Technological innovation and artificial intelligence are transforming the online brokerage industry. More and better data, combined with light-speed advances in AI, are giving the best online brokers tools to offer optimal personalized advice.
But most of their customers aren't as impressed.
Online brokerage customers tell us they value fundamental features like website security, fast trade execution, and customer service over innovative products like AI, fractional shares and alternative investments. So say the results of IBD's 12th annual Best Online Brokers survey.
And surging to the top of IBD's 2024 list of Best Online Brokers are perennial favorites Fidelity Investments and Charles Schwab, along with Ally Invest and Merrill Edge.
Both Fidelity and Charles Schwab have been honored as IBD's Best Online Brokers in each of the 12 years the survey has been conducted.
In Investor's Business Daily's 2024 Best Online Brokers survey, clients of online brokers say they value the fundamentals. Website security, trade execution speed and price, site performance, equity trading platform and customer service rank highest in importance.
See The Full 2024 IBD Best Online Brokers Special Report
Investors had plenty to be concerned about in the past year given inflation, rising interest rates and global political turmoil. But a resilient economy, coupled with easing inflation and the possibility of future interest rate cuts, fueled investor optimism and drove the markets higher in 2023.
The S&P 500 index surged 24% to just shy of its January 2022 record high. The Dow Jones Industrial Average rose 14%, exceeding the 37,000 level for the first time and setting seven record closes in late 2023. And thanks to a resurgence of technology stocks, the Nasdaq composite rocketed 43% — its best year since 2020.
Innovation Is Good, Price And Service Are Best
And against that backdrop, investors said in IBD's 2024 Best Online Brokers' survey that the basics reign supreme. Some are interested in the innovative products that online brokers are famous for, but most focus on price and service.
Online brokerage customers are not just thinking about security and customer service. They also want the most competitive incentives and perks. And, as interest rates have risen, investors have plenty of options to choose from when it comes to how brokers manage customer cash.
In the survey, IBD and polling partner TechnoMetrica asked clients of online brokers to rank their main online brokerage on various key features. The survey this year focused on 20 attributes that investors said were most important. These included, in addition to the attributes noted above, research tools, portfolio analysis and reports, timely information on market shifts, choices for cash management, mobile trading platforms and apps, educational resources, and wealth management.
Based on the overall scores of the eight online brokers that qualified for the survey analysis, IBD identified its four Best Online Brokers for 2024. They are Ally Invest (the brokerage arm of Ally Bank/Ally Financial), Fidelity Investments, Charles Schwab and Merrill Edge. Merrill is part of Bank of America.
More than 2,700 investors were surveyed from Oct. 12 to Nov. 20 in the broker analysis phase of the survey. The four other brokers that qualified for the survey analysis based on the number of their customers who provided ratings are E-Trade, Vanguard, Interactive Brokers and Robinhood.
IBD's Best Online Brokers List for 2024 is objective, and the results are based solely on the data from our extensive customer survey. The IBD editorial team produces this independent special report. There is no sponsored content, nor are there any commission links.
Best Online Brokers Push The Innovation Envelope
While many customers prize the basics, that's not going to stop brokers from pushing boundaries in terms of technological advancements, service offerings and portfolio personalization, according to Dennis Gallant, an associate director with Institutional Shareholder Services.
"Fidelity, Vanguard and Schwab have all expanded a lot of the tools and capabilities," said Gallant. "In many cases, you might find them leading a little bit further than what you'll see in the traditional advisor market."
"Who's going to be able to innovate and create access to these products?" asked Connor Coughlin, the chief commercial officer at Apex Fintech Solutions. "I think it's the discount brokerages because historically they've always been scrappier, and have always had to fight for more customers." Apex provides a fixed-income investing platform that allows retail investors to buy fractional shares of corporate bonds and treasuries. Apex was not part of the IBD survey.
New Investors For The Best Online Brokers
The best brokers need to stay on top of their game. New investors are entering the market across all age segments, according to a 2023 U.S. investor study by Broadridge. "Today's investors are extensive users of online platforms," the report says. And investors are now including more products in their portfolios.
Between 2018 and 2022, the percentage of mass-market investor households has grown across millennial, Gen X and boomer generations. Mass market is defined as households with less than $100,000 in liquid investable assets. Broadridge says this shift is largely due to new investors entering the market.
And the result, according to Gallant, is a race to capture customers — both younger or first-time investors and mature investors. And as customers' need for advice grows, brokers want to be there for them.
"The goal is, 'We get 'em in the door and then as their advice needs change, we're going to capture the advice side,'" said Gallant. "The goal is to capture more, provide more of those capabilities, more trading tools, more access to solutions, more customized solutions. But they're going to overlay more advice solutions and they're going to be able to cross-sell that better."
What The Best Online Brokers' Customers Say
Most customers value both security and performance. "I would say it is a tie between website security and performance," said Mark Seeley, a Fidelity customer. "The online discount broker I use has strong security measures in place to protect me from the bad guys. That is very important to me in this day and age with technology. I check my account every afternoon after the markets close, so website performance is also important to me. I like to see the options I have available when a bond or CD is maturing."
