There was a time when we relied heavily on our favorite stockbroker to hand us pearls of wisdom that could ‘make us a fortune.’ (Whether we made a fortune or not, it was our stockbroker who always seems to do so.) Today, technology has placed that stockbroker’s information squarely within our grasp, thanks to the internet. It has also created extremely powerful online tools that allow for sophisticated research and analysis.
However, as an investor, one of the critical decisions you will make is not about what individual stock, bond or fund to pick. It is about what online stock trading service to pick. Your needs are very individual so, among the dozens of services available on the internet, what criteria do you use to select the best one for you?
While many seniors started their investment experience through brokerage houses and stockbrokers who provided personal investment advice, over time much of this activity has shifted to online stock trading services. Also, what for many may have started out as dabbling just with equities, trading has expanded to many other investments: options, mutual funds, exchange-traded funds (ETFs), bonds, futures trading, currency trading (forex) and others.
Research shows that investors consider two components to be critical in their selection of online stock trading services: the investments accessible through the platform and the costs related to using it. The goal is to keep costs to a bare minimum, so profits from trading activities can be maximized. Those costs include the individual transaction-based fees (cost per trade, for example) and countless account-based fees.
The number of online brokers has been decreasing, mostly through consolidation, as the combination of competition and technology has driven fees lower. The introduction of robo-advisors has also affected the cost of investing, as intelligent algorithms have replaced the friendly stockbroker’s advice. Some seniors have adopted the use of robo-advisors eagerly, while others have maintained their relationships with advisors; it is a matter of individual comfort level.
While transacting investment activities over the internet caused concern for some seniors early on, most websites today use multilayered protections before granting access to accounts. Now, except where human carelessness plays a role, few security breaches have allowed for unauthorized account activity.
In fact, the pioneering activities performed originally on desktop (then laptop) computers have moved onto our mobile devices via mobile apps. Mobile apps not only allow trades to take place anywhere, on smartphones, but most trades and instructions can be synchronized across all our electronic devices to offer full flexibility and independence.
It is said that two things appeal to seniors: keeping things affordable and easy. If that is so, then online stock trading is a perfect match. Costs are controlled by virtually eliminating the middleman of bygone years: the full-service stockbroker who charged hefty commissions. The per-trade fee charged by the online brokerage is far lower and, where adopted, even some advisory help can cost less, thanks to robo-advisors.
Transactions are also far easier: a few clicks – after doing your own unlimited research online – and the order to buy or sell is placed, often instantaneously. Online platforms are available 24/7/365 via any internet connection and are only time-limited by when different trading markets are open. Most reassuring, seniors can monitor their investments at any time without having to count on the availability of another person.
By having an account with the right online stock trading service, seniors can:
- Exert greater control over their investments by monitoring them in real time;
- Eliminate some of the costs that lower the yield on investments;
- Benefit from online informational and educational tools provided by the service;
- Manage accounts comfortably from home on a computer or mobile device; and
- Access analytic platforms and research reports through user-friendly websites.
Before selecting an online stock trading service, you will want to know about the cost of transactions, the ease with which the service can be used, the conditions of cancelling accounts and the availability of customer service.
Once the first few criteria are reviewed, you will want to know the required initial deposit, if there is one, as well as the different securities that can be traded through that service. The availability of robo-advisor services may be important to you. Also, from a reassurance point of view, you will want to know the financial strength of the company, as well as its regulatory affiliations.
The selection of the right online stock trading service plays an integral role in your success as an investor. What is ‘right’ is very individual. It should reflect your investment style and should offer the services you need to support what and how you invest and trade.
Assessment: The first step is an honest assessment of your expertise and your needs. If you are just starting out, or have some experience or are truly experienced, each situation will determine what is most important to you in a trading platform. Are you active or passive as an investor? What kinds of trades will you be making? What kind of help will you be looking for? What are your investment goals? How much time do you intend to put into your investing?
Vetting: Of the services you are considering, what kinds of protections do they offer? A minimum would be membership with SIPC (Securities Investor Protection Corporation), FINRA (Financial Industry Regulatory Authority) and, if they offer checking/savings/deposit accounts, FDIC (Federal Deposit Insurance Corporation).
