and exchange traded funds?

Yes, dividend reinvestment is a feature that is available to our clients and can be setup during the account opening process. If you would like to add this feature after the account opening process is complete, you must submit the request in writing to our customer service department.

However, you can’t buy fractional shares at this moment.

Taz asked if there is a fee associated with ACH transfer. The answer is no, but it may take up to three days for the money to go through. Taz also asked a question regarding the $2,500 minimum account balance to get zero commissions. The account balance is defined as the sum of the market value of all the securities and the free cash balance. The minimum applies to the account balance, not the free cash balance, so it doesn’t keep the $2,500 tied up.

Trouble with my account
I’ve received reader comments about how thrilled they are with Zecco. Not surprising given what I’ve said so far. However, I have been experiencing some serious problems in my account personally.

This is what happened. I opened the account primarily to test a momentum trading model with a holding period of several days on average. Naturally, the promise of zero commission was extremely attractive. My first trade involved 50% of the capital and lasted 5 days with a 1.4% profit. Everything went smoothly and I was able to use the full amount right after exiting that position (customary in a margin account). My second trade deployed close to 100% of the capital which I exited 2-3 days later at an average profit of 1%. However, I noticed that my cash was locked up for 3 days (customary in a cash account). To my horror, I also noticed that my balance became much less than what it should have been.

For some reason my account was deemed “subject to IRS backup withholding” of 28%. The punch line was that it was 28% of sales, not of profits. So after two profitable trades that turned over nearly 150% of my capital, my account is down 150% x 28% ~ 40% from what it should be.

Apparently, this was caused by some missing paper work. It happed frequently enough that Zecco actually has a page about this, titled, no joke, “Where is my money?” There is also an active thread in their forum about this.

Here are my gripes:

• I followed the instructions after the on-line application and mailed in the signed W-9 form. My missing form (not required for all applicants) was not mentioned in those instructions. I found out about the missing form after the withholding had already taken place by calling customer service. As a matter of fact, the customer service rep promised that someone would contact me regarding the form, but no one did and I got the form myself from their website.
• My biggest gripe was that nowhere on the website was there any record of the withholding. It was as if the money simply evaporated. If you follow the forum link above, you will find the issue was first raised at the end of October. The president of Zecco actually responded to that thread so I’m sure management is aware of this. Elsewhere on their website they say they are working with Penson, their clearing firm, to resolve that issue. At any rate, they have known the problem for at least 6 weeks and nothing has been done. This is unforgivable because I can’t imagine a more pressing concern than proper accounting of the customer's money.
• I faxed as well as mailed in the hard copies of the required forms last Tuesday. On Thursday there was a power outage in the middle of my call with a service rep. On Friday, I was finally able to confirm that all the needed paper work would be in place after the hard copy arrives.
• Throughout this ordeal, my emails were never answered. It was quite tricky to reach a live operator, although I’m getting good at it.
• On more than one occasion, the customer service rep had to put me on hold for several minutes while looking up my file which makes me question their information organization system.

The other problem I had with the site's money market sweep was probably related. Currently, I’m earning only 1% on the free cash balance. One person from Zecco’s marketing department contacted me to offer help after reading my remarks in the comment section of my blog. I declined since I wanted to have the perspective of a typical customer.

They did say on their website that if they don’t receive the proper paper work within 30 days, Penson will forward the withholding to IRS. For now, I can only hope that I get money back soon.

Conclusion

I began this review more than a month ago. One reason I waited so long to finish it was that I was simply livid about the missing funds. As they say, you shouldn’t go food shopping while hungry… bad analogy but you get the picture. Had I written this a week ago, the tone would have been very much different.

I decided to try Zecco in the first place because of their “anti-establishment” feel, and I still want them to succeed. But I have to face up to how unpolished they are now. So I’ll make the following limited recommendations. I think Zecco is good for:

• Experienced online investors who use Zecco as an alternative account. This is somebody who knows exactly what she wants and who sets up everything right in one shot.
• Novice investors who care a great deal about trading cost and who is content with the basic buy and sell operations.

