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What Is the Fiduciary Rule?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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When a professional agrees to become a fiduciary and abide by fiduciary duty, it means they have agreed to put the interests of their clients ahead of their own. For financial advisors managing your life savings, this seems like an obvious requirement. But right now, it’s not.

Today, financial advisors may choose to be a fiduciary or not. However, the fiduciary rule could change that very soon. Both federal and state regulators are reviewing different fiduciary rules that would set tougher requirements regarding how advisors can invest your money.

This is not the first time regulators have tried to pass a fiduciary rule. Read on for our coverage of the past and present status of the fiduciary rule, plus a look at what might be coming in the future.

How would a fiduciary rule impact financial planning?

Not all financial advisors work as fiduciaries, which means they don’t have to put your interests first when they recommend products. Depending on their qualifications, an advisor may only need to follow a suitability standard instead of a fiduciary standard. Under the suitability standard, a financial advisor can suggest products and investments that fit your needs but aren’t necessarily the very best option available for you.

A classic example would be an advisor who offers two investment funds that are similar in performance and both fit your needs, but one charges a higher fee and gives the advisor a larger commission. A fiduciary would need to recommend the low-cost option, whereas a suitability advisor could recommend the higher-priced one.

If an industry-wide fiduciary rule was passed, it would prevent conflicts of interest like this. For more information on how fiduciary duty works for the industry, as well as what advisors already work as fiduciaries, check out this guide.

Why is a fiduciary rule needed now?

The fiduciary rule is needed more now than ever. Americans today are far more involved in managing their retirement investments than was the case in generations past, when people were much more likely to have had employer-managed pensions. Employer-sponsored pensions fall under the scope of the Employee Retirement Income Security Act of 1974 (ERISA)Employee Retirement Income Security Act of 1974 (ERISA), a government rule that requires the person supervising the pension to have fiduciary duty for employees covered by the plan.

But ERISA does not apply to personal financial advisors, which creates a fiduciary gap. This is why there has been a push by both federal and state regulators to change the rules and protect investors who need to be involved in managing their own retirement savings.

Nicholas Hofer, a financial advisor and CFP from Boston, sees this shift as a good thing. “There is no question that being held to a fiduciary standard is important,” he said. “If firms are not willing to put their client’s interests first, the entire financial advisory industry is in jeopardy.”

Implementing the fiduciary rule could also help the industry as a whole, according to Harold Pollack, a University of Chicago professor and financial author.

“The rule helps consumers distinguish sales pitches from unbiased advice,” said Pollack. “If you’re charging consumers $250 per hour for genuinely valuable advice, it is hard to compete with a nominally free or cheap financially-conflicted competitor whose business model is to steer her consumers into unwise or overpriced investments.”

Are there downsides to a fiduciary rule?

While a standard fiduciary rule can seem like an overall good thing, past proposals have faced their share of criticism. Since many firms and advisors work under a looser standard, a stricter ethical code could hurt their profits and reputation.

“Firms that rely on fees and commissions for profits could face fallout if their clients have not been fully informed about their business model,” said Hofer. As a result, not all advisors are happy about the change.

Though you may not be that concerned about an advisor’s profit margins, this could lead to firms increasing other fees or tightening up their standards for what kind of clients they’d accept, as smaller accounts may no longer earn enough to cover overhead costs. For example, an advisor may set a limit where they only accept clients with at least $250,000 of assets, meaning middle and lower-class investors could be priced out of the financial advisor market.

Having a strict fiduciary rule could also limit what kind of investments are available, as everyone would be shoe-horned into the supposedly “best” low-cost approach. Investors who want to try something different would potentially struggle to find advisors willing to meet their express preferences.

Finally, what counts as the best investment isn’t always clear, something the SEC Chairman Jay Clayton pointed out in a recent speech on the subject: “Many different options may in fact be in the retail investor’s best interest, and what is the “best” product is likely only to be known in hindsight.” But despite these concerns, government regulators have decided to press forward with a few fiduciary rules.

The Obama Administration fiduciary rule

The Obama Administration first proposed an industry-wide fiduciary rule back in 2016. This law would have applied to any financial advisor selling products or giving advice for a retirement plan, like a 401k or an individual retirement account (IRA). It didn’t apply to financial advisors giving investment recommendations for a regular brokerage account, though.

Some ways advisors would have needed to meet the fiduciary standard under this rule included:

  • Putting the client’s interests first for investment recommendations.
  • Avoiding potential conflicts of interest for commission and fees.
  • Properly disclosing how they are compensated, such as whether they are fee-only or fee-based.
  • Being transparent about why they were proposing different options.

When the current administration took charge in 2017, it moved to review the rule as part of its drive to reduce government regulations. While the Department of Labor initial continued implementing the Obama Administration’s rule, industry groups sued the government and a federal court ultimately struck the law down in 2018.

The Securities and Exchange Commission (SEC) fiduciary rule

After the cancellation of the Obama administration’s fiduciary rule, the SEC decided to take its own look at implementing a fiduciary rule. In June of 2019, the SEC proposed an update to its regulations for advisors depending on the services they offer: Broker-dealers, who make money selling products and investments, versus advisors, who make money charging for advice.

