AAII.com: On-Line Broker Survey 2005 Results

AAII’s Discount Broker Survey provides a way for our members to voice their opinions on the brokers they use and to see how the brokers rate against one another among our membership. The Discount Broker Survey is one of AAII’s popular on-line questionnaires found in the Member Surveys area of AAII.com (www.aaii.com/membersurveys). The Discount Broker Survey asks members which discount broker they use and the primary reasons for choosing a broker and allows members to rate their satisfaction with brokers on a number of specific criteria.

Table 1 shows a summary of the past five years of results for this survey; it presents the ratings of the most popular brokers as determined by member responses collected since 2001. Results are ranked based on the percentage of members using each broker. Charles Schwab reigned as the most-used broker among members responding to the survey from 1999 to 2002. Scottrade, which debuted on the survey in 2002 at number five, jumped to the top spot in 2003 and has remained number one for three years. Since 2002, Scottrade’s popularity among members has grown each year, increasing 314% over the past four years. While Charles Schwab’s popularity fell in 2003 and 2004, it narrowly beat Fidelity for the number two spot this year.

The top brokers continue to encompass a greater number of our members each year. In 2001, the top five brokers accounted for slightly less than half of the total responses. The figure has grown every year for the past five years, although this year’s increase of 1.9 percentage points, to a total of 69.1%, is the smallest to date. This may be an indication of the consolidation trend that swept through the industry over the last few years.

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 at which you are able to access your broker via the Web. Trade price takes into account the price at which on-line orders are filled relative to your expectations. Execution speed refers to how quickly an on-line order is filled. TD Waterhouse and Ameritrade—which rank fourth and fifth, respectively, in usage among our members—rank at or near the bottom of each ratings category this year. Meanwhile, Scottrade and Fidelity rate at the top of each category.

TABLE 1. Ratings of Most Popular Brokers

Table 2 reports changes in the importance of factors members take into account when selecting their broker. In 2005, as in every year, commissions are the key factor. Until last year, the importance of convenience rose slightly each year, while the importance of services fluctuated. This year the importance of commissions remained the same, while services rose two percentage points and convenience fell one percentage point. This is probably a result of pricing systems that fail to substantially differentiate firms and investors moving toward a one-stop-shopping attitude of obtaining more control over trades and increased research and advice in addition to good trade execution.

TABLE 2. Primary Reason Members Selected Their Broker

Overall, the results of the survey reflect the changes that have taken place in the industry over the years and illustrate how investors have changed in what they feel is important when selecting a discount broker.

Please participate in the broker survey for 2006 by going to the Investor Surveys area of AAII.com.