If you do decide to open up an account at Zecco, do learn from my experience: send in all your forms!

Comments

[David Jackson:]

From your review, I wouldn't use this service yet. The time wasted dealing with the mistakes makes it too much of a headache.

But in the longer term, these free services are very interesting, particularly for people who use ETFs. They remove one of the key advantages of index mutual funds versus ETFs -- namely that index mutual funds are free to trade, whereas ETFs aren't. That makes a difference for people who make regular contributions to their accounts. Sure, even free trades still leaves the spread on the trade as a cost, but this really tips the balance even more to ETFs.

2006 Dec 30 11:47 AM

[Anand Gupta:]

Great Review! I wish there were similar case study of user experience at Bank Of America Free Trading.

The problems at Zecco seems fixable. May be the revenue model they are pursuing is too aggresive to permit good customer service. Poor customer service in initial phase can be a fatal mistake. It is also not clear exactly how Zecco plans to be sustenable in long run.

But the mere fact that Zecco like service is in existence makes me nervous about investing in upcoming IPO of Interactive Brokers.

Thanks,
Anand

2006 Dec 30 02:52 PM

[Ganesh Kumar:]

Here is my experience with ZECCO. I DO NOT WORK FOR ZECCO. I am just another investor waiting for something like this so that I can use ETF's and good stocks on dollar cost averaging to increase my returns.
I want to write this because I was searching for some review on ZECCO for about two months and then took a dive to see what happens. Again I a long term investor and not a trader. I may make a maximum of 2 or 3 buys per month. My purpose of opening ZECCO is dollar cost averaging not trading.
My overall experience with ZECCO is great. The surprising thing is I need not have to call or email any one with questions or anything. Everything went on so smoothly. That is a refreshing experience.
Here is the time line of what happened
DAY 1 ---> Created a Zecco user id and applied for ZECCO account online. The site creates a neat PDF file. Printed the same, signed and sent it to zecco. Also, I faxed the last sheet and copy of my drivers license to the fax number they provided. This was a Wednesday.
DAY + 4 ---> I received an email stating my account has been approved and I could set up ACH relationship
This was at Sunday night.
Day +5 --> MOnday morning I went in and added my bank account in the ACH relationship (yet to be verified)
Day+6 -->I got the two small deposits from Zecco in my bank account. I entered the small amounts and the account was verified instantly. I initiated the ACH transfer from my bank account. This is Tuesday.
Day +9 ---> To my surprise the amount was available in 3 days for trading. Compare that to 5 days or more others take!!. I placed my first order (this was a limit order and it was executed without any problem.
Now I am sitting here on Saturday, just staring at my trade confirmation in disbelief which states Commision as ZERO.
SO THIS IS FOR REAL.

Update after opening the account and doing one trade:
I had to send some additional papers to prove that I am a resident Alien. I had to call them once but was able to connect within about 10 minutes. Their timing is PACIFIC which is strange given they are located in ONTARIO CA. I got little nervous because they are not within US but so far so good.

2006 Dec 31 05:48 PM

[User 104693:]

Ontario, CA is in Southern California.

2007 Aug 31 03:17 PM

[Malkiel:]

Let me add a few more impressions to round out the picture. Firstly, there simply is no other online brokerage offering "free" to the little guy, so Zecco is sitting on some kind of sweet spot if they can fix some of their procedural and software problems. Anyone who hasn't yet should go to Zecco.com to have look at their platform; it really is an attractive platform that shows a lot of promise. Part of their concept was to be a "community" as well as a brokerage, so their forums are a big part of the site, but like the trading platform the forum area needs a little work on details. So far the forum participants are novices, which makes the discussions short and uneven, but time should cure some of that.

I have also encountered some glitches, such as my account being inexplicably put on hold when Penson retyped my data, and my account balances (other than cash) "disappearing" before the Christmas weekend and "reappearing" this weekend. My actual trading, however, has been clean and error-free. I am a long-term trader because of the cap gains tax period (my Zecco account is for those speculations positions I can't resist but wouldn't buy for my IRA).