Before the new proposed ruling, firms that registered with the SEC, known as Registered Investment Advisors (RIAs), had to follow a fiduciary standard. Broker-dealers could just follow a suitability standard for recommending products.

The SEC ruling would toughen the standards for broker-dealers — now they need to make recommendations in the “best interest” of clients. While not as strong as a fiduciary duty, it is tougher than the suitability standard. Brokers must be able to justify the risks, costs and benefits of a recommendation to prove it’s in a client’s best interest. Both types of financial advisors would also need to provide a standardized disclosure form explaining their fees, services and potential conflicts of interest.

The proposed SEC fiduciary rule is not as strong as the Obama fiduciary rule, which would have put the fiduciary standard on broker-dealers selling products for retirement accounts The SEC fiduciary rule is currently scheduled to launch in June 2020.

The Department of Labor (DOL) fiduciary rule

The DOL has not given up on launching its own fiduciary rule. While it has yet to formally propose anything, Secretary of Labor Alexander Acosta has said the DOL is studying the SEC ruling to guide a new DOL fiduciary standard.

The Obama DOL fiduciary rule was tougher than the SEC regulations, as it covered broker-dealers selling products. Any additional DOL fiduciary rule could further tighten standards for the industry. But while the government is making some moves, Pollack is still disappointed that the DOL let the Obama fiduciary rule die in court.

“I favor the strongest possible fiduciary standards,” he said. “To the extent that SEC and DOL rules are weaker than the Obama administration sought to impose, I regret these departures.”

State fiduciary rules

With the federal fiduciary rule up in the air, several state governments decided to pick up the slack and launch their own regulations for advisors operating within their borders.

New York has passed tougher standards for life insurance and annuities, so advisors selling these products need to meet a best interest standard. Nevada, New Jersey and Massachusetts are also reviewing or preparing to launch laws that would make a fiduciary standard apply for broker-dealers and investment advisors in their states. Maryland considered a similar law, but the bill didn’t pass.

This creates a tricky landscape because the way your financial advisor can make recommendations may depend on where you live.

The fiduciary rule: What’s next?

Creating an overarching fiduciary rule for investment advisors will not be easy but Eric Roberge, CFP® and founder of Beyond Your Hammock, thinks the industry badly needs one as there’s too much confusion regarding who offers what.

“I don’t think there’s anything inherently wrong with professionals who sell products, but what we do need in the industry, for the benefit of the people who need professional services, is more transparency,” he said. “Without a standard fiduciary rule, consumers have a very hard time distinguishing who is there to provide objective, in-your-best-interest advice — and someone who is a more of a salesperson with the financial incentive to sell products.”

Hopefully, the future fiduciary rules can achieve these goals so consumers can feel more confident in taking recommendations from financial advisors. In the meantime, since this is not yet the industry standard, make checking whether an advisor is a fiduciary one of the questions you ask before signing up.

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Review of Wells Fargo Wealth Management

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Reviewed By

Wells Fargo Wealth Management is the financial advisory business of Wells Fargo & Company, one of the largest financial institutions in the United States. Wells Fargo Wealth Management is based in St. Louis but has nearly 13,500 advisors across thousands of bank branches as well as a network of affiliated financial advisors and practices. The division currently has $1.4 trillion in assets under management (AUM), and serves many types of clients, including high net worth individuals.

All information included in this profile is accurate as of May 26, 2020. For more information, please consult Wells Fargo Wealth Management’s website.

Assets under management: $1.4 trillion
Minimum investment: $5,000
Fee structure: Percentage of AUM; hourly charges; fixed fees; commissions
Headquarters location: One North Jefferson Avenue
St. Louis, MO 63103
www.wellsfargoadvisors.com
(314) 875-3000

Overview of Wells Fargo Wealth Management

Wells Fargo Advisors is the investment advisory arm of Wells Fargo & Company. It includes Wells Fargo Clearing Services, composed of advisors in Wells Fargo banks and brokerages, and the Wells Fargo Financial Advisors Network, composed of independently owned firms affiliated with Wells Fargo. Wells Fargo Advisors has more than 13,500 advisors, including those working for both Wells Fargo Advisors Financial Network and Wells Fargo Clearing Services.

Both Wells Fargo Clearing Services and Wells Fargo Financial Advisors Network are wholly owned subsidiaries of Wachovia Securities Financial Holdings, which is a wholly owned subsidiary of Wells Fargo Company. Wells Fargo Company has been an American institution since 1852, when founders Henry Wells and William Fargo founded the company during the San Francisco gold rush.

What types of clients does Wells Fargo Wealth Management serve?

Wells Fargo Advisors has nearly 30 different types of investment programs aimed at serving different types of investors. The minimum account balances vary greatly depending on the portfolio selected, ranging from $5,000 for a robo-advisory account to $5 million for certain customized portfolios.

