Weekly business newspaper Barron’s just released their 2014 annual broker survey rankings. Here’s a snippet about their criteria (emphasis mine):

Our evaluation criteria focus on the needs of wealthy, active traders. We looked at eight categories of service, examining what can be traded online, how the tools work together across platforms, the design and capabilities of mobile platforms, educational offerings and customer service, as well as the nuts and bolts of placing and executing a trade. We closely scrutinized the various tools available for finding appropriate trades, including scanners and charts. When examining costs, we considered stock and options commissions as well as platform or maintenance fees, margin debt, and charges for transferring an account out.

Their overall winner was again Interactive Brokers, a broker designed for highly-active traders with an extensive feature set, low commissions, and low margin rates. However, IB also has a minimum opening balance of $10,000, a minimum monthly fee of $10 even if you don’t trade at all, and customer service that does not cater to casual investors. They recently starting waiving the $10 minimum monthly fee if your account value is at least $100,000.

I am not an active trader, but I still like having real-time quotes, a clean user interface, and helpful customer service when I need it. Thankfully, Barron’s again ranked the brokers for the rest of us:

Top 5 Brokers for Novice Investors

1. TD Ameritrade. Performed well in customer service & education, research tools, and mobile offerings. Improved desktop site and mobile apps integration. Free real-time quotes from NYSE, AMEX, and NASDAQ Level 1 and 2.
2. Fidelity
3. E-Trade
4. Charles Schwab
5. Capital One Sharebuilder

Top 5 Brokers for Long-Term Investing

1. TD Ameritrade. The only broker to provide a wide range of commission-free ETFs from various providers (not just their own in-house ETFs).
2. Fidelity
3. Charles Schwab
4. Merrill Edge
5. E-Trade

Top 5 Brokers for In-Person Service

1. Scottrade. Scottrade has over 500 physical branches across US, so that when you call you reach a human in that local branch. Free in-person educational seminars are offered as well.
2. Merrill Edge
3. Charles Schwab
4. Fidelity
5. TD Ameritrade

Reading through the entire article, most of the brokers made a few incremental changes (better mobile app, new options tools) but nothing game-changing. So it shouldn’t come as a surprise that for the three niche rankings above, the Top 5 ended up exactly the same as the 2013 rankings. Again, Vanguard’s brokerage declined to participate and thus was not eligible for the rankings.

Jack Bogle is best known as the founder of Vanguard index funds, but he also dispenses great common sense advice about investing. I’ve written previously about his long-term stock return methodology including this prediction for stock returns for 2010-2020.

He also has a simple method to predicting future long-term bond returns, which is by simply taking the current bond yield. For example, the current yield of 10-year Treasuries is 2.7%, so roughly 3% is likely the future 10-year return.

This is explained further in this recent WSJ article (via Abnormal Returns). This chart shows it best:

Since 1926, he notes, the entry yield on the 10-year Treasury explains 92% of the annualized return an investor would have earned over the subsequent decade had he or she held the bond to maturity and reinvested the coupon payments at prevailing rates.

Similarly, the entry yield on the Barclays U.S. Aggregate Bond index (of investment-grade U.S. bonds) explains 90% of its 10-year returns for the years 1976 to 2012, says Tony Crescenzi, a portfolio manager and strategist at Pacific Investment Management Co.

The Vanguard Total Bond Market ETF (BND) which tracks the Barclays U.S. Aggregate Bond index currently has an SEC yield of 2.2%, which doesn’t seem like a very exciting number to look forward to. While this shows that our expectations should be very modest, it’s still important to remember that we hold bonds as a counterbalance to stock price volatility. As long as we hold them together, the overall picture is much more tolerable.

Ready for another start-up? WiseBanyan wants to offer free online investment advisory services. That’s right, they will take your money, help you buy a portfolio of ETFs, manage dividends, rebalance, all that for free with no minimum balance (you’ll still pay the underlying ETF expense ratios). Sounds like Betterment minus their fees. WiseBanyan CEO Herbert Moore outlined his vision for the future in the Medium article You Will Be Investing For Free In 5 Years. Here’s my take:

Fund management fees are going to zero. The Vanguard Stock Market ETF (VTI) already holds over a basket of over 3,600 stocks and charges just 0.05%, or $5 a year for each $10,000 invested. Supposedly with short-term securities lending, ETF expense ratios could be zero or even negative (investors get paid).

Securities lending is complex, but for ETF sponsors it means being able to lend out the underlying securities of the ETF for a fee — iShares has a good description of it here. In fact, iShares is already able to offset much of its management fee with securities lending revenues?—?for example, iShares Small Cap US Equity ETF IWM has an expense ratio of 0.20% but earned 0.20% in securities lending in 2013, meaning that the effective fee was zero.

