AAII.com: Members Rate Their Brokers

AAII members have the opportunity to voice their opinions on a variety of topics in the Member Surveys area of the AAII Web site. For the past nine years, AAII has been polling members about their broker satisfaction. The discount broker survey asks members which discount broker they use, the primary reasons for choosing that broker and to rate their satisfaction with the firm.

A summary of the past five years of results is shown in Table 1, which presents the ratings of the most popular brokers based on member responses since 2002. Results are ranked based on the percentage of members using each broker. For four years (1999 to 2002), Charles Schwab reigned as the most-used broker among members responding to the survey. Scottrade, which debuted on the 2002 survey at number five, quickly snatched the top spot from Charles Schwab in 2003 and has remained number one for four years. With the merger of TD Waterhouse and Ameritrade, a new brokerage firm has been allowed to penetrate the top five: E*Trade, which was number seven in last year’s survey. For the past four years, Scottrade, TD Waterhouse, Ameritrade, Charles Schwab and Fidelity have bounced among the top five spots. This year, the combined TD Ameritrade is the number two most-used broker among AAII members.

The top five brokers made up 76% of the responses, up seven percentage points from 69% last year, the largest jump in the survey’sw history. This seems to point to the consolidation trend. As brokerage firms merge, investors have fewer choices. The powerhouse brokerage firms have the ability to attract and keep investors on many levels including trade prices, research offerings and reliable service. Table 1 also provides ratings for each broker in four areas: overall satisfaction, service reliability, trade price and execution speed. Service reliability refers to the ease with which you are able to access your broker when you want via the Web. Trade price takes into account the price at which on-line orders are filled relative to your trade price expectations. Execution speed refers to how quickly an on-line order is filled. Fidelity ranks at the top of each category. The newly combined TD Ameritrade ranks the lowest in overall satisfaction. Scottrade, the darling of the survey for the past few years, ranks near the bottom of the list in overall satisfaction and reliability, while customers are still pleased with trade price and execution speed.

Table 2 shows the changes in the importance of factors members take in to account when selecting their broker. In the past, commissions were the biggest factor in choosing a brokerage firm. This year, commissions still rank as most important, but the services offered by brokerage firms have become more important to investors. There are so many on-line brokers that competing on price alone will not grab new clients or keep current traders. Firms are beefing up their offerings and adding things like streaming real-time quotes, direct access trading and expanded securities data.

Table 1. Ratings of the Most Popular Brokers CLICK ON IMAGE TO SEE FULL SIZE.

Table 2. Primary Reason Members Selected Their Broker CLICK ON IMAGE TO SEE FULL SIZE.

The importance of convenience had remained steady in past years as people became familiar with Internet trading and many used multiple firms for different types of trading. This year, the importance of convenience jumped six percentage points over last year. Maybe this is a result of the fast-paced world we live in. Many of us have too much to do and too little time to do it and are greatly helped when we can manage our money in as few places as possible.

Overall, the results of the survey have shown the changes that have taken place in the industry over the years. They also illustrate the changes among investors themselves and what they feel is important when selecting a discount broker. To participate in the broker survey for 2007, go to the Investor Surveys area of AAII.com.