When I opened my first brokerage account in 1995, I had little expectation it would remain as my only brokerage account. That’s because the one I happened to choose was one that has evolved with the times, and has been constantly adding features over the years. I see it as the premier service.
So you may wonder if your brokerage account is up to snuff, or if you are considering opening an account, you might be looking for the things a 21st century brokerage account really needs to have. So here they are — and, yes, I consider these essential for trading in modern-day brokerage accounts.
Commission Cost Under $10: This is really important for a brokerage account if you are any kind of active trader, like I’ve been all these years. If you are doing more than five trades per month, commissions can just kill you. You cannot pay $40 per trade, or even $20 per trade. You need to be paying $10, or even less if possible. I’ve been trading now for 20 years. In the early days before online brokerage accounts, trades cost more than $100. Since online trading began, that price keeps falling. I make about 300 trades a year, so the savings add up quickly.
Price Improvement Routing: One reason I have stuck with Fidelity Investments’ brokerage account is because they will route my trade to the exchange offering the best quote. Sometimes, different exchanges will have different quotations for stocks or options. Again, saving pennies per trade in volume make a difference.
Simple Interface: Time is of the essence when trading in a brokerage account. If you can’t learn how to navigate the interface in a matter of minutes, it’s too complicated.
Instant Record Keeping: You want to take the burden off entering transactions into your own software. More importantly, you want to be able to glance at all your open and closed positions and their tax lots instantly. That helps you make the most tax-efficient choices when trading. That reminds me … hand-in-hand with record keeping is the ability to identify specific lots you wish to sell for maximum tax efficiency.
Access to Free Mutual Funds: While I am mostly an ETF guy, I do hold about 10 mutual funds. You want to have access to a couple of thousand funds through your brokerage account that don’t ding you with transaction fees. It’s an essential part of creating a broad, diverse long-term portfolio.
IRA Accounts: Uh, yes, I want to be able to trade securities in my IRA account!
Cash Transfer: I can’t tell how you significant it is to be able to transfer money via Electronic Funds Transfer into and out of my brokerage account. It eliminates the need for paper checks, yes, but the bigger value is that it’s immediate. Fidelity will instantly credit your account with the money, even though the funds won’t arrive for 2 or 3 days. This kind of activity can become a life-saver if the market starts crashing and you want to buy but lack funds in your account — and if you suddenly need funds because of a margin call.
Great Customer Service: Fidelity has never once let me down. Ever. There is always someone there to answer a complicated trading or options question. I have direct lines to traders if I need to execute options, which can’t be done online, and that includes Extended Hours trading. I once foolishly thought Fidelity had miscalculated my capital gains one year. After I spoke to them, however, it turned out they had just calculated it in a far more efficient way than I’d ever conceived.
There are a few other things, like having YTD capital gains data, and access to online trade confirmations and statements. But these seven items are the essential pieces of a good brokerage account.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
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