March1,2021 BARRON’S 27
“We’re making investing less scary,
more accessible, personal, and easier,
and offering features and tools that
are optimized for mobile,” said a Rob-
inhood representative in response to
our survey questions.
Barron’srecognizes that, given the
size of the user base, the fintech trad-
ing apps have become significant
forces, and certainly bear close watch-
ing. And like many of their users, they
haven’t been at this very long. The
full-service brokers were once rela-
tively rudimentary themselves.
F
or the full-service brokers, the
year featured nonstop chal-
lenges. They had to suddenly
adjust to pandemic-induced
remote working while reassuring exist-
ing clients and absorbing millions of
new clients, not to mention maneuver-
ing through the GameStop affair.
Barron’sranked 11 online broker-
ages that offer a broad range of tools
useful to mainstream, self-directed
investors of various stripes. Three
brokerages did not participate (as
they did not last year): Firstrade,
Vanguard, and You Invest,JPMor-
gan Chase’s (JPM) self-directed
brokerage.
In this year’s survey, Interactive
Brokers again leadsthe pack,with
Fidelity close behind. This echoes our
2019 survey; last year, the two tied for
first. This year, it was close enough
that we awarded them both five stars.
TD Ameritrade came in a strong
third, E*Trade was fourth, and
Charles Schwab(SCHW), which
now owns TD Ameritrade, came
immediately behind in fifth place, as
it did last year. That marked a one-
position rise for TD Ameritrade,
while E*Trade dropped one position.
Some of this is a function of rejigger-
ing the relative weights in a few cate-
gories, although it also reflects some
impressive improvements by TD
Ameritrade and Schwab.
Tastyworks and Merrill Edge tied
for sixth place, with just a single point
separating the two.
These full-service online broker-
ages have long attempted to cater to
investors of all stripes. In 2020, the
pandemic provided both time and
opportunity, and boatloads of new
investors came aboard. Many of these
were younger. Ally Invest, for exam-
ple, says that millennials drove about
half of its overall growth last year.
But this phenomenon extends further.
Ally reported that the growth rate of
women overall outpaced men.
The industry’s stunning growth put
these platforms under great pressure.
Fidelity says that it hired more than
5,000 new customer-facing personnel
to handle the increased volume, while
other brokerages scampered to find
and train enough new employees to
service them.
The brokerages didn’t just tread
water. Many are actively transforming
themselves, both functionally and
aesthetically. They’re becoming more
welcoming and less an amalgam of
words, numbers, and line graphs that
require endless clicks. Brokerages are
layering ease of use and contemporary
graphics on ever-more powerful and
sophisticated investing and trading
engines. In some ways, Merrill Edge
led the way with its reimagined site
stressing “stories” that theBank of
America(BAC) unit rolled out over
the past three years. Merrill’s empha-
sis on context continues, while others
are refashioning their sites, as well.
“We’ve definitely seen a movement
toward simplification in design,” says
Jennifer Butler, the director of asset
management and brokerage research
at consulting firm Corporate Insight.
Brokerages, she says, have begun to
rethink site architecture and labeling
to make everything more intuitive.
The top online brokerages marry
clarity and sophistication, which is
no small feat. This allows latitude
for both expert traders and novice
investors.
One big goal of these brokerages is
to gain clients and keep them for
the long term, not just entice them to
sign up until the next cool app comes
along. That includes a migration to
different products, such as advisory
services, which in turn provides addi-
tional revenue.
“What a lot of brokerage firms are
trying to do is deliver on a promise of
comprehensive financial management
that addresses not just a consumer’s
every product need, but also kind of
a lifetime evolution of those needs,”
explains Butler.
A more thoughtful and intuitive
approach to news, information, and
research marks another aspect of this
endeavor, and one that’s particularly
important this year. Brokerages ap-
proach this differently. But at heart,
this involves two separate realizations.
