The champ has reclaimed its throne. After slipping to the No. 2 overall position last year, Fidelity brokerage has resumed the top spot in Investor's Business Daily's 2020 Best Online Brokers ranking.
Fidelity brokerage has now ranked No. 1 in five of the past six years. The 2020 rankings are based on two surveys of more than 5,000 investors combined and included an analysis of 10 online brokers.
The giant Boston-based brokerage — whose parent company is of course also home to a large family of mutual funds and ETFs — copped the penthouse position in IBD's ranking by scoring in the top five brokers in 14 of the 15 categories of broker performance studied.
In fact, customers ranked Fidelity brokerage No. 1 in six categories. It was No. 2 in five categories.
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As in past Best Online Brokers surveys, IBD's eighth annual rankings draw from two survey phases. First, IBD and polling partner TechnoMetrica Market Intelligence surveyed brokerage clients to find out what they consider the most important broker attributes. Then, in a second survey, we asked investors to rank their own brokers on how they perform in those key traits.
Fidelity Brokerage Benefits From Big Size
Fidelity's size and deep pockets help it compete vigorously in several categories where it ranked No. 1, including Equity Trading Tools, Investment Research and Mobile Trading Platform/Apps.
Fidelity also topped all rivals in categories where its large bench of analysts and researchers could shine brightly: Research Tools, Investment Research and Portfolio Analysis & Reports.
Low Cost/Free ETF Trading was the sixth category in which customers ranked Fidelity brokerage No. 1.
Other categories where Fidelity customer ratings put the firm in the top five were Low Fees & Commissions, Website Security, Trade Reliability, Site Performance, Customer Service, Broad Choice of Investments, Trade Ideas and Educational Resources.
How A Customer Sees Fidelity Brokerage
For a customer like 38-year-old Jonathan Sholtz of Kansas City, Mo., those traits translate into ease of use. He's tried a rival online brokerage, but he sticks with Fidelity because he finds its website easier to work with. "With TD Ameritrade I had to go through a whole new learning curve," he said. "I was happy with Fidelity, so I didn't see any reason to do that."
Sholtz, a construction worker, relies mainly on Investor's Business Daily to research stocks. He fleshes out his buy and sell decisions with charts, earnings data and other data on Fidelity's website. "I do wish their earnings information was easier to decipher and that they'd go further back in time than about two years."
Top Customer Experience Index For Fidelity Brokerage
Plaudits by Fidelity brokerage customers added up to an overall Customer Experience Index rating of 76. The firm nosed out No. 2 finisher Charles Schwab by less than 1 point and survey newcomer Tastyworks by about 3 points.
Customers have responded favorably to steps taken by Fidelity. Seventy-five percent of people surveyed said they were "very satisfied" with Fidelity. That was up from 72% the prior year.
"We had 10,000 new brokerage accounts open each trading day of the year (in 2019)," said Scott Ignall, head of Fidelity's retail brokerage business. "That's about 1,000 more than the prior year."
That lifted the customer account tally at Fidelity's online brokerage business to 23.1 million as of Dec. 31. That was a 13% increase from the prior year.
Fidelity Aims For Happy Customers
Ignall says Fidelity has earned high grades from its customers by focusing on what makes customers happy — then making their wish list come true. "Fidelity has an extremely customer-centric view of the world," he said. "We want customers to be successful. And being private lets us take a long-term view. We don't have to worry about the next quarter's earnings report. We don't have to worry about analysts' reports about how we spend money in the short-term (to fulfill customers' wishes). We can make long-term decisions for our clients."
And large size helps too. "Our scale and capabilities help our clients," Ignall said. "They help us offer the best products and pricing."
The second phase of the survey took place in September to December 2019, a period that included the brokerage industry's broad move to zero commissions.
In October Fidelity announced it was eliminating commissions for online trading of stocks, ETFs and options (though still charging 65 cents per options trade to cover certain costs.) It wasn't the first firm to go to zero commissions. Charles Schwab, TD Ameritrade (read more), Interactive Brokers (read more) and E-Trade Financial reached zero earlier.
Fidelity's elimination of commissions was a hit with customer Jonathan Sholtz. "Oh, yeah, that made a difference," he said. "Most definitely, it helped me decide to stay with them. They were one of the last to go commission-free."
