(MONEY Magazine) – It's hard to believe that online brokers have Steve Langdo's feathers in a ruffle. After all, he doesn't need a lot of hand-holding, and he doesn't want lots of fancy tools to manage his $350,000 portfolio either. "Just save me a couple of bucks on the commission," says the 53-year-old computer engineer from Mount Olive, N.J., "and when I say 'Buy,' do it within the next half hour." But the way Langdo tells it, investing online means suffering the kind of inevitable heartbreak that comes with, say, rooting for the Boston Red Sox. Sure, some trades go off without a hitch, but invariably, he says, "things start to deteriorate." Web pages groan to a halt. Surly customer service reps tell him to get a new operating system. Orders freeze mid-trade. So Langdo goes elsewhere. In the past four years, he's moved from Quick & Reilly to E*Trade to TD Waterhouse and back to Q&R.

Langdo's complaints are increasingly common as e-brokers struggle to keep up with their own popularity. Today 3 million households invest online, up from 2.2 million a year ago. To fuel that growth, brokerages are luring customers with a wider array of products and perks than ever. Yet many are ignoring the basics that customers want most: reliability and attentive customer service. "A lot of people have two or three accounts because they've been trained that they can't rely on an online broker," says Datek Online CEO Ed Nicoll.

For our second annual online-brokerage survey, we decided that the only way to evaluate which brokers are keeping pace was to become their customers. So we convinced our bosses at MONEY to give seven reporters nearly $50,000 (in cash, no less) to open real accounts at 20 leading Web-based brokerages. Our goal again this year was simple: to find the best brokerages for mainstream clients, frequent traders, wealthy investors and beginners. For two months we scoured their sites, evaluating navigation, interactive tools and online help. We placed five limit orders at every site, giving high marks for easy-to-use trading screens, good executions and speedy confirmations. We also grilled customer service departments with questions via e-mail and over the phone, rating response time, accuracy and manners.

Once our testing was complete (and we began returning the $45,000 that remained from our original $50,000--transaction fees, you know), we sorted more than 150 subjective and concrete variables into five categories: ease of use, customer service, system responsiveness, products and tools, and costs. Then we reweighted the categories to determine the best broker for each of our four investor types. To make sure our priorities were representative of online users, we polled an online focus group of 36 investors who regularly use e-brokers about what they consider most important. (We profile three of them in the pages that follow.)

For mainstream investors--whom we define as those with $25,000 to $75,000 in investable assets and making between two and 20 trades a year--we emphasized ease of use, customer service and system responsiveness while underweighting product offerings. That's because mainstream clients are most interested in common stocks and a solid assortment of funds and banking services, all of which are offered by virtually every e-broker. We also underweighted costs. Despite the industry's (and some traders') obsession with $8 vs. $14.95 trades, such differences are, in fact, almost negligible to people who make only a few trades a year.

When we tallied the winners, it became clear that brokerages such as Fidelity, Ameritrade and Merrill Lynch, which introduced new on-site offerings while providing outstanding customer service, had the magic formula. Treading water, meanwhile, was costly for two of last year's biggest winners: Charles Schwab and National Discount Brokers. We found Schwab's on-site improvements comparatively minimal this year, while customer service slipped noticeably. It took Schwab days to answer our e-mails this time, and we once waited 30 minutes to get a live voice on the phone "due to high call volume" even though it was a Sunday. Schwab says its hold time averages four minutes, up from 75 seconds since last October, and an apologetic letter to customers from co-CEOs Charles Schwab and David Pottruck in March admitted, "[T]here are some days when we are simply not meeting our usual high service standards," and promised that improvements were in the works.

At NDB the drop-off was much more pronounced. The firm did unveil a few handy on-site features in March, including a real-time stock tracker and tax organization center, but in our reporting NDB scored near the bottom in customer service, thanks to hold times that topped 42 minutes. "We have been victimized by our own success," says Dennis Marino, NDB's chairman. "Customer service is something that has distinguished us. I'm not happy that we have not been able to maintain that standard, but I'm confident we'll be able to get back to that in short order." The company is recruiting more reps and has added an instant-messaging help feature to its site to alleviate the strain.

Service slipped at most other brokerages as well. One of our reporters heard Mozart's Symphony No. 40 in G minor for 65 minutes as he dangled on hold at DLJdirect. The rep who finally answered advised, "Never call after 3 p.m. We're understaffed during those hours." Sure enough, wait times dropped to under 10 minutes when we followed that advice. (A DLJ spokesman says the firm actually has extra staff between 3 p.m. and 5 p.m., when the day and night shifts overlap.) Another reporter managed to cook and eat her dinner before Scottrade picked up. That rep's response? "Oh, man, my computer's down. Call back tomorrow."

