Brokerage start-ups such as Robinhood, M1 Finance, and SoFi are tiny compared with the trillions of dollars in brokerage assets at the likes of Schwab and Fidelity. But they’ve already made a big dent in the way things work.
These newcomers pioneered commission-free stock trading and fractional-share purchases, and now those services are standard fare at the big online brokers.
The smaller firms don’t qualify for Kiplinger’s annual online broker review because they don’t offer mutual fund or bond trading. But we put five firms—Betterment, M1 Finance, moomoo, Robinhood, and SoFi—through the paces of a trimmer survey this year.
The overall winner is Robinhood. It dominated two key categories, mobile and investment choices. SoFi also scored well, posting above-average scores in all but one category, tools and research. M1 Finance finished third with high marks in tools and research, user experience, and investment choices. But Betterment finished last: It doesn’t offer stock trading, which proved a drag in two categories, fees and investment choices. For highlights, read on.
Fees. Low fees (or even no fees) are the norm at these firms, so this category boiled down to interest rates on margin accounts and how well the brokers performed on getting you the best price for your trade, among a few other things.
Interest rates on margin accounts, which allow investors to purchase securities using borrowed money, varied widely. SoFi’s flat 3.0 percent rate, no matter the balance, was the lowest. Robinhood’s 3.5 percent fee for greater than $1,000 of margin was competitive. M1 Finance charges 5 percent for its fee-free customers with balances of less than $100,000, but the majority of its clients are so-called Plus members, who pay an extra $125 per year and are charged a 3.5 percent rate to trade on margin. And moomoo charges 6.8 percent.
Investment choices. Robinhood and SoFi topped the ranks in this category because both offer stock and ETF trading—including the ability to buy fractional shares—plus access to initial public offerings and multiple cryptocurrencies. M1 Finance doesn’t offer crypto trading. Moomoo clients can’t buy or sell fractional shares of stocks or ETFs, but they get access to IPOs and the Hong Kong exchange. Betterment lagged in this category because it doesn’t offer stock trading.
Tools and research. Fundamental research on companies, including reports on how certain firms rank on sustainability or environmental, social and corporate governance issues, is hard to find at the smaller firms. But most of the firms have some educational articles. Moomoo, Robinhood and SoFi offer extended-hours trading. Betterment scored well because it offers a number of investing tools, geared toward asset allocation, retirement and calculating tax impacts, while M1 Finance scored well mostly on research for its list of recommended and thematic stock ideas.
Advisory services. Only two firms, Betterment and SoFi, offer advisory services. It was an even contest between the two, mostly. But Betterment held a small edge because it offers tax-loss harvesting in its taxable accounts. SoFi doesn’t.
(Nellie S. Huang is senior associate editor at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.)