Zecco was created by one of the Skype founders and has the same rich, attractive web interface typical of Skype, so I'm really hoping they keep working on the rough edges. In the meantime, if you can spare $2500 and have a few little speculations you've wanted to make this would be a good account to do it from. Zecco is the wedge we need to drive into the market to make the big boys let us play for free, too...

2006 Dec 31 06:34 PM

[Ganesh Kumar:]

Here are a few things I thought that could be improved in ZECCO.
1. First when you create an account with ZECCO, they send a confirmation email which has the password spelled out. I think this may be big security issue. They can send the id but not the password in email.
2. Overall I am not sure how many users will understand the two layers in ZECCO. First you have an user account with ZECCO then you get in to a trading account. The two layered security is good but if they could separate out the "general hanging around place" where there are user blogs etc with the serious investing place that would be great.
3. The trading site has a big geeky look. It was ok with me as I am an experienced online user (geek myself) but the User Interfaces are not that intuitively designed. I do not want to go into much details but the general feedback is the trading site is geeky and common user may find it difficult to use.
4. Contrary to other users feedback, I found there is no email communications from ZECCO to me other than the initial account approved email. I was at least expecting a trade confirmation but there is none. It is also not clear how I set my email preferences whether to receive trade confirmations. Again not a show stopper but things that could be improved.
Hope you enjoyed the review.

2007 Jan 01 08:03 AM

[Melinda:]

I strongly advise against anyone doing business with Zecco. My experience has been that they took my money at the beginning of August and held it pending imaginary paperwork. Threatening to contact the authorities didn't help... I actually had to call the FBI internet crimes task force and file a complaint to have my account closed and my money returned to me. Conversations with Zecco's clearing firm, Penson, has led me to believe that Penson is very close to ending their relationship with Zecco. I hope they sue Zecco (if you noticed when you signed the account agreement, you give up any right to do so). Zecco is holding people's money indefinitely and blaming Penson for all the trouble.

2007 Aug 31 04:40 PM

[jk:]

Zecco cancels accounts over negative feedback over the recent pricing structure change. Zecco did it to me. Lets see how soon this gets edited.


Watch what you say to zecco. BEWARE of ZECCO.com for investing, trading, options and stocks. It took over 5 weeks for them to setup my account and it still has not been created correctly. I don’t even have any stocks to transfer in. When talking to customer service I need to start over every time which takes a lot longer if any problem needs more than one phone call to resolve. There have been reports from people that the setup process is not clear so if you fund your account after they say everything is a go and you have not turned in your government tax papers they will withhold a sizeable chunk of your money.

Recently they changed their policy where if you no longer meet the New minimum balance requirements you do not get free trades. Even though their whole business model is built on free trades you don’t get any. Now my account is halfway setup at this point and I log in and I receive the notice saying everything is changing the minimum requirements for account, and the amount of free trades, and that you must meet the $2500 minimum to be able to receive their now ten (down from 40) free trades a month. I have not even traded my first stock with this service and the terms are changing. On top of that there is a $50 transfer out fee (up from $0) that is imposed now. This seems like bait and switch to me.

Now they contact me because they don’t have the required information that was already sent to them when my account was setup the first time. I send back that I don’t have time to start this process over with and I do not feel confident more or less in the company anymore. I also let them know that I am not happy with their business model now affects me and how I have been treated as a customer since the start. Now I have heard people criticize the company on their site which is always deleted by the moderator’s but also on the internet. I felt that I would make my own decision as their site seemed informative and I thought I know what I was getting into. All I wanted was for them to understand they are pushing customers away and that it would be beneficial to grandfather the people in that have been with the company or just signed up before this was enacted. I was not notified of this change by email or us mail as they stated before it went into affect and I just wanted to use my account with their new restrictions if need be but not be shutout by the new minimum balance.

Now I have my major funds at another broker since I wanted to make sure this company was of the straight and narrow before I brought my whole account over to them (like a lot of people do). Now these people are shunned away which may lose them business.

Now I understand that they are a new company but they don’t need to close my account because I stated I didn’t think I what they were doing was fair to me and to others. Most business owners would like to hear the feedback before it costs them money from customers taking their business elsewhere.

