The Investment Scientist

Should I Use a $0 Commission broker like Zecco?

Posted on: June 13, 2007

The title is a question posted to me. The following is my answer.

The most important thing to look for in a broker is not the explicit commission rate it charges, but the quality of its execution. In the Celent’s execution ranking, there is a $0.3 per share difference between the best execution and the worst execution. If you buy 1000 shares of stocks, that adds up to $300 difference. My own company, MZ Capital, uses Fidelity. It ranked #2 in the chart. I wonder where would Zecco.com be in the chart? One way a zero commission broker can make money is to channel your trades to a particular market maker instead of finding you the best execution. It is possible Zecco.com is doing that. If that’s the case, then Zecco.com would save you a nickel upfront, but would cost you a bundle in the execution.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



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