Bogleheads

[LiveSoftMike]

Has anyone heard of this discount broker? They charge 0 commission for up to 40 trades a month. Is this the answer to using lower cost ETFs to build and rebalance a portfolio?

Some may be concerned about bid/asked spreads and trade execution but if you use limit orders on highly liquid ETFs does it matter?

How can these guys make money??? They do charge for other things I'm not interested in like options trading and no load mutual fund purchases etc. but can't believe that is the model for making any money....of course in the world of electronic trading the cost to trading is plummeting rapidly.....

[oneleaf]

With new businesses like this, there is always a risk of them starting commissions, or even flat-out going out of business.

There is a fee to transfer assets out (i think $50). So look at it like a risk of losing $50 and a little inconvenience, in the case you have to move assets out of Zecco. To me, that sounds reasonable to me, so it does seem like a very attractive option. Zecco is definitely worth consideration, imho.

Also, keep in mind there is a $30 annual fee for IRA's.

[livesoft]

How much interest does their cash sweep account pay?
Will they reinvest dividends for you?
Do you even want dividends reinvested or do you want to use dividends to help rebalance?
How quick to do ACH transfers?

Why bother with zecco when WellsFargo comes out shining on the above questions and also gives free trades and a free checking account to boot?

[CyberBob]

[oneleaf]

[Bylo Selhi]

See Is Zecco.com Any Match for Wells Fargo and Bank of America?

[indexfundfan]

Personally, I picked Wells Fargo. My money will be distributed among Fidelity (currently just for AMT-free MMF, might be abandoned in future), Wells Fargo (for ETFs) and Vanguard (everything else). I shared some of my experiences using Wells Fargo in my BLOG in case anyone is interested to read.
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My signature has been deleted.

[paulob]

I recently opened an account w/Wells Fargo. The account transfer is in process so its too soon for feedback.

WFI won out over BOA because:
1) BOA requires the qualifying balance to be in CD's, etc. WFI allows the brokerage assets to qualify.
2) WFI includes mutual funds in free trades, BOA only has stocks (and ETF's).

WFI over Zecco because:
1) I currently only have ETF needs in my IRA. Zecco charges $30 a year annual IRA fee.
2) Even if I had funds in a taxable account, I would still probably use Wells since I don't forsee needing more than 100 trades a year (unless I win the lottery!).
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Paul

[Bylo Selhi]

Here's a new broker review from Barron's, Tools of the Trade.

[yobria]

It's the bid/ask spread that kills you, not the commission.

If I trade $50K of an ETF with a .5% bid/ask at ETrade, my commission was $5, the spread loss $250.

Nick

[LiveSoftMike]

Why bother with zecco when WellsFargo comes out shining on the above questions and also gives free trades and a free checking account to boot?

WellsFargo seems the better way to go but their 25k min and tieing to checking I don't understand. I'm not interested in checking and what is the 25k min? Do my etfs count or only if I leave cash in the brokerage account? Typically I sweep out any cash in my brokerage account to my NetBank account. I also wonder whether I can move my TD Ameritrade assets to Wells without having to sell....I know when I was looking at Firstrade they said they would do that but I haven't heard back on the same question to zecco (maybe an indication of their service?). I like the fact that Wells has some free no load funds to buy....if I can't find an etf style I want (what is the chance of that?) or if I suddenly think active managment is better (not likely)

[LiveSoftMike]

It's the bid/ask spread that kills you, not the commission.

If I trade $50K of an ETF with a .5% bid/ask at ETrade, my commission was $5, the spread loss $250.

Nick

Hey Nick---did you use limit order?

[livesoft]

In my experience, the bid/ask spread on ETFs with high volume is usually about 1 cent and nowhere near 0.5%. But a limit order would save you from that. I can say that WellsFargo has beaten my limit purchase price about 50% of the time. I used level II quotes to watch bid/ask spread.

And WF has an outstanding checking account, so it would be worth the switch from Netbank. Plus you get brick and mortar for free. In fact, walking into the bank is faster than an ACH transfer. For example, I write a check on Vanguard Prime MM to myself. I walk into the bank and deposit the check. In my case the funds are immediately available with no hold. (Note: we had online-only banking with TDWaterhouse Bank for years and years, until Ameritrade bought TDW and ended the relationship between the bank and brokerage, so we don't need brick and mortar.)

The brokerage cash sweep at WF is WFLXX which pays quite a decent rate of 4.61% this week. Not a VMMXX, but decent.