Vanguard’s head of retail Investments, Nick Blake, has also weighed in on this, saying that “In theory, we could pay investors to invest in us [as] stock lending can [create] a negative TER [total expense ratio] …There will always be a fixed cost in there, but if volume is big, the total expense ratio can come right down.”

Stock and ETF trading commissions are going to zero. Zecco offered a bunch of free trades several years ago before the financial crisis, but ended up back at $4.95 a trade. But sometime this year Robinhood.io is supposed to start up a lean online brokerage offering free trades. I agree that the marginal cost of a trade may be zero, but you have to first overcome sizeable fixed costs. This is why even super-lean brokers for active traders like Interactive Brokers still charge a base minimum of $20 month.

Management fees for a portfolio of stocks and ETFs… are going to zero. Surprise! This is where Wisebanyan comes in. They want to extend the online investment advisory business and use automation to make it free as well. It appears they will be using the “freemium” model where you can pay extra for added features:

WiseBanyan plans to introduce paid investing and client services to complement our free managed portfolios. Two examples include tax-loss harvesting and a product we’re tentatively calling “financial concierge.”

I’m always skeptical when something that requires a certain level of customer service tries to be completely free. Of course, I still signed up on their early access waitlist (use my link and supposedly I’ll move up in line just like with Robinhood). Is it really just a race to the bottom? Gotta remember to check back in 5 years.

I never file my tax returns too early. The last time I did so, I had to file an extra amended return as my stock brokerage sent me a late corrected 1099 form shortly afterward. What a hassle. It seems that every year one of these forms shows up in my mailbox in March. Indeed, TD Ameritrade just send me an e-mail today (2/25) that a corrected 1099 is on its way. Why?

IRS mailing deadlines
The official IRS mailing deadline for 1099-B forms (reporting sales from brokerage firms and mutual fund companies) is normally February 15th. This is 15 days later than the mailing deadline for most other tax forms like W-2s. However, this year February 15th falls on a Saturday and Presidents Day is Monday, February 17th. This results in the adjusted mailing deadline being Monday, February 18th, 2014.

So how can they arrive even later?
Many brokerage firms will only send a “preliminary” 1099 by this date to satisfy the IRS requirement. Because some securities (commonly certain REITs or foreign stocks) may not report their numbers to the broker in time, brokers often delay sending out their corrected or “final” 1099 until a month or more later. So while I start preparing my return ahead of time, I usually wait to file until I’m confident that all my 1099 forms are finalized.

In my case, it was the Vanguard REIT ETF (VNQ) that caused my corrected 1099 form.

Updated to state that Betterment has updated their agreement to eliminate any outgoing ACAT transfer fee as of February 2014.

We're building a better ACAT transfer system to reduce the fee to $0. In the meantime, we are eliminating that fee effective immediately.

— Betterment (@Betterment) February 25, 2014

Original post:

Online portfolio managers are a hot area right now, and Betterment.com is one that promises “we do everything for you” simplicity combined with relatively low costs when compared with a human advisor. Recently, a reader named RSG left a comment:

In the updated user agreement, Betterment will charge a fee of up to $1000 for an in-kind transfer! That’s absurd and way higher than industry standard for other broker-dealers.

An in-kind transfer, also referred to as a full Automated Customer Account Transfer (ACAT) transfer, is where all of your holdings are transferred to another broker-dealer. Since you don’t sell any positions, any potential tax complications are avoided. I agree that this fee is around $75 at most brokers, so naturally I wanted to verify this claim.

I could not locate any notice of this fee anywhere on the Betterment.com website, even on their “pricing details” pages. The only place I could find it mentioned it is buried on page 59 of their 139-page customer agreement [pdf] last revised on 1/15/2014.

23. Transfer of Assets. Client may request transfer of Assets to an account Client has established with another broker-dealer. […] The fee provisions of the Brokerage Agreement and Advisory Agreement notwithstanding, Betterment Securities may charge a fee of up to $1000 for transferring assets to another broker-dealer.

I opened a $1,000 test account with Betterment myself and I admit that I totally missed this fee. I also verified this by contacting Betterment support staff, and here was their response:

Unfortunately this is not something that Betterment supports right now so we would bring in a third party to do an ACAT transfer. This process costs a fee of $1,000. Again, simply liquidating the funds is completely free.

Update: Immediately after this post brought up the issue, Betterment updated their agreement to eliminate any outgoing ACAT transfer fee as of February 2014.