The company should also provide online security and account protection. Does it offer two-factor authentication? What technology does it use to safeguard your account? Does it ever sell your information to third parties?
Range of offerings: What does it offer besides regular taxable investment accounts? Retirement accounts? Roth or traditional? Does it offer managed accounts? Can you handle SIMPLE or SEP IRAs for your employees if you are a small business owner? What about Self-directed IRAs or Solo 401(k) options? In short, what are all the functions you would like the online stock trading service to handle in terms of your investments? The company you select should not limit your activities.
Costs: The less you spend on fees and commissions, the more of your profit that is left for you. Is there a minimum deposit required to avoid account-based fees? Any start-up, monthly or annual account maintenance fees? Is access to the trading platform free? Is there also a pay-to-play Pro or Advanced trading platform? On margin accounts, what are the rates, and what are the minimum loan amounts and account balances?
Do commissions depend on the amount you have invested in the brokerage or on your trading frequency? Do they vary for different securities? Is the service’s rate schedule compatible with the kinds of trades you will be making? Are there fee-free options for ETFs or mutual funds? If you need advisory services, what do they cost, and does access require a minimum account balance?
Funds-handling: Moving money in and out of your account should be safe, but easy. How can you deposit money and how long does it take to settle? Are checking or savings accounts available to expedite transfers? If so, are they FDIC-insured? Are there any fees involved? As for withdrawals, how soon after a sale are funds available for transfer? What about interest or dividend distributions? How quick and easy is the withdrawal process?
Platform: Can you test-drive the platform easily without making a full commitment to the service? (Even if there is a free or trial version, it should be indicative of what you will have access to once you become a client.) What kinds of securities can you trade? Are quotes in real time? Streaming? Are customized watchlists and alerts possible? Can you customize screeners to identify securities that meet your criteria? Can you control the timing and execution of orders? Do you have access to extended trading hours? Does high internet traffic ever impede access to your account or to make a time-critical trade?
As for charting, what kinds of data can be plotted? Can different indices and stocks be compared on the same chart? Can you draw on charts? Can you save your work easily? How easy is it to switch from one function to another? Can you backtrack to a prior function, or is it lost? In short, how sophisticated is the entire system? Depending on how sophisticated you are as an investor, you should not be hampered in any way by limited technology.
Education: An online stock trading website should offer access to extensive educational materials in various formats and mediums so clients of all levels of expertise can find support. How easy is the site to navigate? Is it intuitive or does it seem to have a logic of its own that you must learn? Is the search mechanism effective? Is sufficient fundamental data and analysis available for various types of securities? What about market data for U.S. and non-U.S. markets? For industries and sectors? How much of an overview can you get of all the conditions affecting market performance, so you can make intelligent trading decisions?
Customer support: Whatever your level of expertise as an investor, there are always reasons to want to contact a company for support, whether for technical or advisory reasons. For general inquiries, can you call 24/7 or only during business hours? Are emails answered promptly? Is online chat available? Is there a comprehensive, easily searched FAQ section? Does the service have a secure messaging system within the platform to deliver documents and account information? For technical support, are there specific phone numbers, email addresses and chat systems to reach the platform’s tech experts?
Two areas differentiate what seniors prioritize from what others do when going onto online stock trading websites: age-friendliness and health-related value.
Age friendliness: Trading websites are becoming easier and easier to navigate, while they become more and more powerful in what they can achieve. However, while trades are easy to make using online trading services, so are errors. As you age, diminishing mental focus and eyesight can increase the chances of making bad or mistaken trades. Your best protection is your willingness to maintain an honest dialog with yourself about any poor performance: was it the market or was it you?
Health-related value: The impact of your health on your ability to trade successfully is limited to whether your activity requires time-critical intervention in the markets.Being too ill or being sidetracked by hospitalizations may cause you to miss opportunities, unless your trades are programmed with stops and triggers. As your health declines, your trading style may have to adjust to match your availability, to avoid any important losses.
Two types of costs are most important when selecting an online stock trading service: commissions and fees.
