Online brokers change with the times

Record stock-market highs have enticed many everyday investors to do some trading.

But those who have been out of the game for a while may encounter a new brokerage landscape.

It no longer simply involves finding the lowest-priced trades, even among online brokerage firms. The selection process now has more to do with the features and tools that you require to invest efficiently.

"The dynamic of the online brokerage business is that fees are basically heading toward zero," said Robert Ellis, senior analyst with the securities and investments group of Celent LLC in New York. "The brokers no longer rely primarily on trading in their revenue model because they've discovered other services can make them more money."

It remains important to learn the price you'll be charged for the trades you make, as well as the yield you'll receive on any cash kept in the account.

But you also should ask brokers about:

• Account maintenance fees charged for not trading enough or not having a high enough account balance.

• The difference in trading cost if you made a trade by telephone rather than online.

• The availability of free stock research reports and a dividend reinvestment plan.

• Whether it has retail branches to visit.

• If you would have the ability to download account information onto your investment software.

"Before 2000, a typical investor might have one full-service brokerage account and, for a smaller portion of overall assets, one online broker," Ellis said. "Now an investor may have a full-service account plus three or four online accounts because each of those online accounts offers different investment tools."

Besides commissions charged to investors, online brokers can derive money from advertising on their Web sites, as well as from fees generated by securities lending and margin accounts. Some are expanding into banking services, which can provide more stable income than volatile financial markets.

"Investors no longer care as much about the trading fees as they do about the services since, while fees have come down, the difference between $9 and $7 a trade isn't so significant," said James Cloonan, chairman of the 150,000-member American Association of Individual Investors in Chicago. "Almost all discount fees are now below $10 a trade, except for a few brokers that require you have a large account in order to receive their cheapest rate."