Scottrade Review

By Analyst: Robert Stammers, CFA
December 19, 2008

(broker review) - Scottrade differentiates itself from the other low cost internet brokers through its reputation for superior customer service. The company promotes customer service as the foundation of their business. This competitive advantage is aggressively articulated in their advertising, and has been a large contributor to its ability to consistently win customer service awards year after year.

Scottrade is able to provide superior customer service by continually moving up the technology curve, providing customers with new support methods over the internet as these opportunities present themselves. However, because they compete in the lower cost segment of the market customers should not expect to receive any specialized services or investment advice. Although all their customer service reps are registered brokers, most of them are retained to assist in trade execution and not for providing investment expertise. In fact, Scottrade does not provide any managed accounts and customers must rely on the support of whoever receives their phone calls or emails.

Scottrade promotes itself as a trade execution provider and the fees it charges per transaction support this position in the market. Although it does not provide the best execution possible, they are extremely good at executing within the National Best Bid Offer (NBBO) and state that less than 5% of all trades are executed outside of their customers' expectations. Because it is a trade execution specialist, Scottrade does not commit significant resources towards market research. By choosing to support a no frills clientele the company has been able to reduce transaction fees to the some of the lowest levels found in the industry.

In order to increase demand for its core business, Scottrade has segmented its offerings between a generic product and interface for customers that don't churn their accounts and a specialized and high-end trading desks designed for active traders. The generic product, Scottrade.com is free and designed for the beginner or long term investor. It provides little in the form of customization but is easy to use and includes some rudimentary tools. Scottrader is also free to new clients and designed for more intermediate traders or advanced traders that don't trade very much. It provides some customization and quoting tools that support long term trades. The ScottradeElite product for active trading, is fully customizable and includes the level II streaming stock and option quotes necessary for short term and intraday trades. Although the elite trading desk is preferable for active traders, it does not provide robust enough charting and screening tools to sustain the majority of those trading the short term. Scottrade does not provide the elite desk to customers unless they have a minimum balance of $25,000 in their trading account.

In short, Scottrade provides the minimum acceptable tools and trade execution necessary for any type of trading at minimum cost. This platform works exceptionally well for investors that do not require real time stock quotes or for advanced traders that have their own stock analysis tools to support their trading strategies.

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