With more than 100 discount brokers to choose from, picking the one that's best for your objectives may seem like quite a challenge. Commission charges can vary greatly from firm to firm, and all offer a variety of services and products, the most useful being the no-transaction fee (NTF), no-load mutual fund portfolio management systems.
Mutual fund portfolio management systems are the most important mutual fund innovation of the 1990s. They enable investors to merge all their mutual fund activity into one centralized location. Instead of establishing accounts with fund families all over the country, you can consolidate everything into one, neat package through a discount broker.REDUCE YOUR PAPERWORK. Typically, a fund investor may have accounts with, for example, Fidelity, 20th Century, Benham, T. Rowe Price and Janus. This typical investor would receive five different statements from five different funds. A mutual fund portfolio management system would combine all your fund holdings into one simple account. If nothing else, your mailman will thank you.
Of course, discount brokers who offer a portfolio management system need to be compensated for their service. They are paid in either one of two ways. You may pay a small transaction fee to buy and sell or, with NTF funds, the fund company itself pays the discount broker for placing the money. Either way, the discount broker gets paid, but with NTF funds, it is the fund family that pays the freight, not you.
LOTS OF CHOICES. Currently, only 13 discount brokers offer a mutual fund marketplace with transaction fees, and only eight have no-transaction fee fund services. The NTF fund services allow you to buy and switch funds without paying transaction fees. Free is always a good deal!
Of these eight, three stand out as major players to me: Charles Schwab, Fidelity and Jack White. Although Schwab and Fidelity are household names, I've always said that Jack White was an up and coming force among discount brokers, and now, according to a SmartMoney study, Jack White has been ranked at the top, No. 1 out of the 16 largest discount brokers.
LARGEST MENU. Jack White offers the highest number of NTF no-load mutual funds, more than 430 in all, followed by Fidelity (327), and Charles Schwab (254). Some of the well regarded funds offered by Jack White include Berger, Evergreen, Strong, Benham, Dreyfus and many others.
Be aware that the NTF menu varies from firm to firm. White does have the largest number of NTF funds but is missing some of the big names like Janus, INVESCO and Founders which are included in the Fidelity and Schwab NTF programs. If Jack White can sign up some of the fund companies currently in the Schwab and Fidelity programs, he will have by far the most powerful mutual fund portfolio management system in the industry.
THEY GOT IT ALL. In addition to offering the most free no-load funds, Jack White also offers the most alternative products, including commodities, futures (do you like to lose money?), precious metals trading, and it allows short selling on mutual funds. Smart investors prefer, as I recommend, mutual funds as the best way to build wealth, and of course, you should stick to no-load mutual funds. (For a free list of my no-load mutual fund recommendations, call 800-233-3411). However, these services can be attractive to those of you who dare to venture outside of mutual funds.
Schwab, Fidelity and White all have restrictions on trading frequency. You are allowed four short-term (defined as a buy and sell within a six month period) transactions during any 12-month period before triggering penalties. Fidelity has different restrictions regarding Fidelity funds which vary from fund to fund.
YOU'VE BEEN BAD. If you violate these restrictions you're subject to penalties that range from transaction fees being levied to being banned outright from the NTF program. Jack White and Schwab' s penalties are that you are charged commissions on all future mutual fund trades. Fidelity, however, may permanently ban you from their mutual fund portfolio management system if you trade Fidelity funds too frequently.
Other categories that SmartMoney used to rank the brokers were automated transactions availability, level of services, accounts per broker, broker expertise, account statements, response time to phone calls, and staying out of trouble with, for instance, the SEC. Jack White was ranked in the top 10 in all categories and number one in number of products, number of funds, ratio of accounts per broker (one rep per 467 accounts), and account statements.