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Author: PCScipioA One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35392  
Subject: Zions Direct a Good Choice? Date: 11/5/2009 10:39 PM
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I'm considering opening an account with subject broker, a wholly owned subsidiary of Zions Bancorporation. Zions Direct has been recommended as a good place to buy bonds; $10.95/trade (plus markup, I'm sure) and a rather extensive inventory (at least compared to what I see at Schwab and E*Trade). I recognize Zions Bankcorp is in poor financial shape. Two questions:

Are there other brokers I should look at for bonds? If the bankcorp goes BK, is the money in my brokerage account at risk?

TIA
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Author: junkman02 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28972 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/7/2009 2:45 PM
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"I'm considering opening an account with subject broker, a wholly owned subsidiary of Zions Bancorporation. Zions Direct has been recommended as a good place to buy bonds; $10.95/trade (plus markup, I'm sure)"[emphasis mine]
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Zions (aka, Bonds for Less) doesn't markup, nor does Fido, nor E*trade. You buy at the inside market and pay a commish.

At Scottrade and AmeriTrade, you buy on a "net-yield" basis. In other words, the broker acts as principal, marks up the bonds, and sells them to you without an explicit commission. Depending on the size of the markup, the size of your ticket, etc., one system or the other might be to your advantage.

Yes, Zions Bank is under stress, and their debt is rated as junk (B3/BB+). But pull their financials and dig into the. If the answer is "No", then stay away. If the answer is "Yes", then also consider the account protections that any broker offers its clients and act accordingly.

Best wishes whatever you decide.

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Author: junkman02 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28975 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/7/2009 3:55 PM
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Opps. A couple sentences of the previous got snipped in the posting rocess which I've re-inserted below.

"I'm considering opening an account with subject broker, a wholly owned subsidiary of Zions Bancorporation. Zions Direct has been recommended as a good place to buy bonds; $10.95/trade (plus markup, I'm sure)"[emphasis mine]
--------------------------

Zions (aka, Bonds for Less) doesn't markup, nor does Fido, nor E*trade. You buy at the inside market and pay a commish.

At Scottrade and AmeriTrade, you buy on a "net-yield" basis. In other words, the broker acts as principal, marks up the bonds, and sells them to you without an explicit commission. Depending on the size of the markup, the size of your ticket, etc., one system or the other might be to your advantage.

Yes, Zions Bank is under stress, and their debt is rated as junk (B3/BB+). But pull their financials and dig into the company generally and ask yourself whether it will survive. If the answer is "No", then stay away. If the answer is "Yes", then also consider the account protections that any broker offers its clients and act accordingly.

Best wishes whatever you decide.

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Author: PCScipioA One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28976 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/7/2009 4:43 PM
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Thanks, junkman; I'll do my DD.

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Author: junkman02 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28979 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/7/2009 10:40 PM
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Opps. More corrections, or, rather, an addition.

You wrote: ...a rather extensive inventory (at least compared to what I see at Schwab and E*Trade)."

Nope. Just ain't so. I've got accounts with both Zions and E*Trade, and generally when I'm shopping, I've got both accounts open, and I'm running screens in both accounts. I can only speak confidently for corporates, but E*Trade has a negligible edge in providing inventory. And I really do mean negligible. If you run a screen that returns a couple hundred bonds, E*Trade might have one or two Zions doesn't.

But, sometimes, the difference is in the other direction. Zions will be quoting a bond that E*Trade isn't. Typically, such differences turn up when the lot is tiny or, especially, if the issue is illiquid. But if you check back a couple days later, the other one is typically quoting the bond they weren't before. So a lot of the differences might have to do with the underlying desks each is linked to in the electronic network that is "The Bond Market".

All I know is that Vanguard, Fidelity, Scottrade, AmeriTrade, and (currently) Schwab aren't worth dealing with. Things are rumored to be changing at Schwab. But I haven't yet seen the changes. Therefore, if an investor wants to buy his own corporate bonds from a discount broker, there are only two, currently-viable choices: Zions and E*Trade.

Back to inventory question: Due the to the recent NC muni brouhaha, I was also running screens for munis. There, Zions seemed to have the edge. So, as always, what your specific needs are will determine your choice of brokers.

Zions customer service is better. But you can always get your questions answered and business done at E*Trade, too. So, really the choice there is a toss up. Zions' bond commish is $10.95/ticket. E*Trade is $10. That, too, is a toss up. The fee for reorgs --if I'm remembering right-- is $20 at Zions and $30 at E*Trade. For buying corporates, I much prefer E*Trade's platform. For munis, I prefer Zion's platform. For sweeping cash, Zions is better. For getting cash into the account, E*Trade is better.

