1.29.2007

Picking a Brokerage

I know a number of folks in the process of rolling old 401(k)s into IRAs or setting up brokerages for the first time. I have discussed the pros and cons of a few brokerages with a few folks, but the truth is, it is hard to compare because the offerings, fee structure, and resources available are very different from firm to firm and there is not a good website that I can find that really compares it all. That said, smartmoney.com has done a nice job of categorizing several brokerages and rating them. They do not explain every feature so you should do more research- but this is a good list of brokerages and summaries of who they might best serve.

I use etrade, because my original brokerage was bought by another brokerage that merged with another that was bought by etrade. This process has not been fun- especially given that my historical records have not been carried over from company to company.

Despite the fact that my experiences with etrade have mirrored those described in the article, I am not surprised that they rated etrade #2 under their premium brokerage category. I got a kick out of (but do not completely agree with) their summary concerning many of the etrade critics that- "...much of (their/our) griping may stem from resistance to change."

Given a plan like my hypothetical non-retirement portfolio of mutual funds that allow $100 monthly or quarterly contributions for NO fee- etrade seems like the best bet.

The bottom line is that when choosing a brokerage- you need to figure out what you want to do with it and how much help you will need doing it. If you are going to roll-over an IRA and invest it in a couple of funds and forget about it until you retire, you do not need a brokerage that offers a ton- just one with the lowest fees possible. If you want to invest actively and do not need help from your brokerage and are ok with really poor customer service, etrade may be your best bet. Smartmoney also mentions: "
Lilien, the firm's president, says E*Trade plans to spend an extra $42 million on customer service this year."

Motleyfool has another resource to help you pick a brokerage- I like the comparisons it makes and the info it looks at but it only reviews 4 companies.