Moral of the story is watch what you say to Zecco they may close your account if they don’t like what you say.

Zecco if you would like to contact me I would be more than happy to talk to you.

Thanks

2007 Oct 04 11:18 PM

[jk:]

Zecco cancels accounts over negative feedback over the recent pricing structure change. Zecco did it to me. Lets see how soon this gets edited.


Watch what you say to zecco. BEWARE of ZECCO.com for investing, trading, options and stocks. It took over 5 weeks for them to setup my account and it still has not been created correctly. I don’t even have any stocks to transfer in. When talking to customer service I need to start over every time which takes a lot longer if any problem needs more than one phone call to resolve. There have been reports from people that the setup process is not clear so if you fund your account after they say everything is a go and you have not turned in your government tax papers they will withhold a sizeable chunk of your money.

Recently they changed their policy where if you no longer meet the New minimum balance requirements you do not get free trades. Even though their whole business model is built on free trades you don’t get any. Now my account is halfway setup at this point and I log in and I receive the notice saying everything is changing the minimum requirements for account, and the amount of free trades, and that you must meet the $2500 minimum to be able to receive their now ten (down from 40) free trades a month. I have not even traded my first stock with this service and the terms are changing. On top of that there is a $50 transfer out fee (up from $0) that is imposed now. This seems like bait and switch to me.

Now they contact me because they don’t have the required information that was already sent to them when my account was setup the first time. I send back that I don’t have time to start this process over with and I do not feel confident more or less in the company anymore. I also let them know that I am not happy with their business model now affects me and how I have been treated as a customer since the start. Now I have heard people criticize the company on their site which is always deleted by the moderator’s but also on the internet. I felt that I would make my own decision as their site seemed informative and I thought I know what I was getting into. All I wanted was for them to understand they are pushing customers away and that it would be beneficial to grandfather the people in that have been with the company or just signed up before this was enacted. I was not notified of this change by email or us mail as they stated before it went into affect and I just wanted to use my account with their new restrictions if need be but not be shutout by the new minimum balance.

Now I have my major funds at another broker since I wanted to make sure this company was of the straight and narrow before I brought my whole account over to them (like a lot of people do). Now these people are shunned away which may lose them business.

Now I understand that they are a new company but they don’t need to close my account because I stated I didn’t think I what they were doing was fair to me and to others. Most business owners would like to hear the feedback before it costs them money from customers taking their business elsewhere.

Moral of the story is watch what you say to Zecco they may close your account if they don’t like what you say.

Zecco if you would like to contact me I would be more than happy to talk to you.

Thanks

2007 Oct 04 11:18 PM

[Zecco S. Ucks:]

Terrible company. They cancelled my account after I complained to the SEC about their huge system failure in August when nobody could trade the Friday the fed lowered the interest rate by 50 points, with many losing thousands without being able to buy back into the market until Monday. Huge amount of people that hate this so-called broker. One guy had to sue to get the money in his cash account returned after his account was never activated.

Now, they're reducing the free trades to only 10 per month, and only for customers with $2500 or more. Other trades are $4.50 each (so much for their acronym for "Zero Commissions."

Look elsewhere.

See www.zecco.com/forums/Z... for comments from other dissatisfied customers concerning the August debacle.

2007 Oct 08 11:23 AM

[Clayton:]

ZECCO IS A FRAUD! BAIT AND SWITCH SCAM ARTISTS!

Their new business model is "Lie to people to get them to open 'free accounts'. Then take $30 when they fund the account. Then disrespect the customer on the phone to get them to close the account; charge them another $30 to close it."

Bam, $60 for no work. That is unless they decide to just keep your money!

By the way, I found a work around for anyone who wants to avoid the $30 fee to close the account! Leave it open and take a partial distribution of all but 1 penny. That is free! Make sure you delete any ACH relationships you have with them so they can't draft the annual fee out of your account.

I hope I get my check of $2469.99 in the mail soon so I can cash and be done with these criminals. If not, I will contact the FBI like an earlier poster did. Great idea!