Etc. Etc. Etc. It's all just tiny details that might not concern you, or they might be deal-breakers. It all depends on your needs. If your account is big enough, there is no reason not to open an account with each one and to have the best of both worlds.

Again, best wishes whatever you decide.

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Author: PCScipioA One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28982 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/8/2009 11:13 AM
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Thanks again, Junk. I really appreciate all your input. BTW, what do you think of the auction capability at Zions?

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Author: junkman02 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29008 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/9/2009 3:23 PM
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BTW, what do you think of the auction capability at Zions?

It seems to be fairly and responsibly managed. I've submitted bids for a few auctions, more to test the system than because I wanted to buy the bond. And its targeted users, chiefly Savers scrambling for a few basis points of yield, aren't who I am. (I'd rather execute in the rough-and tumble of the secondary market where inventories are wider and yields are higher.) But for certain types of investors, I think the service would be excellent.

In general, I like Zions Bank a lot, and I have a strong belief they will survive.

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Author: PCScipioA One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29010 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/9/2009 4:55 PM
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Thank you again for your insights.

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Author: persistentone Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29178 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/22/2009 3:12 AM
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Don't focus on the commission for a bond trade. It's not the meaningful fact that affects your cost.

The problem with the U.S. bond market is that it is basically an oligopoly of big New York banks who deliberately cripple the market in order to make it hard for brokers to discover inventory. The hard part of most bond trades is simply finding *anyone* who wants to sell or buy at *any* price. There are no doubt many buyers and sellers out there, but there is no electronic marketplace where they can all come together and expose their bid and ask limits to each other in an organized way.

So what ends up happening is you get enormous spreads, with a bond being sold by retail customers at $92 and bought by the same customers at $96 to $98. I've seen bonds trade at 55% on FINRA TRACE and the same day my broker wants me to pay 66%. So in other words the retail customer is selling one $1000 par value bond at $550 and my broker is quoting me $660 the same day. Who cares about the $11 "commission". Someone in the middle there is raping you for nearly 20% of your capital!! That's your real cost, hidden in the depths of a disfunctional trading system.

Consider what happened on the FSA baby bonds, which traded on the pink sheets until recently as the symbols FSAE and FSAH. They were happily doing 20K to 30K volumes per day and one day FINRA came in and stole them and took them off pink sheets and put them onto the over the counter bond market. Within days all liquidity in those issues died, and volumes went down to under 4K per day on average. What is worse, you couldn't trade them even if you wanted to. The FINRA trade data was mostly not actionable data because it was dealers selling to each other, buying for their own inventory, or flipping the bond immediately to another party. There was no market there for anyone to trade in. It took me THREE WEEKS and 12 separate attempts to finally buy those bonds, and I was going through a very good New York bank. If they couldn't find the bond, there just wasn't any to be found.

All of this is to say that when you deal with an Ameritrade or a Zions Direct, you are dealing with someone who is just as blind to the "market" as you and I are in most cases. An Ameritrade simply cannot dedicate a broker for half a day calling 20 different firms trying to find one who has inventory they want to sell. Zion's is even worse. They are using a proprietary black box application named Bonddesk that simply spits out the highest bid and lowest offer and doesn't show anything more than that. Bonddesk is a common application on many broker desks and is written by some third party organization not Zion's. Basically an application like Bonddesk makes a bad problem worse by hiding all the details of the market into a black box run by a third party.

The bond market screams to become a true exchange. The consumer here is being raped. The best you can do is use FINRA TRACE to stay away from illiquid bonds, and use FINRA TRACE to make sure you are being offered something at least a few dollars within the range of market price. With bonds you must be willing to negotiate pricing and walk away from the offer and come back another day. If you don't have the patience and time to try to buy one bond six different times, you probably shouldn't be trading bonds.

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Author: PCScipioA One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29184 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/22/2009 2:52 PM
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Thanks, persistentone, you make a good case for bond funds. ;-)

I decided to stick with E*Trade since I already have an account there and, after another round of price/inventory comparisons among Zions-E*T-FINRA, it appeared Zions did offer any significant advantage.

cheers
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Author: persistentone Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29186 of 35392
Subject: Re: Zions Direct a Good Choice? Date: 11/22/2009 5:04 PM
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That assumes you actually believe that bond funds (or any mutual fund) reports its true expenses. I believe there are many hidden costs. If there is a bond with a spread between 92% and 98%, and the bond fund buys the bond at 99%, as a "favor" to their investment bank, that outrageous pricing doesn't get recorded as an expense. What does overpaying the broker for commission or asset price buy them? You just don't know what is going down there unless you can audit their trades with an independent third party.

I simply don't trust Wall Street. They mostly have an arrogant attitude that they are kings who deserve all the money in the world and we are all sheep who deserve whatever they don't feel like taking.

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