The online broker industry experienced another year of startling change, though investors focused on managing their portfolios and executing trades may hardly have noticed. Investor’s Business Daily’s ninth annual Best Online Brokers 2021 survey reflects a good deal of that change.
And investors can use the survey findings — reflecting the unvarnished ratings of the brokers’ own customers — to judge which firm best fits the way they trade today.
The past year, 2020, was brutal for the U.S. economy and many Americans. Still, the stock market staged a record-setting rebound, and it lured armies of new investors into the trading game. Trading volumes swelled. Options and futures became an epicenter of interest for new investors. Industry consolidation continued at full force.
- View The Full Best Online Brokers 2021 Special Report
- See Lists Of The Best Online Brokers Overall And In Every Category
- Get Details On The Survey Methodology
IBD and longtime polling partner TechnoMetrica Market Intelligence caught the shifts, surveying more than 5,000 investors to find out how happy they’ve been with their primary online broker in this tumultuous environment. Based on this research, we identified the five Best Online Brokers in overall customer experience.
And to capture the needs of different types of investors — from newbies seeking investing education to experienced stock or options traders — we also present the five best brokers in 15 important performance categories.
Best Online Brokers: A Year Of Consolidation
The rankings differ from other broker lists in that they are based not on subjective editor reviews but on the ratings of the people who know best how the brokers perform: their customers.
The top five brokers overall? Options trading hothouse Tastyworks snatched away the top overall ranking from Fidelity. But Fidelity continued to earn high customer reviews, as did Charles Schwab (SCHW). The two are next on the list of the Best Online Brokers 2021 overall.
Tastyworks, a January 2017 startup, vaulted for the first time onto IBD’s Best Online Brokers Report last year.
Rounding out the five best brokers on this year’s list are TD Ameritrade and Interactive Brokers.
The changes in trading are not confined to new investors, and they challenge brokers to keep up with their customers’ needs. Even long-term stock market players, like Susan Hart of Menlo Park, Calif., have become more active traders. The 78-year-old Hart is an IBD subscriber and a Schwab client since the late 1980s. Hart is not a day trader but is growing a little restless with the buy-and-hold strategies that long served her well.
Hart bought Nvidia (NVDA) at around 37.50, and has also done well with Lumentum (LITE) and Universal Display (OLED). She’s preparing to weed out those holdings and rustle up some cash. She’s thinking about investing in Bitcoin, and to learn more about options trading. She considers herself to be fairly high in the risk-tolerance range, “but not a day trader, whatsoever,” she said, “and the options are a little scary.”
Price War Lures Brokers To Acquisitions
At the same time new investors jumped into the stock market, 2020 was a year of vast consolidation for the online brokerage industry. That followed the “no-fee” price war launched in October 2019 by Charles Schwab, a company founded on low-cost brokerage fees in 1971. The price war caused sharp drops in brokerage stock prices. For big names like Schwab, the stock price declines created a target-rich environment for acquisitions.
In October 2020, stock traders new and old alike watched with trepidation as Schwab closed its $26 billion acquisition of TD Ameritrade. Reports shortly after initial news of the deal in November 2019 quoted E-Trade CEO Mike Pizzi and Interactive Brokers Chairman Thomas Peterffy saying the news had caught them off guard.
But E-Trade was next in line, snapped up by Morgan Stanley for $13 billion in a deal announced in February 2020. That merger also closed in October.
And on 1/21/21, U.K.-based IG Group Holdings agreed to acquire Tastytrade, the parent of Tastyworks, for $1 billion. IG Group was drawn by Tasty’s strong position in options trading for individual investors.
The recently acquired companies have so far suffered no deterioration in customer satisfaction. TD Ameritrade scored No. 4 in IBD’s overall rankings, after tying for fifth last year.
Online Broker Industry: The New No-Fee Landscape
As a side note, TD Ameritrade’s popular Thinkorswim trading platform was co-founded in 1999 by Tom Sosnoff. After selling the operation to TD Ameritrade more than a decade ago, Sosnoff co-founded Tastytrade, a financial information network, in 2011. That led to Tastyworks, which launched to the public in 2017.
Besides the five firms that placed as the Best Online Brokers overall, the other five brokers included in this year’s analysis were E-Trade (including its Capital One Investing and ShareBuilder platforms), TradeStation, Merrill Edge, Vanguard and Robinhood. To be included, at least 125 of a firm’s customers had to take part in the survey.
