Bargain Basement BrokersPam Black
In the 1970s, a new breed of brokers took on the Merrill Lynches and PaineWebbers of the world by charging clients a fraction of the standard commissions. Since then, Charles Schwab, Fidelity, Quick & Reilly, and other discounters have snatched away close to 20% of individual investors' business. But now, a growing no-frills contingent of "deep discounters" is snipping away at that 20% share with fees that are even cheaper.
Deep discounters charge up to 90% less than full-service brokers and 60% less than the big three discounters (table). On a trade of 200 shares at $30 per share, you might pay $145 at a full-service brokerage, $87 at a discounter, and $25 at a deep discounter, such as Los Angeles-based Pacific Brokerage, according to Mercer Financial Services' annual Discount brokerage survey ($29.95; 800 582-9854 or 212 807-6800). The deep-discount group encompasses the 30 least expensive brokers on the 180-company list.
DIAL-A-QUOTE. The typical deep discounter is a small operation that does little national advertising and serves from a few hundred to a few hundred thousand investors who usually make more than 10 or 20 trades a year. The companies run the gamut from the bare-bones Wall Street Discount Corp. (800 221-7870), which has one office in Manhattan and charges clients postage for sending out information on securities, to larger firms that almost rival the services of the big three discounters.
Waterhouse Securities (800 252-9939), for instance, has 30 branches in 20 states, offers access to more than 400 no-load mutual funds, and is trying to get check-writing privileges. Acutrade (800 228-3011), with offices in Omaha, St. Louis, and Los Angeles, and York Securities (800 221-3154), in New York City, offer 24-hour touch-tone phone access to a computer that provides trading quotes and account information and allows you to make trades.
Even Fidelity has a version of a deep discounter, called Spartan Brokerage (800 544-5115). One of the few deep discounters that spells out conditions for clients, Spartan requires a minimum of 50 trades a year and at least $20,000 in the account. Brown & Co. (800 225-6707), one of the cheapest deep discounters, maintains even more stringent requirements, including at least $10,000 in cash to open an account and five years' trading experience.
Deep discount customers are usually fairly active traders who don't have to rely on a stockbroker for research or investment tips. Bart Koslow, for example, a retired financial manager in Sarasota, Fla., does market research every day and executes about 100 transactions a year through York Securities.
DOUBLE ACCOUNTS. Less experienced investors may need more handholding than a deep discounter provides. The big three offer 24-hour access to live brokers and usually more research or sources of information about companies and investments. They also have high-profile branches all over the country. "Someone who doesn't trade that much might be more comfortable going to a bigger, more well-known firm," says Mark Coler, president of Mercer. But deep discounters execute trades exactly the same way as other brokerages. And their accounts are insured for up to $500,000 each by the Securities Investor Protection Corp. and may have more coverage from other insurers. As far as safety is concerned, "I don't know why an active trader would not go to a deep discounter," Coler adds.
Of course, you can keep accounts at more than one brokerage. That way, you can get investment advice or other services from a full-service or discount firm when you need them and execute cut-rate trades through a deep discounter when you do the homework.