I have transferred a mutual fund from American Century to WF painlessly, quickly and "in kind" without selling it. I also have a TDAmeritrade brokerage account. I have not transferred assets, but one should also be able to transfer "in kind". TDAmeritrade charges $50 for some of those transfers if you are not at the "Platinum/Premier" level.

As for what counts towards the $25K, it's checking, a fraction of our mortgage, and brokerage assets, so your ETFs would count. This is unlike Scank of America.

[indexfundfan]

[livesoft]

[indexfundfan]

[CyberBob]

[indexfundfan]

[CyberBob]

[Nitsuj]

[yobria]

LiveSoftMike - Yes, I use limit orders, which will keep you from getting overcharged but are by no means a free lunch...if you set higher than the ask (or lower than the bid), you may get a deal, but the price may move away from you, and you have to reset the limit (market order would have been better if liquid).

the bid/ask spread on ETFs with high volume is usually about 1 cent and nowhere near 0.5%.

None of the ETFs I buy have a bid/ask this tight. Another poster reports that VEU, which is highly liquid, had a bid/ask of 0.16% (8.2 cents). If you buy less liquid ones like RZV, it's more in the .5% range.

indexfundfan-

Actually, I think his example is a bit over exaggerated. I don't think an investor who DCA buys in chunks of $50k.

You're right...you normally wouldn't be buying large amounts like in my example. Most of my ETF purchases so far have been large as I moved my whole port to ETFs from traditional funds, or moved into better ETFs as they came out.

Nick

[LiveSoftMike]

I still can't figure out how to use the quotes....

Nick---but how would you compare using limit orders to an Open end mutual fund where when you sell you can't even tell what price you will get?? It also interesting that my understanding of NAV is it is calculated on "stale" data---ie does not reflect trades made that day....only an issue really for actively managed funds but a consideration none the less.

Bid/ask spreads vs calc of NAV and fact it is unknown what you get make ETFs still much better vs open end mutual funds especially with 0 commissions and lower ERs.....IMHO

[yobria]

[LiveSoftMike]

But I thought I read---back when some OEFs were caught giving special deals to institutional clients (not that Vanguard would)---that all OEFs use current price weighted by yesterdays share counts? Not sure why but thought I saw that which did surprise me....not that it is a big deal.

In any event when I go to rebalance either a set of ETFs or a set of OEFs I guess my point is I am not trying to precisely pinpoint a price I am buying and selling...I can't even do that on an OEF. But hypothetically say I am overweight equities so I decide to sell. ETFs I can put in a limit order to get about what I can see the market is trading at. With OEF if I put in a sell and the markets plunge I lose but with the ETF I wouldn't hit the limit order so I hold...isn't that better? In the reverse situation when I'm buying if I am too greedy on the limit order I could miss a market move up I guess but in the OEF I would buy just when the market went up! Just thinking through the mechanics and I keep getting to point that bid/ask spreads don't matter for index investor using ETFs...it matters to a day trader or someone buying smaller cap stocks.....not broad based ETFs....make sense?

[yobria]

Mike,

[Xephen]

So, why not use Zecco for routine purchases of ETF's (you save on commission as well as fund expenses) and use Wells Fargo for mutual fund holdings (the 100 free trades applies to mutual funds) if you are interested in holding funds from more than one family? Does it have to be all one or the other?

[paulob]

[Xephen]

Because it is conceivable to me that among
1) frequent purchases of multiple ETF's with new money,
2) rebalancing transactions, and
3) reinvesting dividends

I might exceed 100 transactions in a year.

On the intangible side, I want to support what Zecco is trying to do. Much like I want to support what Vanguard does. And I am generally biased against the "establishment" that has been over-charging people for years and only came to the table because of competition. The only reason that BoA and WF are offering these deals is because of places like Zecco. In a similar vein, I still use a checking account at Washington Mutual because, while nearly every other bank (including WF) spent most of the 90's and early 00's thinking of every possible way to jack up fees only to abandon that avenue in the last 5 years to tout their "free" checking, WaMu never charged me a cent to keep the account except for the interest I let them keep on very meagre balances.