Wells Fargo Clearing Services has more than 1.4 million clients, including more than 813,000 individuals and nearly 583,000 high net worth individuals. Wells Fargo Advisors Financial Advisors Network has nearly 175,000 clients, including about 96,000 individuals and 73,000 high net worth individuals. The Securities and Exchange Commission (SEC) defines a high net worth individual as someone with at least $750,000 under management or a net worth of more than $1.5 million.

Wells Fargo Advisors also serves thousands of pension and profit-sharing plans and corporations, as well as hundreds of charitable organizations and state and municipal governments. It also works with a small number of banking institutions and insurance companies.

Services offered by Wells Fargo Wealth Management

The firm offers a full suite of financial planning and wealth management services to clients throughout the country. Financial advisors work with clients to create an Envision® Process investment management plan that recommends an asset allocation strategy, but does not take into account tax or estate planning. More holistic financial planning is available to clients with a net worth of at least $1 million from Wells Fargo Clearing Services and $5 million from Wells Fargo Advisors Network.

The firm provides investment management services to clients on both a discretionary and non-discretionary basis.

Here is a full list of services offered by Wells Fargo Advisors:

  • Portfolio management (separately managed/wrap fee accounts; discretionary/non-discretionary)
  • Financial planning
    • Retirement planning
    • Charitable giving planning
    • Education planning
    • Long-term care planning
    • IRA and 401(k) rollovers
    • Divorce planning
  • Brokerage services
  • Retirement plan consulting
  • Selection of other advisors

How Wells Fargo Wealth Management invests your money

Wells Fargo Financial Advisors uses its Envision® Process program to recommend a mix of investments that’s tailored to each client’s current financial picture, future goals, risk profile and time horizon. Clients can select either a non-discretionary program, in which the advisor makes recommendations and the client conducts the transaction, or a discretionary program, in which the advisor buys and sells investments on behalf of the client.

Your financial advisor will work with you to determine which type of advisory program best fits your needs and help you choose from the following:

  • Mutual fund advisory programs: Wells Fargo Financial Advisors’ mutual fund advisory programs typically use research from Wells Fargo Investment Institute to create recommendations for clients.
    • The CustomChoice Program: This program is a non-discretionary investment advisory program in which the advisor recommends a mix of mutual funds. Clients can either accept the recommendations or choose a different mix of funds.
    • The FundSource Program: This is a discretionary program of mutual funds based on a target asset allocation. Advisors may adjust the allocation over time to maintain that target allocation.
  • Financial advisor and client-directed advisory programs: These programs also include investments in funds, but also allow for other types of securities, such as individual stocks, alternative assets and corporate bonds.
    • The Asset Advisor Program:This is a non-discretionary program, client-directed program in which advisors make recommendations for a range of investments, including individual stocks, funds and alternative investments like hedge funds and annuities.
    • Client-directed advisory programs: These programs include Private Investment Management, Fundamental Choice and Quantitative Choice. In these programs, portfolio managers provide investment advisory and brokerage services to clients on a discretionary basis. The programs use research from a variety of Wells Fargo-affiliated firms using various approaches, including fundamental and qualitative research.
  • Separately managed accounts programs: Each avidors in this program uses their own methods of analysis to construct a custom portfolio for you.
    • Personalized Unified Managed Account (UMA) Program: Clients can choose from either a single- or multi-strategy approach to creating a portfolio of managers, funds and individual securities.
    • Private advisor network program: Advisors connect clients to individual managers to oversee their account on a day-to-day basis.
    • Customized portfolios: The portfolio is managed on a discretionary basis based on a strategy via the Wells Fargo Investing Institute or Wells Fargo Bank.

Fees Wells Fargo Wealth Management charges for its services

For investment advisory services, Wells Fargo charges clients based on a percentage of assets under management. The rate varies based on the product and services used, but it is 2% for most programs, though it’s also negotiable and can be higher for certain strategies. Most of the offered investment programs are wrap fee programs, which means that clients won’t pay additional fees for each transaction.

Clients who want holistic financial planning, beyond the Envision® Process service, will pay an additional fee for that service. The amount of the fee depends on the scope of the plan, but it is capped at a fixed fee of $10,000.

Some Wells Fargo Advisors are also registered insurance agents or broker-dealers. That means that they may earn commissions for products that they recommend and sell to you.

Wells Fargo Wealth Management’s highlights

  • Broad accessibility: With thousands of branches throughout the country and hundreds of affiliated advisors (including more than 600 practices connected with the Wells Fargo Financial Advisors Network), most consumers can access a Wells Fargo Financial Advisor in person.
  • Wide variety of programs: Wells Fargo Wealth Management has a variety of programs available for investors at all wealth levels, so there are plenty of options for you to get services suitable for your financial situation.
  • Other banking services available: If you’re looking for a one-stop shop for all of your financial needs, a financial behemoth like Wells Fargo may fit the bill. In addition to investment help, Wells Fargo banking clients can also get assistance with loans or cash management.

