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Which brokerage or financial institution should I use and why?

TL;DR

Use whoever you want, but know who you're using.

I'm not a fan of Robinhood, Webbull, and other such relatively new online discount brokerages. These guys did a great job disrupting the brokerage market with their $0.00 commissions, but in October 2019 just about all of the brokerages cut their fees to $0, so the big benefit of using these "cheap" platforms is no longer there. They also do not offer retirement accounts (yet), so all of your investing/trading is being done in a taxable account. Then you have this story: 20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative Balance. Its an example of the predatory nature of some of these firms.

Fidelity and TD Ameritrade are the brokerages I use most. I steer people to Fidelity for long term investing because they make it more difficult for people to lose money using advanced financial instruments such as stock options and futures trading. Both brokerages are more focused on educating their client base and giving them great tools to use. They both offer standard brokerage accounts (taxable), as well as any type of tax advantaged retirement account (Roth IRA, Traditional IRA, Custodial IRA, 529 Education accounts, Health Savings Accounts, etc).


What is a brokerage?

A brokerage is simply a middleman that connects buyers and sellers to facilitate a transaction. They typically receive compensation by means of commissions or fees that are charged per transaction. Some provide adviser and support services, as well as education services, while others provide robo-advisor services, as well as do-it-yourself services. All of these groups are highly regulated by the SEC.

For a deeper dive, check out this article at Investopedia.

Why I don't like Robinhood

The Robinhood platform was first launched in 2015 and was focused on proving everyone with access to the financial markets, not just the wealthy." I absolutely applaud this effort. According to the Wikipedia article, the founder Tenev noted that 'executing a trade cost brokerages "fractions of a penny" but they typically charged fees of $5 to $10 per trade, as well as required account minimums of $500 to $5,000'. Over the past five years they did a fantastic job of disrupting the discount brokerage marketplace, so much so that in October of 2019 the large majority of brokerages also eliminated their commissions on stock trades. Also listed in the Wikipedia article are a list of five controversies, including the recent suicide of one of their customers.

The Robinhood app and website provide investors with what I would call a very minimal amount of information regarding the securities their customers are interested in. Beyond basic robo-news-aggregation and some notification features, there isn't much more there. The only support you get from Robinhood is via email. There isn't a customer service number! There is a help section that has some very basic information on investing, but there is no concerted effort to educate customers. They only do the bare minimum to comply with the SEC disclosure policies, which recently resulted in the suicide of one of their customers. I will be the first to acknowledge that we all bear a greater our own personal responsibility for such things, but there must be some blame placed at the feet of the a group that so easily places advanced financial instruments in the hands of children after simply having them check a few boxes on a web form.

Now that most brokerages offer zero commission trades, there is nothing else that makes Robinhood stand out. Most of the brokerages have much more solid systems, as well as robust education efforts.

My preferred brokerages

Fidelity and TD Ameritrade are the brokerages I use the most. I steer people to Fidelity for long term investing because they make it more difficult for people to lose money using advanced financial instruments such as stock options and futures trading. Both brokerages are more focused on educating their client base and giving them great tools to use. They both offer standard brokerage accounts (taxable), as well as any type of tax advantaged retirement account (Roth IRA, Traditional IRA, Custodial IRA, 529 Education accounts, Health Savings Accounts, etc).

TD Ameritrade's ThinkOrSwim (TOS) platform is AMAZING!!! It is more of a trading platform, but can still be used by long term investors to do fundamental and technical analysis and make more educated decisions. It can be daunting to wrap your head around everything the application has to offer at first, but there are plenty of educational videos and webinars on their website, not to mention a wealth of videos on YouTube about the platform.

Fidelity's Active Trader Pro platform is very powerful as well, but not nearly as agile as TOS.

Just like a mechanic, use who you know and trust

 


This site contains accounts of my experiences and opinions, and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

I wrote this myself, and it expresses my own opinions. I am not receiving compensation for it. I am not an investment adviser. I may sell any of the stocks or funds named here without notice at any time.