I have my trading accounts with Scottrade. I started out with a regular taxable trading account in 2009. Since then I have opened an IRA account for myself and my wife. So currently all stocks in my portfolio are spread across these three accounts.
I am really satisfied with Scottrade with respect to their fees. But I am always on the lookout for better options. In particular I am looking at options for lower fees when investing smaller amounts (around $500). With Scottrade’s $7.00 flat commission, investing around $500 means I am paying 1.4% in commissions which I feel is not worth it. That is one of the reasons I almost end up investing at least $1,500 in each transaction thereby lowering my commission to 0.5% or less. But it is not always possible to invest $1,500 in single transaction (either due to lack of capital or just want to invest in small chunks to average) and hence my desire to look at other brokerages.
Here are some of the options I am looking at:
Sharebuilder has been out there for a while now and needs no introduction. I already have my online savings account at Capitalone360 (formerly INGDirect) and Sharebuilder also is part of Capitalone. They have couple of fees structure:
- $6.95 per transaction for normal trades
- $3.95 per transaction for automatic trades – This is what I am interested in. $3.95 for about $500 per transaction works out to about 0.8% which is digestible.
I learnt about Loyal3 just a few months back from one of the dividend blogs that I follow. Loyal3 does not charge any fees and allows investments as low as $10. It also allows transactions using credit cards. But they have very selective list of stocks to invest from (about 50+). But their collection includes quite a bit of blue chips that I would invest in anyway. Ability to invest without any fees coupled with the ability to invest using credit card (free rewards 🙂 ) makes this quite an attraction. The only caveat is the sustainability of the brokerage itself. I am not sure how long they have been around and how long they can sustain and I am worried about them going under.
Motif Investing is another brokerage I learnt about from one of the dividend blogs. Motif Investing allows you to buy a basket of stocks/ETFs (up to 30) in a single transaction for a flat fees of $9.95. You can create your own motif or choose from one already configured. You can even adjust the weight of each stock in the motif before buying it. Sounds really wonderful especially if this allows me to buy multiple stocks in a single transaction for a flat rate. But again, my only concern is the sustainability of the brokerage itself and I am worried about them going under.
What about you folks? Do you use any of the brokerages (Loyal3 or Motif)? Are there any other brokerages that I am missing?
What happens if a brokerage goes under? I read somewhere that the brokerages need to be insured through SIPC similar to FDIC for banks and that the limit is 500K for the insurance. Is it per brokerage for the individual or per account for the individual? For example, since I have 2 accounts in Scottrade (Regular and IRA), am I covered for 500K in each account or just 500K overall? And is recouping the investments a simple process?
Is it even worth the time and risks to maintain multiple brokerage accounts for the sake of these advantages and flexible options?
Dividend Growth Journey 
I just started using OptionsHouse this month for my Roth IRA with $4.75/trade. I’ll be writing a review of OH over at my blog once I’ve had more time using their services. So far, so good though. I do most of my research using free online tools so all I need from a brokerage firm is to execute purchases cheaply. OH isn’t overly fancy but I don’t need extra bells and whistles. I use Loyal3 too but it has certain limitations.
Regards,
Dear Dividend
Same here. I don’t need all the research/other online tools. Like you, I do most of my research using other sites/tools and log in to the brokerage only when I am ready to place the order. So I just need basic set of features. Let me know how OH works out for you.
Also, how long have you been using Loyal3? Have you tried any of their IPOs? They promise first come first served for IPOs and want to know if it really works.
Thanks for stopping by.
I’ve been using Loyal3 since October 2013. I haven’t had any issues but if my account isn’t funded it can take several days to purchase and the price may fluctuate a bit. I’m in it for the long haul so I can handle small fluctuations. I haven’t tried their IPOs but there were some upset customers on Loyal3’s Facebook page after the GoPro IPO. I guess people didn’t receive as many shares as they reserved. I might try the Alibaba IPO if Loyal3 offers it but generally speaking I’ll pass on most other IPOs.
Regards,
Dear Dividend
So does that mean that I cannot have the funds transferred and then execute a trade on the day i want? Can the funds be transferred from a credit card and have it sitting in my loyal3 account and i can decide to use the funds when I want to purchase? Or I can only use the credit card as part of the purchase transaction in which case it will take several days until the funds are available?
Let me know if there’s any issues you run into with OH. The low commissions are pretty enticing since I just need a place to execute my trades. I’m debating Scottrade, Loyal3, Motif and I guess OH now.
Hi DGJ,
I use Sharebuilder at the moment, and from time to time, my Vanguard brokerage. But recently I’ve been considering to use Vanguard full time ($7 per trade dropping to $2 per trade in a few years’ time when I have enough assets).
The $4 trades at Sharebuilder are nice but it can be frustrating (and expensive) when the stock you’re buying goes up 2%+ in the hour before the trade triggers; although sometimes the opposite happens too. But as you point out, switching to a more typical brokerage means I’d have to make larger and less frequent investments and I do like the concept of smaller, more frequent purchases.
Do be careful about transfer out / ACAT fees – I think Sharebuilder charges $75 if you wanted to move all your shares out at a later date and %15 per partial transfer, and you can’t do it electronically. I don’t know about the others. Whereas moving shares from Scottrade to Vanguard was free and entirely electronic.
Since I pay HR block to do my taxes, I get charged more for each brokerage in my tax preparation which is a factor for me.
To your question about SIPC – I believe that you’d be covered for $500K for your Roth and another $500K for all of your taxable brokerages if they’re in your name – but you wouldn’t get $500K for Sharebuilder and $500K for Scottrade. Of course the likelihood of them both going under at the same time is pretty unlikely.
Best wishes on your journey!
-DL
Thanks for your thoughts. Like you said, the only drawback with ShareBuilder automatic investments is the lack of control when the order is executed. But I guess in the large scheme of things, it shouldn’t matter much.
I checked out Vanguard and their fees. First I thought that the fees went down depending on the size of your holdings, but it actually depends on the size of your holdings in Vanguard Funds 🙂
Thanks for stopping by.
Loyal 3 sounds very interesting. I heard bloggers mentioning about the name, I just assumed it was some sort of investing club. So to be correct, there is no expense and commission fees? How does the company even make money?!
Cheers,
Henry
Hello Henry,
That is correct. As far as I read, there is no commission fees or other expenses. This is what I found on their website FAQ.
But like I mentioned in the post, the drawback is that they only offer about 50+ stocks in their site. Even though this contains some of the common dividend blue chips, this can only supplement one’s existing brokerage account and cannot be the primary one. Another factor is the lack of control when the trade is actually executed (just like Sharebuilder automatic investment plan).
I’ve been looking at Scottrade, Loyal3 and Motif. All 3 have their own positives and negatives. I really like Loyal3 & Motif’s ability to DCA into positions for free or rather cheaply. Even though Motif’s commission is relatively high at $9.95 that would need a $2k purchase (0.50% fees) but since you can invest in up to 30 stocks that’s a big advantage. Lot sto consider although most likely Loyal3 will be the next up so I can travel hack some with credit cards.
JC,
What do you use now and how much do you pay?
Motif has good flexibility with the fact that you can invest up to 30 stocks. It is not going to be 30 all the time, but at least 5 stocks (on average) for a transaction gives a rate of $2/trade which is still cheaper than most brokerages. But Loyal3 is free and it cannot be topped (but for the fact that the stock selection is limited and you cannot control the time of execution).
Let me know which brokerage you end up opening.
Thanks for stopping by.