Wells Fargo Wealth Management’s downsides

  • High fees: With fees starting at 2% for its investment management programs, Wells Fargo Wealth Management fees are higher than the industry average of 1.17%, according to a 2019 study by RIA in a Box. However, it is worth noting that the firm says its rates are negotiable.
  • Potential conflicts of interest: Since some Wells Fargo advisors earn commissions for the sale of securities or insurance products, they may have an incentive to make such recommendations. This creates a potential conflict of interest as advisors may be financially incentivized to make certain recommendations over others.
  • No holistic financial planning offered: While the Envision® Process platform does allow clients to forecast their wealth and track their progress toward goals like retirement, it does not take into account factors like taxes or insurance.
  • Misconduct allegations: There have been allegations of misconduct within the wealth management division at Wells Fargo. See more on the firm’s disciplinary disclosures below. Wells Fargo & Company has also been the subject of numerous scandals since news broke in 2016 that the bank had been opening accounts on behalf of customers who had not asked for them. The company has gone through three CEOs and lost more than 1,500 advisors since the fake-account scandal became public.

Wells Fargo Wealth Management disciplinary disclosures

The SEC requires registered investment advisors to disclose whether the firm, an employee or an affiliate has faced disciplinary actions relevant to their advisory business. Wells Fargo Wealth Management has faced multiple such instances within the last decade, many of which the firm settled by paying fines without admitting or denying the charges.

Disclosures include:

  • Wells Fargo Wealth Management was among dozens of firms that voluntarily agreed to repay clients whom they had put into higher-priced mutual fund share classes without adequately disclosing that there were lower-cost alternatives available. In 2018, as part of the agreement, Wells Fargo repaid $17.3 million and promised not to commit further violations.
  • The firm allegedly failed to adequately store electronic records of customer accounts and communications. In 2016, Wells Fargo agreed to a censure and fine, and paid $1.5 million in connection with the allegations.
  • Wells Fargo Wealth Management allegedly failed to properly implement and supervise systems for entering customer reports. In 2016, the firm agreed to a censure and fine, and paid $1 million in connection with the allegations.
  • The firm allegedly failed to properly verify the identity of clients with new accounts when entering them into their system. In 2014, the firm agreed to a censure and paid a $1.5 million fine in connection with the allegations.
  • Wells Fargo Wealth Management allegedly failed to maintain proper procedures in connection with the sale of exchange-traded funds (ETFs). In 2012, the firm agreed to a censure and paid $2.1 million in connection with the allegations.

Wells Fargo Wealth Management onboarding process

To start working with Wells Fargo Wealth Management, you can either call the firm at (866) 224-5708 or find the office nearest to you using the Find an Advisor tool on the company’s website.

You’ll then work with the advisor to go through the firm’s Envision® Process of planning, which will help your advisor tailor a portfolio to your financial situation. You have access to your Envision® Process plan 24/7 and can contact your advisor at any time if you fall out of your “Target Zone.”

Wells Fargo recommends that clients and advisors connect at least annually. Advisors will communicate with clients via email, phone or in person — whichever works best for you.

Is Wells Fargo Wealth Management right for you?

Wells Fargo Wealth Management may appeal to many potential investors, given the firm’s broad geographic footprint and portfolio offerings for investors at all levels. That makes it a potentially good choice for investors looking for a local financial advisor without a very high minimum investment.

However, many of the firm’s advisors earn commission on the sale of certain financial products, so it’s important to ask your advisor whether they’re benefiting from any recommendations. You also should take note of the firm’s higher than average fees, limited financial planning services and disciplinary history. Before choosing an advisor, be sure to research a few firms and interview potential advisors to make sure you’re selecting the one that’s the best fit for you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Best Online Brokers for May 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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The easiest way to start investing from home is through an online broker. A broker’s main job is to buy and sell stocks, bonds, exchange-traded funds (ETFs) and other securities that make up your portfolio. When choosing an online broker it’s important to consider your investment experience and style, your trading needs and your financial goals.

Our Background

Our investing experts have been tracking the fees, features and capabilities of dozens of online brokerage accounts since January of 2019. Beyond that, our team of in-house experts consists of both financial analysts and journalists who collectively have more than 20 years of experience across the investment industry, encompassing financial advisory services, asset management, financial journalism and investment banking.

Our Thoughts on the Market

Investing is fraught with risk, as indicated by recent volatility in the markets due to the COVID-19 crisis. History shows that events in the capital markets are beyond your control as an individual investor, and it’s almost certain this will continue to be the case in the future. During these uncertain times, we’d like to remind our readers to keep an eye on the things that they can control, such as broker fees and risk exposure, when picking the right online brokerage account to fit your needs.

Again, there are no guarantees when it comes to investing and the right asset allocation will depend on both your unique financial goals and your individual risk tolerance as an investor. No matter what your goals are, our team of financial experts is ready to help you select the best fit for you from a selection of dozens of the most popular online brokerage accounts on the market today.

Start by checking out our picks for the top brokerage accounts below, which we’ve selected for a variety of investor types. Regardless of whether you’re just starting your investing journey or are a seasoned investing veteran, there’s a brokerage account out there that will suit your needs. Check out our rankings below.