And still others value performance. "Website performance," said Bruce Main. "This is the most important feature at Schwab. It encompasses trading, daily portfolio performance, ease of seeing statements, confirmation of trades, etc."
To some customers of the best online brokers, website security and performance, though highly valued, are table stakes. "Website performance and website security are, to me, 'givens,' in that you obviously need a website that works and is secure," said Marty Greenstein, a Fidelity customer. Another Fidelity customer, Mike Guarnieri, said, "I don't think most investors are able to tell if a website is secure, so they rely on the reputation of the broker."
Still others say it's not just website security and performance that matter, but all the features on an online broker's website. "What's most important to me is website features," said Dave Seaman, also with Fidelity. "This to me means equity trading, mobile platform/apps, research tools and educational resources, bundled together. Without any of these, the service is not valuable."
Trade Execution Speed And Price
Respondents also valued the efficiency and cost-effectiveness of trade execution.
"The trade execution is very good," Steven Larky said of his experience as a Charles Schwab customer. "I've been very pleased to see how Schwab's S&P 500 mutual fund fees have continued to come down over the years and are competitive with ETFs. I think that speaks well to how Schwab treats their customers. They don't take advantage of customers; they let them benefit from fee reductions without having to play games — like threatening to close accounts or move money."
As of January 2024, the Schwab S&P 500 Index Fund (SWPPX) has an expense ratio of 0.02%. SWPPX is a no-load mutual fund with no minimum initial investment.
"I can remember years ago when the trade was $50 or more and one had to collect enough funds to make a purchase that wouldn't be consumed by commissions and fees," said Fidelity customer Scotty Miller. "I was pumped when all my trades at Fidelity didn't cost me anything. Can't get better than that."
Fidelity, Schwab, Ally Invest and Merrill charge $0 commissions for most online U.S. stock, ETF and option trades. Some of these brokers do charge a fee of 50 to 65 cents per option contract.
Fidelity tops the ranks in the category of trade execution speed and price.
Guarnieri places the greatest value on incentives, discounts and pricing. "I'm a fairly sophisticated trader, so I just want trades and accounts to not cost me a lot of money," he said. "That is lost money. That's why I use a discount broker."
In the category of trade execution, speed, and price, the best-scoring brokers were Fidelity, Schwab, Vanguard and Interactive Brokers.
Best Online Brokers: Customer Service
There's a distinction between online customer service and broader customer service among the best online brokers. Some respondents, including David Silverman, a Fidelity Investments customer, value the overall quality of customer service. That includes both electronic and personal interactions. He said he moved his IRA to Fidelity because of the firm's customer service and investment options.
"Fidelity also has a great website, superb educational resources and research tools, and multiple choices for cash management," he said. "Maybe all these things would come under the heading 'wealth management,' but whatever. I am likely to be with Fidelity for life … or at least for the foreseeable future."
Fidelity ranked No. 1 for customer service in the IBD survey. Charles Schwab was close behind, followed by Ally and Merrill.
Investment Research And Educational Resources
Among the best online brokers, customers prize access to quality research tools and educational materials. Respondents appreciate detailed and reliable information to make informed investment decisions.
"I use research tools several times a week as I review my own holdings and read about prospective investments," said Dan Miller, another Fidelity customer. "I check prices on three or four stocks a week, and always click on underlying statistics, financials, analysis and chart the stocks against the S&P 500 and Dow Jones Industrial Average indices."
Others also place a high value on research. That's the case for survey respondent David Bryant. "The service I value most highly is investment research," he said. He has several brokerage accounts at Schwab, including an IRA and a non-tax-advantaged account.
"I'm at the age where the law requires me to withdraw funds from the IRA. I intend to invest most of this money in the regular brokerage account, which will focus more on current income than on capital gains. Accordingly, I appreciate the various sources of information Schwab makes available for both equities and fixed-income investments."
The brokers earning top scores from customers in the area of educational resources were Fidelity, Charles Schwab, Ally and Merrill.
New Services, Customer Needs Drive Innovation
Coughlin noted how subscription-based services will appeal to do-it-yourself investors. For them, the need for advice grows as their financial capital grows and their financial issues become more complicated.
Schwab's subscription service is Schwab Intelligent Portfolios Premium. It has a one-time planning fee of $300, and a $30 per month advisory fee. This subscription-based pricing model provides access to a digital financial plan. It also offers one-on-one guidance from a certified financial planner, and a portfolio of low-cost ETFs.
"As I look out to the future and I think about who's going to be the driving force here in innovation, it is definitely the online brokers, the discount brokers," said Apex's Coughlin.
Online brokers, he said, also have an opportunity to lock in customers for life with education. "If you can educate somebody young, and continue to develop your product and mature it to meet their needs as their financial life evolves and becomes more sophisticated, that's a place to create a lot of loyalty."
