Sunday, March 30, 2008

Personal Finance Simplification - Brokerage Account Consolidation

During March, 2008, I am working towards consolidating our bank, credit card and brokerage accounts. On the last two Sundays, I shared our progress on reducing bank accounts and credit card accounts. This past week I have been working primarily on reducing our brokerage accounts. Our goal is to get to and maintain two brokerage, one for our managed accounts and one for personal accounts. Historically, we have used two discount brokers, TD Waterhouse and Charles Schwab most recently. Three years ago, we added a full service brokerage account due to our choice for a financial advisor.

Here is a summary of the remaining accounts, my analysis, and the decision:

  • Brokerage of my financial advisor - I have not specified the firm since I am loyal to the advisor and the team has changed firms in the past two years. I chose this advisor team because of their investment strategy and they discount their managed account fees. I am charged 1.25% of assets, which is comparable to many managed mutual fund accounts, but much higher than low cost index funds. However, the team provides a number of additional services, including retirement income planning, retirement account advice (e.g. Roth IRA conversions) and asset allocation. In addition, I have a personal account in which they only charge me transaction fee of $5 for a trade.

  • Charles Schwab - This brokerage is the grandfather of discount brokerages. I first opened an account with them because they were among the lowest fees ($29.99 per trade), had excellent customer service, and were innovative (e.g. no transaction fee mutual funds). Recently, I have found Schwab less competitive, particularly in the areas of low cost fees and innovation. Schwab seems to be the most expensive of the discount brokers at $12.99 per trade and their services for investor research are not as broad. I still consider their customer service to be best in class.

  • TD Ameritrade - In 2006, TD Ameritrade completed the acquisition of TD Waterhouse and became TD Ameritrade. Until the merger, I would have rated TD Waterhouse lower in cost at $9.99 per trade, good in research tools and very good, but not excellent, customer service. In 2007, I noticed that TD Ameritrade has been significantly upgrading the research capabilities for investors. Most recently, TD Ameritrade added a platform called Strategy Desk, which allows me to do due complex stock screens and technical analysis. Also, they provide excellent telephone support for using this tool.

  • I will continue to stay with our financial advisor team for the managed accounts. I consider the fees to be reasonable, the advice to be very good, and the service to be excellent. In addition, the team works with a number of retirees from my company and has a good understanding of the company and its stock.

    I have decided to keep TD Ameritrade as our discount online brokerage. Although I rate Charles Schwab's customer service higher, I chose TD Ameritrade for the lower commission cost ($9.99 vs. $12.99) and the wider range of research tools, especially Strategy Desk. Based on recent experience, I believe that TD Ameritrade will also be increasing the number of free educational seminars for investors. For reference, I have not tried or evaluated other discount online brokers, including the ones that offer free trades. While I know I can get even lower commissions, I prefer having a good balance of trading costs and service, which I feel TD Ameritrade provides.

    In April, I will begin the transfer funds from Charles Schwab to TD Ameritrade and finalize the transition over the next few months.

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

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