Summary of MagnifyMoney’s Best Online Brokers for May 2020

Read below to learn more about online brokers and access our FAQs

TD Ameritrade: Best Overall Broker

TD Ameritrade
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Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.65 per contract
  • Minimum Deposit: No minimum

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Why we picked it: TD Ameritrade pairs $0 equity trades with a high-quality platform that aims to target investors of all types, regardless of whether you’re a beginner or an investing veteran. There is no minimum deposit requirement, which makes this broker highly accessible, and its ThinkorSwim trading platform provides an industry-leading tool for both researching and executing advanced trading strategies.

Highlights:

  • Exclusive courses and webcasts for investor education.
  • Extensive selection of investments (bonds, foreign exchange [forex], options, futures) with $0 commissions across online stock, ETF and option trades, with option fees of just $0.65 per contract.
  • 24/7 customer service via phone, text and chat and more than 350 brick-and-mortar branches for in-person support.
  • Top-of-the line research and analytical tools through fully integrated desktop, mobile and ThinkorSwim platforms.

What to watch out for: Investors who are interested in futures trading should be wary of the steep $2.25 per contract fee, which is well above the competitor average (Schwab, Interactive Brokers and E-Trade all fall below the $2.00 mark).

Vanguard: Best Broker for Beginners

Vanguard Personal Advisor Services
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Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0-$1 per contract
  • Minimum Deposit: No minimum

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Why we picked it: Vanguard has a simple, intuitive platform that’s well-suited for beginners and passive investors who don’t plan on trading frequently and want to minimize their investment fees. Vanguard’s collection of low-cost index funds, which include its Admiral Shares lineup of funds, are among the most popular and well-known funds on the market.

Highlights:

  • One of the biggest names in the business when it comes to passive investing.
  • Admiral Shares Funds feature some of the lowest expense ratios on the market.
  • 160 no-transaction fee mutual funds from Vanguard and more than 3,000 funds from other companies.

What to watch out for: Vanguard imposes a $20 annual maintenance fee on customers who don’t opt for electronic statements. The broker also requires a hefty $3,000 minimum investment in its standard mutual funds and $50,000 for actively managed funds, raising the buy-in significantly for investors seeking sector diversification. Vanguard also does not offer futures trading on its platform.

Interactive Brokers: Best Broker for Experienced Traders

Interactive Brokers
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Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.15-$1 per contract, based on contract volume
  • Minimum Deposit: No minimum

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Why we picked it: Interactive Brokers (IBKR) caters to advanced investors by providing complex trading and analytical tools and one of the most diverse selections of investment options on the market. IBKR is one of the few online brokers that offers exposure to a full suite of investment vehicles that many other online brokers won’t offer, including forex; exchange of futures for physical (EFP); hedge funds; foreign stocks and bonds; and futures.

Highlights:

  • Advanced smart-order router seeks optimal price execution making it an excellent choice for day traders.
  • Accumulate/Distribute algorithm features customizable logic to help investors fill large-volume orders while adapting to market conditions.
  • Professional-caliber Risk Navigator reveals exposure across asset classes and around the globe, helping investors monitor and adjust positions as needed.
  • Interactive Brokers’ Traders Academy offers a structured curriculum to advance your knowledge of a variety of financial instruments, complete with tests and recordings offered in multiple languages.

What to watch out for: There is a $20 minimum yearly trade commission required, so it’s not well-suited to someone seeking a passive investing approach. Some resources are also only available to IBKR Pro customers, and its fee structure is one of the more complex ones on the market.

Charles Schwab: Best Broker for ETFs

Schwab Intelligent Portfolios
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Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.65 per contract
  • Minimum Deposit: No minimum

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Why we picked it: Charles Schwab offers one of the largest selections of more than 2,000 commission-free ETFs that cover more than 110 Mornigstar categories. Not only are they covered across a broad range of asset classes, but Schwab investors have access to Schwab Intelligent Portfolios, a robo-advisor platform that automatically builds and rebalances a diversified portfolio of ETFs based on your investing goals.

Highlights:

  • All ETFs trade commission-free on U.S. exchange.
  • Premium robo-advisor service offers unlimited one-on-one access to a licensed certified financial planner (CFP).
  • More than 300 branch locations for investors seeking in-person support.
  • Intelligent Portfolios robo-advisor service automatically selects and rebalances a diversified portfolio of ETFs based on your investing goals.

What to watch out for: Non-Schwab Mutual Fund OneSource trades are up to $49.95 per purchase. Additionally, the interest rate on its cash sweep account is relatively low, and the account requires the user to manually transfer their cash if they’d rather hold it in a money market.

Ally: Best Broker for Options Trading

Ally Invest Managed Portfolios
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Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.50 per contract
  • Minimum Deposit: No minimum

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Why we picked it: Ally offers one of the lowest contract fees of just $0.50 per option contract. The broker also features intelligent options trading tools that allow users to forecast theoretical action values and help them identify the best options strategy based on their parameters.

