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ShareBuilder Review

ShareBuilder is an on-line brokerage firm owned by banking powerhouse ING (NYSE:ING). It is one of the few firms that offer automatic investment plans.

Through its platform the company offers trading in several investment products like stocks, options, futures, futures symbols, no-load mutual funds, and exchange traded funds (ETFs). A distinguishing feature of the company is that it offers a number of automatic investment plans. The commission structure and other requirements are as follows:

  • The company has a basic automatic investment plan for which it charges $4 for each investment.
  • The company also has a standard automatic investment plan for which it charges $12 a month. The investor gets 6 automatic investments and subsequent investments cost $2 per investment.
  • In addition the company has an advantage automatic investment plan for which it charges $20 a month. The investor gets 20 automatic investments and subsequent investments cost $1 per investment.
  • Stocks and ETFs can be traded for $9.95 per trade; this reduces to $7.95 per trade under an advantage plan. Telephone orders cost $19.95. Short selling stocks is not possible.
  • There are two plans for options trading. Under the basic plan options can be traded for $9.95 plus $1.25 per contract. Under the advanced plan options can be traded for $7.95 plus $0.75 per contract. An assignment fee of $30 per exercise is charged for early exercise of options and a fee of $20 is charged for each automatic exercise.
  • Mutual funds that have no entry and exit loads can be purchased and sold for $19.95 per order. The company offers 170 no load funds and 70 free funds that include funds from ING.
  • There is no minimum required for opening an account.

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Key features:

  • Account opening is relatively easy.
  • No minimum initial deposit is required.
  • Funding of the account can be easily done electronically.
  • Automatic investments offered in several stocks.

Advantages:

  • Wide range of automatic investment plans with very low investment costs.
  • Free reinvestment of dividends and capital gains.
  • Investors can accumulate shares over time and even fractional shares can be purchased.
  • No inactivity or maintenance fees.
  • There is no minimum balance required for opening cash accounts and a minimum balance of $2000 is required for margin accounts.

Drawbacks:

  • The commission rate of $9.95 charged for stock and ETF trades is quite expensive.
  • An additional surcharge of $0.07 per share is levied while trading stocks priced under $1 per share.
  • Difficult to know the exact prices at which automatic investments could be purchased before hand.
  • The trading tools offered are very basic and often inadequate while making trading decisions.
  • A number of customer complaints have been reported particularly in areas of trade execution.
  • The choice of mutual funds offered is very limited.

Peer Comparison:

When compared to the leading player in the industry Charles Schwab (NYSE:SCHW) Stockbrokers.com rates ShareBuilder on par only on the commissions incurred by the end user. ShareBuilder ranks below Charles Schwab in several key areas such as the range of investments offerings, the available research tools, customer service, the ease of use, education of its users and mobile trading facilities.

            When compared to E Trade Financial Corporation (NASDAQ:ETFC) ShareBuilder fell behind in all the above areas rating at level only in terms of the commission it charges its end users.

            When compared to rival SpeedTrader ShareBuilder ranks less favorably on the commissions charged, the customer service provided and on the range of investment offerings provided.  ShareBuilder however does better on its mobile trading platform. Both companies rate equally in other areas such as the available research and education tools and the ease of use.

            ShareBuilder ranks below its rival Scottrade when rated on the basis of its investment offerings, ease of use, customer service provided, commissions charged and its investment research capability. It matches Scottrade only on the mobile trading platform provided to its clients.

Summary:

ShareBuilder is an on-line brokerage firm that primarily distinguishes itself from its rivals on the wide range of automatic investment plans it offers its investors. Investors can thus take advantage of dollar cost averaging and accumulate shares over time on a daily, weekly or monthly basis. It also offers a unique feature to its users wherein they can buy fractional shares. Investors can take advantage of this and accumulate positions in highly priced shares which they otherwise can’t afford to purchase.

ShareBuilder has no minimum balance requirements and accounts can be opened with a $0 balance. The company also doesn’t charge inactivity and maintenance fees that several other brokers levy. The company also does not charge IRA set up and annual IRA fees.

The biggest disadvantage of ShareBuilder is that the commission charged for stock and ETF trades is very high.  Additionally the trading and research tools offered are sub par at best. Clients of the firm have raised several complaints on its executions. ShareBuilder does not currently offer its users trading in futures, bonds, or forex. It also does not allow traders to short stocks. Thus its offerings are largely inadequate for real time trading.

The Smart Money magazine 2011 stock broker survey rated ShareBuilder as the worst in customer service in. It takes several days for the company to answer client email queries. It also rated at the very last position in the research and mutual funds & investment products categories. The company thus has a lot to do before it can be successful in a highly competitive industry with predatory pricing.

To compete effectively with its rivals customer service provided by ShareBuilder must be significantly improved, the commissions charged must be competitive and an enhanced platform of research must be made available to its clients. While it’s automatic investment plans are unique and can be used by the average investor to accumulate shares it falls behind in several other areas like trading and research. There are other top brokerage firms like Charles Schwab and ETrade that offer competitive commissions, wider investment options, and are free from the problems that ShareBuilder users experience.

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