[DaveTH]

Choosing a broker based upon one dimension (commission) does not seem like a prudent way to invest. I currently pay a reasonable commission per trade of $10. I know that it is not the same as $0, but here are some additional things I get:

1) Excellent customer service
2) Top-notch cost-basis tracking and tax reporting information
3) No transfer out fees
4) No maintenance or low balance fees
5) No fee for purchasing Treasury's at auction
6) Very good yields on cash balances (plus option for Tax-exempt MM)
7) Same day ACH funds transfers
8) Free dividend re-investment

These are just some of the things that are important to me in addition to a low commission.

Dave

[Xephen]

DaveTH, who is this excellent broker (and do you work for them or have any other affiliation with them )?

The discussion here is can you/should you use a "free" commission broker to make regular investments in ETF's a cost-viable alternative to DCA in a higher-fee mutual fund arrangement.

There is also a relativity issue at play here. When other brokers were charging 3 figures for a trade, Charles Schwab said he'd do it for $50. When you could do it for $10, Charles Schwab was no longer reasonable at $25+. Now that you can do it for zero ... is $10 still "reasonable"?

[paulob]

[Xephen]

paulob,

Sorry for the confusion. I was referring to "manually" reinvesting dividends. Using a DRIP-type program is not something I prefer because of the complexities it introduces in taxes and asset allocations. If I can trade for free, then I prefer to reinvest my dividends myself using my own asset allocation scheme. But if I am paying $10 per trade, I can see why "free" dividend reinvestment would be important.

Notice I said "companies like Zecco." I know they didn't invent this. What are the market dynamics you see that will force Zecco to modify its business?

[indexfundfan]

[indexfundfan]

[Blackhawkzone]

it isnt free, but TradeKing is a wonderful broker to use and its commissions are only 4.95 per trade.

My concern with both zecco and wells fargo is what happens when they start to charge commissions. Will most of their clients leave and both services get shutdown?

[Kenster1]

Lately I've been hearing good things about Tradeking and Thinkorswim.

[indexfundfan]

[paulob]

[jar2574]

If I chose to buy only Vanguard mutual funds or ETFs, and I bought them directly from Vanguard, then would I have to worry about brokerage fees at all?

I thought the only advantage that Zecco or WF could offer would be that I would be free to choose between Fido and Vanguard or any other investment company. But buying directly from Fido and Vanguard and ignoring WF and Zecco doesn't seem to have any downside.

[Blackhawkzone]

[indexfundfan]

[DaveTH]

[Xephen]

DaveTH,

I agree with you that all these services matter. But the $10 per trade question is important on this specific topic because there is a bigger issue. If I am trying to use ETF's to DCA then $10 per trade is still prohibitively expensive. I have an account that provides similar services to what you are describing with similar costs (E*Trade). But I can't really use it for ongoing monthly investments except occasional lump sums because the front end cost of commission is just too high. The question is really "Can I use ETF's as a monthly investment now?"

[a]

[Xephen]

a,

I don't think this will make much difference to you at least not on the mortgage side. For my mortgage, whether the check gets to them on the 25th of the previous month or the 14th at the last possible second, it is still going to go against p&i due for that period. The interest amount I "owe" doesn't change for that month because they are first going to apply the money to the next payment due and only then, if there is extra, will they apply excess against the outstanding loan balance. You may be losing a little on the bank side, but it is probably not much after you deduct the cost of a stamp and envelope.

[Nitsuj]

[jar2574]

[Xephen]

They do not charge brokerage fees to buy mutual funds. But you will have to set up a brokerage account and pay brokerage fees to buy ETF's. You cannot buy them directly from the issuer -- only via a stock exchange.

[bchambers]

I haven't tried Zecco, but I imagine you'd be pretty safe to stick with using it to only buy one or two stocks. That way, even if they tried to spring a sizable trading fee on sells, you're only looking at one or two hits.

I don't think I would go crazy with too much money or too many stocks, just to be safe. Kudos to them if they can turn a profit and keep it free - the internet can always use new Google Jr's to shake up the big boys.

[arabidopsis]

I chose Zecco because I would be able to have a diverse portfolio consisting primarily of ETFs. Since I do not qualify for free trades at other brokers that require larger balances, zecco seemed perfect for me. I know there is a chance that they might charge for trading later on, but for now they seem to be great. The only problem (kind of a big one) I have had with them is that they lost my check. Two weeks ago I mailed them a check (in a trackable package), which was received by them on April 16, yet I don't have any access to my funds still. I have called them and they don't know where the check went. I called and emailed them and am waiting to hear back. Although I will stick with Zecco, I am currently quite unhappy with them. I will keep everyone updated on how things go.