Robinhood has earned considerable attention for its innovative, easy-to-use mobile app and popularity among young investors. On July 28, 2021, Robinhood priced 55 million shares at $38 a share, raising $2.1 billion. But the pricing came in at the low end of its expected range, and since then it’s price performance has been lackluster. Even its customers seem to recognize its limits. The firm earned the lowest overall score from its clients among the 10 brokers. Notably, service outages last year and other issues at Robinhood shined a harsh light on the firm.
Experience Traders Stick With Veteran Brokers
Still, every one of the 10 brokers in the analysis by IBD and TechnoMetrica earned top five placement in at least two of the 15 categories of performance. Robinhood is one of the five Best Online Brokers in the Mobile Trading Platforms/Apps and Margin Investing/Margin Interest Rate categories. TradeStation is one of the best brokers for Equity Trading Tools, Access To IPOs and Original Programming, while Merrill Edge is strong in Research Tools, Investment Research, Trade Ideas and Educational Resources.
The IBD survey also found that experienced active traders were using other brokers besides Tastyworks as their primary brokerage to place their trades. Traders who had more than 10 years’ experience and a portfolio worth more than $500,000 preferred TD Ameritrade and Fidelity.
TD Ameritrade ranked first in terms of respondents with 10 years’ experience at 28%, and 25% of traders with portfolios of $500,000 or more. Fidelity was second with 21% of respondents with 10 years’ experience and 25% whose portfolios amounted to $500,000 or more. Tastyworks was far behind both, at 4% with 10 years’ experience and 2% with portfolios of $500,000 plus.
Appetite For Young Investors For Best Online Brokers 2021
But not only does Tastyworks cater to experienced stock, options and futures traders, it also places an emphasis on investors looking to become more skilled. Its TastyTrade Live feature allows clients to watch professionals at work in real-time. If Tastyworks can pique — and satisfy — the investing curiosity of young and up-and-coming investors, then they could have loyal clients for life.
The categories in IBD’s Best Online Brokers survey reflect the changing overall market. The most obvious change is the deletion of the Low Commissions/Fees category. The elimination of stock trading commissions across the online broker industry made the category effectively obsolete, replaced by the newer Trade Execution Speed/Price item. Tastyworks ranked No. 1 and Schwab No. 2 in this new category.
Other new categories are Margin Investing/Margin Interest Rate, Original Programming such as investing podcasts and videos, and Access To IPOs.
The 15 categories were determined in a Phase 1 investor survey. Investors were presented with a longer list of broker attributes and asked to rate them in importance.
Robo-Advisors Waiting In The Wings
The rise in options trading and in priorities such as trade execution speed mark a stark divergence from the trend toward robo-advisers. Robo-advisers dominated a good deal of the conversation about the future of brokerages a year ago. Robo-advisers, the automated, AI-driven programs many investors had begun to lean on to manage their investment portfolios, are still a thing.
But many younger investors are bucking that trend. They are turning instead toward do-it-yourself investing. And also toward social media-centered stock and options trading forums at venues such as Twitter, Tik-Tok, Reddit or Instagram. The Tastytrade forum around which Tastyworks formed is a good example.
And that raises possibly the biggest question of the coming year for firms vying to be the best online brokers: How much of the year’s surge in stock market interest is tied to consumers placed under house arrest by the coronavirus? The social networking/media aspect of stock and options trading makes the 2020 surge in market interest very much a wild card.
Picturing The Post-Covid Market
Maturing young adults seem to be taking a more aggressive interest in growing their investments and retirement accounts. But how much of that interest is likely to fade once the bars and concert venues reopen, and gathering at coffee shops and bookshops is no longer verboten?
If a large number ultimately migrate toward less labor- and time-intensive forms of investing, and decide they are comfortable with an AI-curated portfolio, they can use Schwab’s Intelligent Portfolios and Fidelity’s Hybrid Robo-Advisor. Doing so would move them more to the future of brokerages in coming years.
Hart places herself somewhere in the middle of all of that. She pinpoints stocks and tracks watchlists on the Investors.com website. And she says Schwab’s platform allows her to stay engaged with the market and her portfolio, while minimizing the time she must spend in front of the computer.
“I may be 78, but I’m more like a millennial in many ways,” said Hart, who spends less than an hour a day looking at the market. And while she is a fastidious researcher, she tends not to overthink her trades. “Like I say, I’m not a day trader, but I check the market and my portfolio at least once a day with my cellphone.”
This article was originally published on Jan. 25, 2021, and was updated on August 27, 2021.
Find Alan R. Elliott on Twitter @IBD_Aelliott
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