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INVESTING
Who's the Best Online Broker?
by Steven Goldberg

Carla Pehowski, a Manhattan tax lawyer, is a busy person. But she's also a serious investor. When does she find time to research stocks and send in her orders? "I tend to do it around midnight," she says. Fortunately, online brokerages are made for people who, like Pehowski, want to make their own investment decisions -- on their own schedules.

But which brokerage? How are busy, do-it-yourself investors like you supposed to find the best online brokerage for your needs? We spent months poking and probing the brokerages so that you don't have to. We came up with two winners: Earning top honors as the best Internet broker for average customers is relatively little-known Muriel Siebert & Co. Among the criteria that helped Siebert finish in first place were the firm's first-class service and its high scores for ethical standards. Fidelity Brokerage takes the top spot as best firm for those with a substantial amount of money to invest. Fidelity excels in the research it provides clients, and its Web site is the best of the bunch.

The survey included nine of the biggest players. Siebert, tiny in comparison with the other firms, was included because it has consistently ranked at or near the top in previous Kiplinger's surveys. Also in the competition was USAA Brokerage because its parent, USAA, provides financial services to more than five million members with connections to the U.S. armed forces.

The rankings address a broad array of issues. They incorporate what brokers charge -- not just for commissions, but also for postage and handling and other pesky fees. They consider the speed with which brokers answer phones and the expertise of their reps. Among other things, the ratings evaluate each firm's research offerings, its mutual fund program and its misconduct record.

When it comes to choosing an online broker, one size doesn't always fit all. So the rankings judge each broker on how well it handles clients with $50,000 in assets, as well as clients with $500,000. Pehowski's broker, Siebert, handily won the prize in the $50,000 category. Scottrade, a fast-growing company that offers good service while keeping fees low, finished second for modest investors.

The $500,000 contest was much closer. Here, Fidelity, the brokerage unit of the mutual fund giant, edged Siebert and Harrisdirect, which came in third. Harris ranked highly because of its consistency: It ranked above average in almost every category.

Two sets of rankings are necessary because brokers offer different levels of service to big and small clients -- different toll-free numbers, different teams of brokers, different kinds of stock research and different commissions. For instance, if you have $50,000 invested, Fidelity charges $32.95 for a market order and $37.95 for a limit order. If you invest $1 million, all online trades are just $8.

Well-heeled investors qualify for plenty of free advice and other perks. For instance, E*Trade customers who invest $250,000 or more get a one-on-one relationship with a broker who provides advice. TD Waterhouse brokers offer big clients advice on stocks to sell and on funds to buy and sell. Harris offers a similar service.

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