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Evaluating Merrill Edge as a Brokerage Firm

As often happens when a company changes hands, things change within the structure of the firm as well. In 2008 Merrill Lynch was acquired by Bank of America, along with numerous other financial institutions. BoA put its investment accounts under the new name Merrill Edge in 2010. Since then it has been running independently.

Application Process

The application process for a Merrill Edge account is online. The same basic information is requested as is with any other brokerage account and funds can be transferred into the new account from another existing account, check, cashier’s check or electronic transfer. Doubtless, each takes a certain amount of time, but estimates weren’t available at the website.

Pricing Structure

Pricing with Merrill Edge is a bit tricky, as it is on a tiered system when you are trading stocks and ETFs. Additionally, there are ways to gain free trades and occasional promotions. Here is a simplistic breakdown, but make sure to check before you commit.

  • Stocks or ETFs – balance under $250,000 or 0-119/0-29 trades per year/quarter: $8.95
  • Stocks or ETFs – balance $250K-$1M or 120+/30+ trades per year/quarter: $6.95
  • Stocks or ETFs – balance $1M + or 240+/60+ trades per year/quarter: $4.95
  • Stocks or ETFs – balance in $25,000 or more in your BoA, N.A. deposit accounts: 30 free equities trades per month
  • Options: $8.95, $6.95 or $4.95 + $0.75 per contract with the same stipulations as above
  • Self Directed Mutual Funds: 0.75% of gross proceeds
  • Representative Assisted Trades: +$44.95

As you can see, it gets complicated.

Tools

When trading without assistance it’s all about tools, and reportedly the tools with Merrill Edge are basic and unreliable. The platform used by Merrill Edge can’t keep up with those offered by other online brokerages and doesn’t always provide accurate information on the state of your accounts. This can be problematic if you trade based on what you think you have available rather than on what you actually have. Penalties can, and will, ensue.

The one bright spot in all the comments about the tools offered arrives when discussing the app available to iPad and iPhone users. Apparently the app is exceptional.

The Word Online

When you go in search of customer commentary the word isn’t good. There are a few compliments but the majority of online reviews by actual clients are negative. Consistent problems with order execution, trading fees and poor customer service turn up time and again.

The Pros and Cons

Even with the apparent challenges, Merrill Edge does offer some pros to investors. DRIPs are free, you can connect a free checking account and there are ways to cut your trading fees. For the large scale investor this brokerage may work.

On the down side are high fees, poor execution, the need to hold a $1M balance to make trading more affordable, technical issues and a poor trading platform.

To Sum It Up

For new or average investors Merrill Edge doesn’t offer as much as other online brokerage firms. Tiered fee structures are rarely an advantage to those who have limited funds to invest. Add reportedly customer service and a platform that is frequently inaccurate and difficult to manage and it seems that Merrill Edge has a long way to go.

Trade Up to TradeStation (a Review)

When searching for an online brokerage there are plenty of options; not all are suitable for every investor. TradeStation is one of those companies. In 2011 TradeStation was listed at the #1 online broker with Barron’s – quite a coup. Nevertheless, this firm is best suited to the truly serious investor, otherwise it may not be a good match.

Application Process

To open an account with TradeStation you must provide certain information: income, net worth and liquid net worth. In addition you will need to transfer funds into your new account. This can be handled by check, wire or cashier’s check, with the addition of a number of forms. While details were not clear, the process seems similar to that at other brokerage firms.

Pricing Structure

The pricing structure at TradeStation is fairly straightforward, but there are some minimums required if you are to gain access to certain tools. For basic investors this will be difficult. Here are the prices:

  • Equities Per-Share Pricing Program: $0.01 per share up to 500 shares, $0.006 per share thereafter, $1 minimum
  • Equities Per-Trade Pricing Program: $9.99 per trade (1-9 trades/month); $7.99 per trade (10-29 trades/month); $6.99 per trade (30+ trades/month). Additionally, direct routing is free for up to 5,000 shares, and costs $0.005 per share thereafter.
  • Options: $1 per contract
  • Bonds: $14.95 + $5 per bond
  • Broker Assisted Trades: $50
  • Mutual Funds $14.95
  • Futures: $0.25-$1.20 per side, per contract
  • Platform Fees: $99.95/month – can be waived based upon activity
  • Radar Screen tool fee: $59.95/month

In order to have your platform access and Radar Screen tool fees waived you must meet certain standards. Your options are:

  • Trade 50 or more equity and index option contracts
  • Trade at least 5,000 shares of stock
  • Trade 10 round-turn futures or future options contracts
  • Trade 50 round-turn single stock futures
  • End the previous calendar month with a balance of $1M USD in your account

Tools

The direct access trading platform provided by TradeStation is considered among the best in the business. It is approachable, provides traders with plenty of extras and allows clients to trade futures, options, equities and even forex from one location. There are some automated trading tools as well, and the tools can be customized for each user.

Educational tools include free Webinars and online tutorials. In person instruction is available. Additionally, you will find that TradeStation has a wiki that you can access if you have any questions which helps make up for the lack of a 24/7 support line.

The Word Online

Like most brokerages, TradeStation has supporters and detractors. Complaints seem to be centered around frequent small fees and poor customer service. Another issued raised was the compatibility of the TradeStation Platform with certain firewalls. Overall, customers seem happy with the brokerage.

The Pros and Cons

TradeStation offers several advantages to its clientele. With low commissions, an exceptional trading platform, many products to trade and superior analysis tools, this is a good company for those who are deeply involved in trading and have the knowledge base required.