2008 Feb 27 10:56 PM

[User 158080:]

Imagine the uproar they caused when they went from 40 trades per month to now 10 trades per month. And it was $3.50/trade after 40, now $4.50/trade after 10.

Their forums section is the epitome of censorship. You mention anything bad about their site, and the post disappears. For example, there was a HUGE problem one day when they installed some kind of new software upgrade (in the middle of the week!), causing pending orders to go to limbo. When you tried to cancel or modify existing orders, it stayed frozen ... lost profits or worse, lost capital. The posts corresponding to that fiasco mysteriously disappeared, and no explanation was ever given as to the root cause.

Finally, forget about sending them email. You HAVE to call them to get anything done. There have been many posts about this, so it has affected many people - it appears Zecco Email customer service does not exist. Save your bandwidth sending your emails to a virtual internet abyss.

2008 Feb 27 11:16 PM

[Ed Carter:]

Yikes... before reading these I was considering transferring a rather large account to these bandits...

Glad I did the research first.

2008 Apr 28 03:26 PM

[Fred Ammons:]

I would encourage you to review more current reviews of this company. It appears that service may have improved. This review was first posted on Decembers 29, 2006.

2008 Jun 04 01:51 PM

[Zecco is a ...:]

You'll probably read my comment for other sites. I'm closing my account with Zecco after using it for about 1 month. Why 1 month? Because they have free trade for 1 whole month of Oct 2008. I am using Interactive Brokers now.
It's not worth it on their cheap rate. The websites constantly lag, freeze and automatically log you out especially when the market open or when the markets have a big volatility. You'll be pulling your hair off and wish that this is not happening or wish you should not open the account with it in the first place and I have broken 2 mice for this case. I've lost so many opportunities because of this problem. Calling their rep? good luck!!! Emailing? give them 24 hours
, after that you have to email them again to check it, no reply. Transfering money? they're gonna hold it for at least 8 bussiness days instead of 5 days as promised. I had to call them to clear the money twice so I can use it in my account. Avoid at all cost, if you want to make money...Don't make the same mistake as I did.....in case you wanna try it, remember this.... "I TOLD YOU SO..."

2008 Nov 13 05:00 PM

[datadave:]

Hey I was all excited about Zecco....until they moved the decimal point over one notch for minimum balances in order to have 'free trading'. No longer 2500.00 min. <i>but</i> 25,000.00 min. What gives? a typo? (as of sunday Feb. 1) I'll have to call people who I recommended it to to not bother. They have my soc. sec. number but I hadn't sent the forms in yet. So with such a tenfold increase in a min. balance...I am reconsidering a more mainstream (and honest) on-line brokerage.

Feb 01 06:52 AM

[bolene:]

Zecco Trading has so far been my worst experience ever, though I haven’t dealt with many online brokers. I was lured by the concept unlimited of free trades in the past (the $30.00 yearly maintenance Fee wasn’t an issue) & decided to try it with a small account as a test, about $5,000. Shortly after the unlimited of free trades turned into 10 free trades a month which would still work for me, though it did cost me some commissions. With the latest change of $25,000 minimum requirement I decided this wasn’t for me so I transferred the account to an existing account in TDAmeritrade which just arrived today with a $81.00 debit (Zecco’s cost for transferring funds & closing the account). I don’t usually believe that you get what you pay for, but in this example it has been a very costly test with no upside. I would recommend exercising caution on using this low rated broker.

Feb 17 10:39 AM

[User 364255:]

ZECCO IS STILL THE WORST IN FEB 2009

The comment about Zecco's service improving -- not true. They haven't. Customer service is still the worst, accounting system is broken and might be fraudulent. Trading platform is the worst. Prone to refreshing the entire screen as soon as you need to make a quick move. Take it from a former customer who didn't heed the warnings, opened an account 2 months ago, and hated it from the beginning. And I MADE money there.

Feb 26 12:02 PM

[frankc:]

Be careful with Zecco. In two separate months they charged me margin interest, though I made no marginable trades. The second month, I made NO trades & they charged my account interest as well as issued a margin call!
I transfered out to TradeKing.

4/12/09

Apr 12 04:51 PM