Highlights:

  • Extensive tools designed to analyze market performance, including an ETF screener, a profitability calculator, streaming charts, option chains and more.
  • Cash transfer reimbursements combined with its integrated mobile and web platforms sync up with Ally’s online bank accounts.
  • Managed portfolios, an automated investing option, is available with a minimum deposit of $100.

What to watch out for: Ally charges $9.95 per trade for no-load mutual funds and does not have a collection of no-fee mutual funds that many of its top competitors feature. This makes the broker less than ideal for a passive investing strategy.

Fidelity: Best Broker for Mutual Funds

Fidelity
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Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.65 per contract
  • Minimum Deposit: No minimum

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Why we picked it: Fidelity offers zero expense ratio index mutual funds directly to its customers. Unlike many of its competitors, there is no minimum to invest in Fidelity funds. Fidelity offers access to more than 10,000 mutual funds from Fidelity and other companies across a variety of sectors, styles and assets, with thousands of no-transaction-fee mutual funds available.

Highlights:

  • More than 3,700 no-transaction-fee mutual funds.
  • More than 500 commission-free ETFs.
  • No minimum investment amount required, making it easy to build a diversified portfolio of mutual funds.
  • Nearly 200 branch locations for investors seeking in-person support.

What to watch out for: Investors seeking to trade in futures contracts will not have that option through this broker.

E-Trade: Best Broker for IRAs

E-Trade
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Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.50- $0.65 per contract
  • Minimum Deposit: No minimum

Read the full review

Why we picked it: Beyond the typical Roth and Traditional IRA options offered by many competitors, E-Trade also features specialized IRAs. The broker offers an IRA tailored to minors who want to get a headstart on their financial future. There is also the E-TRADE CompleteTM IRA, which is geared toward those who are 59 ½ and older and not only eases the process of taking required minimum distributions once you hit retirement, but also doubles as an excellent bank account, offering free checking, online bill pay and even a debit card. E-Trade also has designated financial consultants that can help manage your portfolios and give retirement advice.

Highlights:

  • More than 9,000 mutual funds available (more than 4,400 of which are no-transaction fee)
  • Cash management features, including a debit card, checking and bill pay, available across its brokerage accounts.
  • E-TRADE Complete™ IRA offers free checking services and its own debit card, making taking required minimum distributions easy.
  • Beneficiary IRA and IRA for minors offer both traditional and Roth contribution options, which makes it easy for younger investors to get started on investing for the future.

What to watch out for: Not all accounts are eligible for cash management features. Investors interested in penny stocks also should be wary of the $6.95 charge associated with these trades.

Why Trust Us?

At MagnifyMoney, it is our mission to inform our readers about the best financial opportunities out there. Our insights have been cited by top financial publications including MarketWatch, CNBC and the Wall Street Journal.

Our dedicated team of financial experts spent dozens of hours grading each brokerage account on its features, including fees, minimum balance requirements, analysis tools and investment vehicles. Our method of evaluation not only compared features and cost, but also took into consideration the type of investor using these brokerage accounts.

Even though they did not make our top picks, we also considered the following brokers in our analysis:

How do brokerage accounts work?

Online brokerage accounts allow retail investors to access the financial markets without the need for a stock broker to act as a middleman. Online brokerage accounts are typically offered through licensed brokerage firms but many banks, money managers and registered investment advisors (RIAs) offer their own accounts.

One of the great benefits of online brokers is that they make investing highly accessible to the average investor, rather than limiting it to the realm of those with lots to invest. Brokerage accounts allow investors to buy and sell assets like stocks, mutual funds, ETFs, options and bonds.

Brokerage accounts can come in many forms but all provide the same basic function: They house your cash and investments and allow you to buy and sell financial assets. Here are some of the most common investment account types:

Retirement accounts:

  • Employer-sponsored retirement accounts: These include 401(k) plans, SIMPLE IRA plans, SEP plans and pension plans (both defined-contribution and defined-benefit) offered through your workplace.
  • Individual Retirement Accounts (IRAs): This includes both traditional IRAs and Roth IRAs offered through most large financial institutions including banks, credit unions and large mutual fund companies.

The benefit of retirement accounts like 401(k) plans and IRAs is that they allow individuals to invest on a tax-advantaged basis. The tax treatment will differ depending on whether contributions are made to a traditional or Roth account, but in almost all instances, retirement accounts offer individuals some form of tax relief. The trade-off comes in the form of both deposit and withdrawal restrictions.

Expert tip: “The benefits of a tax-advantaged brokerage account cannot be understated. Taxation is one of the biggest determining factors when it comes to your long-run investment returns. The ability to defer or exempt yourself from some of those taxes can pay major dividends over the long run.” – Kenny X. Zhu, CFA, MagnifyMoney Investing Columnist

Personal accounts:

Individual taxable brokerage accounts: Individual brokerage accounts are offered by a number of financial services companies, including banks and licensed brokerage firms. These allow you to trade securities within your own private account.

Joint brokerage accounts: Joint brokerage accounts function in the same way as individual brokerage accounts and are offered through the same financial companies. However, joint brokerage accounts allow for shared ownership by two or more individuals.

