Several years ago I opened a brokerage account with ShareBuilder because they offered a $50 cash bonus for opening a new account and placing a trade (the bonus is still available for those who are interested).
Since I was more or less playing with house money, I decided to roll the dice and I bought a few shares of a company in a speculative market. I figured there was room for growth and the potential upside far outweighed the risk. After all, it was $50 of free money!
Unfortunately, the stock crashed and burned and I was left holding a dozen shares of stock which were barely worth more than the cost of trading them. And that brings up one of the problems with ShareBuilder… their real time trade fees.
Why I am Moving Away from ShareBuilder
ShareBuilder really only does one thing well – they offer a place for the systematic growth of wealth and building shares (get it, ShareBuilder?). Right. Their business model is built on inexpensive scheduled trades, which ring in at $4 a trade (or even as low as $2 if you join one of their monthly premium plans which costs a monthly fee).
To take advantage of the low cost stock purchases, you must set up automatic trades to execute on a regular basis – weekly, monthly, semi-annually, whatever. This makes ShareBuilder an affordable company to use for dollar cost averaging.
When they came on the scene, they more or less offered investors one of the least expensive ways to trade stocks outside of buying DRIPs directly from a company (no commissions) and reinvesting your dividends (again, no commissions). ShareBuilder also offered the ability to buy partial shares, which made the systematic investment of a set sum of money each month an easy way to invest.
An Outdated Business Model
But ShareBuilder stuck with their business model and failed to innovate. In my opinion, they are not the best company for making real time trades, which ring in at $9.95 each (it was as high as $14.95 as recently as a year ago). That’s simply too expensive for most people when there are a dozen other highly rated options that offer cheaper stock trades.
Offering inexpensive prices for scheduled trades reduces Sharebuilder’s costs, which they can then pass on to their customers. And the higher real time transaction fees encourage people to “build” their number of shares by holding them long term and reducing their turnover. In other words, ShareBuilder is a great place to buy shares, but not to sell shares.
This business model set them apart when they launched, and it stays true o their name. But it is now outdated, particularly their fee schedule for real time trades. The base price for scheduled trades with ShareBuilder is $4, which is more than real time trades with some other discount brokerage firms. Even some of the top rated discount brokerage firms charge in the $4-$5 range for real time trades (see TradeKing if you are looking for an excellent alternative in this price range). To put it another way, you get all the benefits ShareBuilder offers on the buy side (inexpensive stock purchases, ability to buy partial shares, reinvest dividends, etc.), and you can sell your shares at the same price you buy them.
No Inactivity Fees – Why Close Your Account?
The good news is ShareBuilder doesn’t charge any inactivity fees or other associated account fees, so leaving my account open wouldn’t hurt anything, but then again, it wouldn’t help me either. I still believe ShareBuilder is a good option for some investors, but I decided I wanted to be able to better control my costs for real time trades (I’m not a heavy trader, but I also don’t believe you need to buy and hold forever). So I decided to close my account in the interest of simplicity. Fewer accounts makes managing money easier and right now I value simplicity above having another dormant account.
Other brokerage options
I still think ShareBuilder has its place, but there are many other online discount brokerages out there right now offering better alternatives. For example, I currently have active brokerage accounts with Zecco, TradeKing, and Scottrade. Of these, my favorites are TradeKing and Scottrade (I opened the Zecco account before they ended their free trades; I still have holdings there, but I no longer make new trades). I also have mutual funds and other investments with Vanguard and USAA, which are both great places to invest. (Update: Zecco has since merged with TradeKing; thoseinvestments were automatically transferred to my TradeKing account).
There are dozens of great brokerage firms out there, so be sure to examine your needs and evaluate online brokers before signing up for one, and if your investment needs change, don’t be afraid to change to another brokerage. Many of them offer reimbursements for transferring your assets. You will do better in the long run to keep most of your investments in one or two locations instead of having them spread out like I do!
Do you have a favorite brokerage firm?
Photo credit: slimmer_jimmer