First, with all of the new participants
in the market, brokerages must put
investing into some kind of educa-
tional context, or risk losing the very
people they want to keep and nurture.
Second, more-experienced investors
demand both thoroughness and acces-
sibility. Rummaging around for infor-
mation just doesn’t cut it anymore.
Brokers must offer a wide array of
material: entertaining tutorials, plain-
language cues, portfolio builders, and
useful financial planners for the nov-
ice investor; profit-and-loss algo-
rithms, trading heat maps, advanced
charting strategies, and graphically
represented research for the more
experienced. It’s a tricky balance,
providing necessary content without
information overload for a wide range
of trading expertise.
“Part wizard, part content cura-
tion,” is how Bob Leavitt, TD Ameri-
trade’s director of content strategy and
development, describes one of his
firm’s educational efforts.
W
e examined all of these and
dozens of other elements in
online brokerage offerings
for this year’s survey.
Both Interactive Brokers and Fidel-
ity demonstrated just how extensive
and contextual these services can be.
Each excels in multiple facets of the
online trading universe. However,
Interactive Brokers scored higher in
three of the six scoring categories—
information, trading, and interna-
tional, a category that it easily won.
It also won first place in active trad-
ing. (For more on how we ranked the
brokerages, see page 29.)
Some brokerages do a much better
job than others in key segments. For
example, tastyworks offers a superb
platform for active options and fu-
tures traders, but its strengths and
trading prowess would be lost on
more-occasional investors, and it
lackssome of the foundations that
we believe a novice investor needs.
Tastyworks is also the latest exam-
ple of high stakes industry consolida-
tion. In late January, the brokerage
firm’s parent, tastytrade, announced
that it would be sold for $1 billion to
the United Kingdom fintech and trad-
ing companyIG Group Holdings
(IGGHY). According to Tom Sosnoff,
tastytrade’s co-founder, there were
five offers on the table for the com-
pany. Sosnoff and his partners chose
IG Group, he says, because tastyworks
has designs on a global presence. With
licenses in 17 countries, IG Group
will make that process quicker and
simpler.
“I wanted an opportunity for us
to take the world by storm,” Sosnoff
says.
The tastytrade acquisition followed
two blockbuster deals. In early 2020,
Morgan Stanley(MS) announced the
acquisition of E*Trade for $13 billion,
demonstrating how well-heeled insti-
tutional firms have their sights on the
retail trade. A few months earlier,
Schwab and TD Ameritrade Holding
announced a $26 billion merger, con-
structing a mammoth operation that
rivals Fidelity in the number of clients.
The deal for TD Ameritrade closed
on Oct. 6, but Schwab says it will take
another 18 to 36 months for integra-
tion to be complete. Schwab isn’t say-
ing a lot more about what a future
combined platform will look like,
although Jeff Chiappetta, Schwab’s
vice president of trading and educa-
tion, notes that the merged company
would definitely embrace TD Ameri-
trade’s groundbreaking active-trad-
ing platform, thinkorswim, as well
as what he calls “the whole thinkor-
swim ecosystem.”
Last year, Schwab also acquired
the fintech Motif for an undisclosed
amount. Motif specializes in technol-
ogy that crafts customized thematic
portfolios, underscoring two more
developments in the industry—
thematic investing and direct indexing.
For instance, E*Trade offers
themes that range from the tradi-
tional, such as undervalued large-
caps or emerging markets, to ones
that might resonate more with youn-
ger investors, including cybersecurity
and videogaming.
These are beginning to migrate
from themed exchange-traded funds
“You’ve seen over the past year that
retail has had a meaningful impact
on market movements.”
Christopher Larkin, managing director, E*Trade
Consolidate,
Integrate
In late 2019,
Schwab agreed
to a merger with
TD Ameritrade,
joining two
online brokerage
powers in the
sector’s biggest
deal yet.
$26
Billion
In 2021,
Schwab’s two
platforms con-
tinue to operate
separately, and
may stay that
way for another
year.