Personal brokerage accounts operate similarly to IRAs, but offer no real tax benefit, so your account earnings may be subject to interest or capital gains taxes. However, personal accounts typically feature no deposit or withdrawal restrictions, allowing investors greater freedom when using their personal brokerage account.

What Should I Know About Broker Fees?

When shopping for the best online brokerage account, it’s important to keep costs like commissions and fees to a minimum, as these will eat into your total investment return over the long-run. Here are a few fees you should always be aware of when you’re choosing an online broker:

  • Brokerage fee: Brokerage fees can be charged annually or monthly for the overall maintenance of your account. Many of our top brokerage picks do not charge brokerage fees.
  • Transaction fee: Also referred to as trade commissions, these are fees charged by the broker to complete your trade. Some firms charge a flat fee per trade while others charge per share being traded. It’s important to remember that for each investment you take a position in, you’ll likely be charged twice in terms of commissions: 1. to buy the asset and 2. to sell the asset at a later date. In a bid to increase competition, many of our top brokerage account picks have decided to waive trading commissions altogether.
  • Management Fee: Sometimes called an advisory fee, some brokers may charge you for a percentage of your total assets under management. This is typically charged in exchange for financial advisory or robo-advisor services in your brokerage account.
Expert tip: “When seeking returns, it’s easy to lose sight of minor details like management fees and expense ratios. Much like interest earnings, fees also compound over time and will eat into your total return. “ – Kenny X. Zhu, CFA, MagnifyMoney Investing Columnist
Trading Fees
Amount Minimum to Open Account
Annual Fee
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Visit TD Secured

on TD Ameritrade’s secure site

$0.00 per trade
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Visit Charles Secured

on Charles Schwab’s secure site

How do I choose which online broker is right for me?

The best brokerage accounts offer low fees and commissions while providing plenty of investor tools and offering a wide variety of no-fee ETFs and mutual funds.

Brokerage accounts can vary considerably in terms of features and prices, so it’s important to consider your unique investing style and financial goals when choosing an online broker. We’ve outlined the key features to look for when shopping around for a brokerage account:

Fees: It’s important to compare the fees levied by each firm in terms of both management fees and trading commissions. Many firms will charge different fees depending on whether you’re trading equities or options. It’s important to take these into account within the context of your own experience as an investor and the securities that you intend to trade most. Keep in mind that if you’re seeking extra guidance or want specialized trading tools beyond what’s available to the average investor, certain brokerage firms may be willing to provide those in exchange for a higher management fee.

Promotions, free trades and account opening bonuses: Many online brokers will try to entice you to sign up by offering promotions in the form of free trades, cash bonuses or even gifted stocks. If you’re looking to open a new brokerage account and narrow your choices down to a few key brokers, it may be worth comparing their bonus offers to see which provides the most compelling offer.

This can be especially enticing for those who intend to invest large amounts, as these promotions can become more lucrative the more you deposit. Keep in mind that most bonus offers will require some level of minimum deposit or trading activity for you to be eligible. Many will also set time limits in which you may qualify, so make sure you read the full terms of these offerings when picking a brokerage account on the basis of its bonus offer.

Investment products: Many large brokerage firms offer their own line of no-fee ETFs and mutual funds, each with its own set of investment strategies, market exposures and specialities. This is important if you’re trying to obtain the greatest level of diversification at the lowest cost.

Also keep in mind that if you’re trying to get access to specific product lines offered through certain brands like Vanguard’s Admiral Funds, Blackrock’s iShares or State Street’s SPDR ETFs, you may not have access or will have to pay a higher fee to gain access to these investments, depending on which online broker you choose.

Additionally, not every online broker allows you to trade every type of investment. For example, some online brokerage accounts may limit or restrict trading in certain specialized assets, like futures contracts, forex or structured products. If you’re a sophisticated investor who’s interested in gaining access to a wider variety of investments beyond just stocks and bonds, it’s worth checking what types of investments are permitted before committing to an online broker.

Resources: Many brokerage accounts offer services beyond filling buy-and-sell orders, and some offer different tiers of service for those willing to pay more or commit a larger amount in cash. You also may want your brokerage to be your one-stop shop for banking or planning services.

Some other features that online brokers may offer in addition to trading include:

Account minimums: Online brokers may differ in the size of the minimum account opening deposit required. If you’re just starting off or don’t have a lot to invest, you may consider shopping for online brokerage accounts with low or zero minimum deposits. Conversely, those willing to deposit large amounts may be able to obtain greater tiers of service through brokers that require high account minimums.

Much like certain checking or savings accounts, some brokers also may require a minimum account balance to avoid service charges. In some cases, brokers will also require minimum monthly deposits to avoid this charge. It’s worth looking into specific brokerage account policies if you intend to invest lower amounts to avoid paying unnecessary surcharges.

Trading software and research tools: If you trade frequently or deal in complex investments, you’ll want to take note of each brokerage account’s investing platform, any specialized software they may offer and how much access they provide in the form of proprietary or third-party research reports and information published by industry experts.