For less involved traders, however, the monthly fees, high margin rates, a very expensive platform and a steep learning curve, TradeStation is difficult for the beginner to master. Furthermore, minimum balances are high.

To Sum It Up

TradeStation is a good choice if you are an advanced investor with a lot of capital and knowledge. The advantages found with this company are really directed at those who know what they are doing and how to do it when they open an account; otherwise, the fees will eat up any profits you might possibly make.

Climb on Board to Understand Round-Trip Trading

When someone plans on some round-trip trading there is only one destination in mind: the inflation of transaction volumes. By constantly buying and selling a particular asset, stock, commodity or security, round-trip trading creates the illusion of many shares changing hands in a short amount of time. When an asset is traded frequently it makes it appear as if it is highly desirable or creating a lot of interest. Sometimes several companies agree to purchase each other’s shares and then purchase back their own assets at the same price. A form of market manipulation, round trip trading has occurred in both the telecommunications and energy industry.

The reason round-trip trading helps the owners of the traded shares is that the practice causes a misrepresentation of the total number of sales and purchases which occurred during a specific day. While the trading causes volume and revenue numbers to be inflated, there is little actual difference in profits. The classic case cited would be the Enron scandal. Revenues increased, but, there was no actual increase in the income.

Even people engage in round-trip trading. An individual who purchases the same stock more than 3 times in one day, and then sells it on the same day, is said to be involved in round-trip trading. Many investment firms have built in protocols to prevent such buying/selling patterns; some will restrict sales for up to 90 days. The risk to both company and individual is high and is not recommended. Frequently a certain level of equity must be maintained in the investor’s accounts to ward off any problems.

Does a Risk-Free Return Actually Exist?

In an ideal world, and only in an ideal world, investing would involve no risks. You would select your funds, place your assets and watch them grow over time. You would have no concerns over losses. In reality, though, a risk-free return represents interest you would expect to earn upon your investment if said investment was completely risk free over a particular period of time.

Still not clear on the concept? The problem lies somewhere between theory and reality. If you could invest in something that was truly risk free, the return would be what you could expect for that outlay. Once the theory meets the real world a risk free investment doesn’t exist. No matter how safe an investment you pick there is always some level of risk. Treasury bonds are about as close as you can get to a truly risk-free investment as short term securities which have been issued by the government are so rarely defaulted upon.

While not truly risk free, the chances of a government defaulting over the short term is nearly unheard of. As a result, investments of this type are regarded as particularly safe. However, hyperinflation, which can be the result of specific economic forces, can lead to these things happening. Even if an investment appears extremely stable, there are no guarantees that it will remain so. This was the case in post-WWII Germany, where government issued bonds became valueless after the war ended. The current financial crisis in Europe certainly presents an argument on the side of uncertainty rather than on the side of an investment with a risk-free return.

Wise to Invest with Vanguard Brokerage Services?

Even with clever marketing and an attempt to turn their name into a verb, does Vanguard have what it takes to be a successful online broker? As a long standing player in the investment biz, Vanguard should have been poised to do well online. Here is what we found out.

Application Process

The details of the application process are clearly set out online. You have the option of applying for more than one type of account, and if you already have a Vanguard account information is easily transferred. Fill out your application carefully though, since there are reports of great difficulty changing information if you make a mistake in the process.

If you need help filling out your application, make sure to do so between 8:00 am – 8:00 pm, Eastern time since there is no customer service overnight. Although online chat hours are not listed, one imagines that they are restricted to the same time slot.

Pricing Structure

Vanguard has a moderately tiered system, but unlike some such brokerages, it isn’t too complicated to follow. Here are the fees:

  • Stocks and ETFs for accounts with less than $50,000 balance: for the first 25 trades $7, subsequent trades $20
  • Stocks and ETFs for accounts with $50K-$500K: $7
  • Stocks and ETFs for accounts with $500k-$1M: $2
  • Stocks and ETFs for accounts with $1M+: First 25 trades free, $2 for subsequent trades
  • Options: $30 + $1.50 per contract
  • Options for accounts over $1M: $8 + $1.50 per contract
  • Vanguard Mutual Funds: Free
  • Other Mutual Funds: $8, $20 or $35 depending upon account balance

As always, the more you invest, the less you pay.

Tools

One area where Vanguard comes up short is their tools. There is no way to modify an order; it must be resubmitted. Chart tools aren’t as sophisticated as what its competition offers and you can’t save indicators. There are no good research tools and the website is difficult to navigate. Additionally, there is no mobile app – a perk which is quickly becoming the industry standard.

The Word Online

Customer reviews for Vanguard are all over the map. In general, those investors who are small scale, are willing to invest in Vanguard based mutual funds and don’t plan to move their money around a lot do well and are happy. Those investors who are more active, want to do a lot of trading or can’t maintain high balances are less than satisfied. Base your expectations upon the type of trader you plan to be.

The Pros and Cons

Vanguard has some good things going for it: free Vanguard ETFs, free DRIPs, low costs and good performance on home based funds. Some claim the customer service is good.

In the negative column are the potentially high commissions, annual maintenance fees, low balance fees and limited customer service hours. Additionally, some complain about the customer service. Vanguard requires $3,000 to open an account, which is higher then usual.

To Sum It Up

Vanguard appears to be a mixed bag, especially when it comes to customer service. While limited investors who are interested in long term savings are likely to do well, others are likely to be unhappy with the suite of tools, fees and platform provided. If your style of investing meshes with what Vanguard offers well, then it should be just fine, otherwise, look elsewhere.

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