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Things to consider when picking an online broker.

Its easy to assume that every reader on this site is an "old hand" at investing, and comes here to glean the latest news, hear about investing/trading strategies that others have employed successfully, and to see what opinions others have regarding market and economic events.
 
But as a reader who pays pretty close attention to the comments that accompany a given article, its apparent there are more than a few who are at an early stage on the path of self-directed investment. Sometimes there’s frank admission on their part, and at other times, the question/comment is indicative of knowledge gaps, at least pertaining the topic under discussion. I don’t mean this in a belittling way, since we all “started somewhere”, and I’m certain I could fill at least a small library, writing about areas of investing/trading where I have little to no knowledge, or possibly worse, misconceptions.
 
Recently, I’d been thinking about the differences between various online/discount brokers, and it struck me, based on my own experiences (and mistakes), that a post on the topic might be of some value to newer investors, although hopefully, even the more experienced might glean a tidbit, or two.
 
I feel fairly confident in thinking that, initially, at least, the primary consideration when choosing an online broker are commission rates. Given that of the few variables that can be controlled by an investor, transaction costs probably top the list, that’s not an unreasonable place to start. In fact, if one plans on day trading, or engaging in other short term trading strategies, there’s little reason to look much deeper. If, however, one plans on using longer term strategies, such as might be employed in putting together and running an investment portfolio, other considerations can come into play which may offset, or at least partly mitigate a higher commission structure.
 
Foreign Stocks:
 
If an investor is content to limit his/her exposure to international markets by investing in Big Board traded ADRs and various ETFs, access to foreign stock exchanges might be a moot point, but for those who wish to venture deeper into emerging and/or frontier markets, being able to buy securities that are only listed on a foreign exchange might be an important consideration. It should be noted that some foreign firms are available via the OTC BB, or pink sheets, but that’s not always the case. By way of example, Fidelity does maintain a foreign desk; TD Ameritrade does not. (Note; any specific examples I give will be in reference to differences between those two firms because I have accounts at each) Earlier this year, Enel Spa, the Italian utility, issued a rights offering to raise additional capital. I’ve held this stock for a number of years, and it had been a Big Board ADR when I had bought it, but a couple of years ago, it was among the foreign firms that opted to cease sponsoring the ADRs. Because I chose to hang on to my position, I received “ordinary” shares, which trade on the Milan exchange, in lieu of the ADRs. For reasons I was never able to ascertain, the rights were not eligible to be exercised by US and Aussie stockholders. Never the less, they DID have “value”, and because that holding was in my Fidelity account, I was able to sell the rights before expiration. Had they been in my Ameritrade account, they would have expired worthless. It should be noted that typically, foreign transactions will be at a higher commission rate than the investor will see advertised on the firm’s website, or in their print, or TV advertising.
 
Automatic Reinvestment of Dividends:
 
I won’t get into a debate as to the pros and cons of automatic reinvestment of dividends, because there are valid arguments to be made for both sides, but for those who favor the practice, the way different firms handle it varies appreciably. Fidelity, for example, allows an investor to handle pretty much everything from the online account. When a security is added, simple navigation to the appropriate page allows the investor to check the appropriate box, if the dividend/distribution is to be invested in the security. There’s also the option of making the election automatic for all securities added to the account. In the case of Ameritrade, every time a stock is added, either a phone call, or an email must be sent if dividends are to be reinvested. If dividends are reinvested, one will end up owning fractional shares. If the investor decides to exit a position, for whatever reason, Fidelity offers a “sell all shares” option, whereas Ameritrade only allows the sale of full shares, meaning that the fractional amounts will remain in the account.
 
Education/Research/Tools:
 
 There’s a fairly wide variance between firms, in terms of what’s offered here. Ameritrade has made what appears to be a firm commitment to investor education, offering a fairly wide selection of webinars and live/in person seminars on a variety of investing/trading topics, ranging from TA to options trading. In addition, Ameritrade has a charting program called “Strategy Desk”, which is a free download to all accounts. It allows an investor to pull a variety of charts on different securities in different formats, allows for automated trading and setting of trade triggers, as well as back-testing of various trading models. Fidelity offers a similar program known as “Active Trader Pro”. The difference in the two lays in the cost structure, with “Strategy Desk” being “free” to all accounts (although there are enhancements available to larger and/or more active accounts), whereas “Active Trader Pro” requires a minimum  of “36+ trades a year, on average”. I do know that Ameritrade has a telephone “help line”, as well as the aforementioned webinars/seminars, since getting the most utility out of their program can be a daunting task, given all of things that its capable of.
 
It should be fairly obvious that firms will tend to focus on things that encourage one to trade more actively, since an account of $10-$15k that’s actively traded is more profitable than a $100-$150K portfolio that’s rebalanced once a year.
 
Ultimately, life would be much easier if all of one’s investing needs could be found under one roof, but I suspect that’s unlikely to happen, at least for now.   

Full disclosure: Author has accounts with both Fidelity and TD Ameritrade.