Some brokerage firms may allow you to “tour” their online trading platforms and run a simulated trade so you can get a feel for the experience. If you plan on using your phone to trade on the go, it’s also worth taking a look at the broker’s mobile app to make sure it suits your needs.

Expert tip: “There’s no single brokerage account that’s unequivocally better than all others. The best brokerage account will vary by individual and depends on your personal investment philosophy, the type of exposure you want and how hands-on you intend to be with your investments, among other factors.” – Kenny X. Zhu, CFA, MagnifyMoney Investing Columnist

FAQs: What should I know about brokerage accounts?

Once you have a brokerage account, you’ll need to deposit money into your account. Online brokers make it easy to transfer funds from your bank account electronically, but many brokers also give you the option of mailing in a check or wiring money. Some well-known brokers like TD Ameritrade, Charles Schwab and Fidelity even have branches where you can deposit your checks in person.When you’re ready to trade, you’ll have a few different options in terms of the orders you can place:

  • Market order: Market orders typically offer the fastest execution for investors who want to buy or sell immediately. This order type directs the broker to buy or sell a security at the current market price. It may not always offer the best price though.
  • Limit order: A limit order directs the broker to buy or sell a security at a specified price or better. Limit orders give you the most control over the price at which your transaction is executed but take longer to execute depending on where the security is trading. If no counterparties are willing to trade at the price specified, the limit order will sit unfulfilled until the specified price becomes available or the order expires.
  • Stop-order: A stop order directs the broker to buy or sell a security once the market price meets the specified “stop” price, or better. Stop orders are similar to limit orders in that they allow investors greater control over where the trade is executed, but unlike a limit order, which allows counterparties to view the price at which you’re willing to transact, a stop order is not viewable by counterparties and automatically converts into a market order once the specified stop price has been reached. Investors typically use stop-loss orders to guard against potential losses.

The next step is calculating how many shares you can buy or sell. This will be based on the current share price minus any trading fees. It’s important to realize that trades aren’t automatic and the actual share price might change from the time you place your order to the time your trade is completed. Your final order can be impacted by factors such as:

  • Size of order
  • Availability of shares
  • Time you place the order

Generally, if your order isn’t huge and is for stocks traded on a major exchange (meaning stocks are readily available for purchase), there shouldn’t be a delay. If you place an order outside of normal trading hours, your order won’t be executed until markets open. Market volatility can cause after-market movements that impact the price of a share at opening, which is called a gap. Trading after hours could mean that you’re bound to a price you weren’t expecting.

You can trade more than just stocks with most online brokers. Given your financial goals, diversifying your investments can be a way to balance your portfolio and protect against losses. Here’s a list of securities types that most brokerage accounts allow you to trade:

Some brokerage firms offer more niche investment opportunities including forex and EFPs.

How much you’ll need to start investing will vary depending on which broker you choose and the type of brokerage account you’re opening. There are plenty of online brokerage accounts with no account minimums, lowering the barriers to entry to start investing for the future. Many 401(k) accounts can be set to automatically allocate your paycheck to mutual funds that your workplace plan allows for, eliminating the problem of minimum purchase amounts.

In theory, all you need to start trading is enough funds to cover the cost of a single stock and the trading commission, but you’ll want to take into account the current market price of the security you want and how big of a position you want to take. Keep in mind that trading fees incurred will eat into your total return.

Most online brokers offer exposure to international markets through mutual funds and ETFs that specialize in international investments. You also may be able to identify specific stocks that give you direct exposure to foreign companies in both over-the-counter (OTC) and American Depository Receipts (ADR) investments.

Keep in mind that international investments may command higher trading fees and additional risks and tax concerns that differ from trading domestic securities.

Any investments you undertake are subject to both gains and losses in market value. In other words, there are no guarantees that you won’t incur losses on either principal or interest when it comes to investing in any asset. It’s important to consider your own risk tolerance relative to your portfolio and overall investing strategy.

If you’re worried about the solvency of your broker or the funds in your brokerage account, know that all brokerage firms registered with the Securities and Exchange Commission (SEC) are also members of the Securities Investors Protection Corporation (SIPC), a non-governmental organization that insures brokerage accounts in a manner similar to the Federal Deposit Insurance Corporation (FDIC). In the event of broker insolvency or misappropriation, the SIPC insures your account for up to $500,000 per person (including a $250,000 limit for cash only).

It’s important to note that the SIPC will not cover any losses in market value on your investments, any investments in mutual funds directly held by the brokerage company or brokerage accounts held with non-SIPC member institutions.

Many online brokers offer additional resources and tools for researching, investing and financial planning, in addition to custodial and trading services. Often, brokerage firms will offer greater access or premium services for individuals willing to deposit more money or pay additional management fees.If you’re interested in premium features like personalized financial planning, in-depth investment education and technical and fundamental investment analysis tools, it’s a good idea to inquire with the firms you’re considering when shopping for the best brokerage account to see whether they offer these resources.

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