Higher Yield For Sweep Accounts
Earlier in 2019, Fidelity said it would automatically sweep cash in new brokerage and retirement accounts into a money-market fund whose yield at the time was at least 10 to 47 times higher than various key rivals' default sweep yields.
As of Jan. 14, Fidelity's government money market fund's 7-day yield was 1.23%, which was 20 to 123 times higher than those same rivals' default sweep annual percent yields.
Most rivals sweep cash into lower-yielding bank accounts.
Further, Ignall says, many rivals pocket the difference between the slightly higher interest banks pay them for the accounts and the interest they distribute to clients.
Declining Pay For Play
In addition, Fidelity says that unlike most brokers it does not receive payment for order flow from market makers on stocks and ETFs. This allows it to provide better trade execution for clients, Ignall says. Many rivals pocket revenue for order flow, Ignall says. "But last year we gave $550 million in better trade execution back to clients. We pass the savings on to clients. Our price improvement is a huge differentiator of ours and a big part of our secret sauce and a big reason we're growing so fast."
Customers see savings in the form of better pricing on trades, not rebates. Roughly 90% of Fidelity trades are executed by third parties, including market makers Citadel Securities and Virtu Financial. The 10% balance are executed in-house. Trades go through whichever channel provides the customer with the best price, Ignall says.
Fidelity already went to zero in the minimum it requires from customers to start an online brokerage account, in mid-2018, when it eliminated its then-$2,500 base.
Fidelity Brokerage Innovations
Another Fidelity innovation during the year was introduction of interactive trading tickets for stocks and options. Using artificial intelligence (AI) and machine learning, the tickets display more information as a customer fills in windows.
"The ticket tries to understand what you're doing, what your goals are, and repopulates the ticket as you go," Ignall said. "It's easy and simple for the novice, fully featured for the advanced trader."
In addition, Fidelity upgraded the information offered to customers on its website. "Clients want more information about their positions, so we gave them better charting, more information about dividends, risk and more proactive information about upcoming corporate actions," Ignalls said. "We know how valuable time is to our clients. So we improved features to enable clients to make better use of their time when they visit us."
Fidelity also added a screen to its mutual fund evaluator that helps investors find funds that have certain traits, such as high income yield.
Simplifying Mobile Use
And to make use of its website via mobile devices easier, Fidelity brokerage continued a campaign of simplifying its mobile portals, reducing the number of steps customers must take to perform actions.
"Their apps are very user-friendly," said customer Sholtz. "Their website is easier to get to. It's easy to use. It's easy to use the watchlist. It's easy to trade. It's a nice, clean site."
In the fiercely competitive online brokerage field, where some sources of revenue — such as commissions — have been squeezed, some smaller online brokerages can't afford to offer 24/7 live customer phone support. "We'll continue to offer a live channel of the highest quality," Ignall said. He was referring to round-the-clock telephone customer representatives, who hold at least Finra Series 7 and Series 63 licenses for selling securities and soliciting securities orders.
Fidelity also offers online chats Monday to Friday 8 a.m. to 10 p.m. EST and Saturday and Sunday 9 a.m. to 4 p.m. EST; secure email responses within 3 to 5 business days; AI-driven questions-and-answers that are nonaccount specific; and walk-in centers.
The innovations keep coming. In late January 2020, Fidelity introduced real-time fractional share trading of stocks and ETFs.
Basically, the move enables customers to invest based in dollar amounts in addition to investing in increments of whole shares. The new format lets investors trade as little as one-thousandth of a share, using Fidelity's mobile app.
At least for now, the feature is being made available to retail investors but not advisors.
Fidelity will now let customers trade fractional shares in real time during market hours. That contrasts with the practice at some rivals, which Fidelity says only permit fractional trades at the end of the day, or they wait until a customer has enough fractional order to add up to full shares.
Fidelity's fractional share trades must be market or limit order types. They're good for that day only.
The new rule would let customers diversify even while investing a small amount of money. Also, the practice would make it easier to dollar-cost average, a strategy in which a person spreads investments through a period of time to reduce volatility and take advantage of any price dips.
There are two benefits," Ignall said. "First, we feel that trading in shares rather than dollars for retail investors will become a thing of the past. It's counterintuitive for retail investors to trade in shares. Second, there are expensive stocks and ETFs that some newer investors can't afford, like Amazon, which trades around $1,800 a share." Fractional shares is a way for investors to obtain exposure to expensive stocks, he adds.
This updates the Jan. 27 version of this report.
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