Commissions: Different commissions are associated with different types of investments. Individual stocks will have a set per-trade commission, although at times the commission can decline as the number of trades increases. Certain services replace the per-trade commission with per-share pricing. Options typically trigger the per-trade commission, plus a per-contract fee. Some services require a fee to buy mutual and index funds; however, this cost can be minimized by finding a service that offers no-transaction-fee mutual funds. (Remember that these fees are in addition to the internal fees, or expense ratios, carried by mutual funds.)
Exchange-traded funds (ETFs) trade similarly to a stock and carry a share price. Some services offer some commission-free ETFs and others charge commissions on all ETFs. Individual bonds typically carry a purchase fee.
There seems to be a tradeoff between the cost of stock trades and the availability of commission-free instruments, so defining your preferred investments will be one step in selecting the best online stock trading service for you. Increased competition between services has led to lower trading costs: a recent year showed a 25-percent decrease in the average monthly cost of trading for an investor who traded occasionally.
Fees: While you will not be able to avoid all account-based fees, a careful study of the fees that will affect you can go a long way to lowering their impact.The most common account-based fees include annual fees, fees to provide paper statements, extra charges for broker-assisted trades and for research, fees for use of the trading platform and fees for not trading often enough (also called an inactivity fee).
Your trading style and expected usage of the online stock trading service will tell you which of these fees you are susceptible to, and you can select the service accordingly. However, not all fees are bad; some are for tools that may help you trade more profitably. It is simply a matter of managing them intelligently.
Promotions: Because of competition in the marketplace, most online stock trading services will offer appealing promotions to get your business. These may offer a certain number of commission-free trades or a cash bonus linked to the level of your initial deposit. Before allowing a promotion to sway your decision, examine the basic per-trade commissions and other fees to be sure the savings will not be wiped out quickly through higher charges.
The initial evaluation criteria in selecting an online stock trading service start with the cost, then extend to ‘ease’ factors: ease of use, ease of cancellation and degree of customer support.
Cost: Using an online stock trading service will cost far less than transacting similar investments through a full-service broker. However, the burden of research and decision-making will fall upon your shoulders in the absence of that broker’s advice. (That fact by no means implies you cannot be as successful, or more successful, on your own.) However, there are still per-transaction costs and account-based fees that must be identified before selecting a service. A good examination will pay for itself in higher ongoing yields for your investments.
Ease: Online stock trading services are going to great lengths to make their sign-up procedures easy in order to attract new business. They are also making the use of their websites as friendly and intuitive as they can, while providing more and more resources, to entice and keep clients.
Cancellation: Some services will charge you to close out an account and to transfer the balance of funds. Others will not. However, if you are transferring your account to another brokerage, some services will reimburse some, if not all, of those charges.
Customer support: Because online stock trading services are dealing with our money – in the form of investments – the quality of customer support is particularly critical. Active clients tend to access trading websites 24/7, so many services will make their support available 24/7 as well, via online chat, phone, internal messaging, text and email. Some investors prefer a service that has physical branches available where they can meet and consult face-to-face with a representative (broker or customer service).
While brokerage firm failures are rare, the Securities Investor Protection Corporation (SIPC) protects you if your online stock trading service were to fail. Up to $500,000 in securities and cash in your account is protected, although only $250,000 of that can be in the form of cash. However, the SIPC does not protect you against market losses, promises of investment performance, commodities or futures contracts. Most U.S. brokerage firms are required to be SIPC members, and you should avoid any company that is not.
The Financial Industry Regulatory Authority, or FINRA, is dedicated to investor protection and market integrity related to brokerage firms. It is overseen by the SEC. It writes rules and enforces compliance with those rules and with federal securities laws. It provides education and training to broker-dealer personnel. FINRA surveils and provides other regulatory services for options and equities markets, and it administers a dispute resolution forum for investors and brokerage firms.
For seniors specifically, the FINRA Securities Helpline for Seniors provides a toll-free number (844-574-3577) that senior investors can call to get assistance from knowledgeable FINRA staff about issues they are having with brokerage accounts and investments. They can get help understanding how to review investment portfolios or account statements and how to deal with a broker that has mishandled an account. The service can be reached Mon-Fri, 9:00 AM-5:00 PM ET.