Fortunately, our moments of frustration were eclipsed by our winners' superlative performance. We have addressed the priorities most important to four types of users, but you can find a broker tailored to your unique needs with our interactive screening tool at www.money.com /broker. We also welcome your e-mail response to our findings, your own nominations for best broker or your tales of woe at broker_survey @moneymail.com. Your comments will guide us for future rankings. As for this year's winners? The envelope, please...

FOR MAINSTREAM INVESTORS

First Place: Fidelity Second Place: Ameritrade Third Place: Merrill Lynch

Fidelity's most recent effort to break from its reputation as a one-trick mutual fund giant has worked. When Fidelity launched its e-brokerage in 1997, says executive vice president Tracey Curvey, "We were known as a fund company." So last September it rolled out a new system called Powerstreet, filled with gizmos designed to wow and woo. Despite a wide array of offerings (stocks, funds, options, bonds, credit cards, banking services and on and on), the site is extremely easy to navigate. We were especially impressed by the real-time quote feature on the same page as the trading screen. Other sites do offer this all-in-one layout, but the trading data is often difficult to read. Fidelity also makes it easy to keep track of a portfolio by posting holdings like cash management accounts and IRAs on a single page. Best of all, Fidelity never kept us waiting long when we wanted to talk to a live person, and its reps answered our queries quickly and accurately.

For all its attractions, though, Powerstreet still has room to improve. We did not find the site particularly responsive, and its commission schedule, frankly, penalizes buy-and-hold investors (or rewards hyperactive ones, depending on how you look at it). Limit orders cost $30, but Fidelity cuts that rate to $19.95 for folks who trade 36 or more times a year. And customers who trade less than that can't get intraday account balance updates.

Plenty of brokerages claim to spend big on upgrades, but Ameritrade has clearly put last year's $100 million facelift to good use. The firm finished near the bottom of our rankings in 1999, so we were surprised by its consistently strong performance this time. Pages loaded quickly, and helpful customer service reps picked up calls in about a minute. Ameritrade's commissions are low, just $13 for a limit order, and its site is a snap too. Click one of the six navigation tabs and a menu of sublistings drops down the left-hand side of the screen, allowing you to search for what you want without losing your place. We also liked that stock price alerts can be sent via e-mail or text pager. With so many other offerings at the site itself, however, it's surprising that Ameritrade still lacks portfolio trackers and watch lists.

Hitting the ground running, Merrill Lynch Direct, Merrill's new online offering, grabbed third place. When the site was launched last December, many doubted that the full-service firm could compete online, but Merrill is pulling it off with flying colors. Commissions start at $29.95 for up to 1,000 shares, and the firm gives ML Direct clients free access to its coveted buy-sell-hold stock reports, listing research by company, sector and analyst. Moreover, reps picked up the phone in seconds and answered e-mail queries within three hours. Merrill doesn't offer wireless or after-hours trading, but we applaud its precise order confirmations, intraday account balances and excellent cash management accounts.

FOR FREQUENT TRADERS

First Place: Datek Online Second Place: Ameritrade Third Place: A.B. Watley

Fast and cheap. When it comes to e-brokers, those are the two crucial characteristics for active investors like Mirit Volkov, 26, who averages 10 trades a week at Datek. "What don't I love?" says the New York City resident. "I've never had a problem, I've never had to wait." We also looked for easy navigation, real-time quotes, low margin rates, after-hours trading, immediate balance updates, options, precise time stamps on orders and fast trade confirmations.

Datek shined again this year thanks to free streaming real-time quotes, accelerated trading systems and a 12-hour trading day via Island, its affiliated electronic communication network (ECN). Datek's Express Log In jumps straight to a low-graphics trading area, which also bypasses the page where you double-check your order. And we love the firm's to-the-second trade confirmations listing when orders are entered, processed and executed. Limit and market orders are just $9.99 (and your market order is free if it isn't filled in less than a minute). Datek is one of the few brokerages that doesn't accept what's called payment for order flow, the practice by which brokers are paid by large trading firms known as marketmakers for directing market orders to them. This practice can widen the spreads on market orders, a hidden cost of trading that's passed on to investors. One drawback: Datek still doesn't offer options.

With some of the lowest commissions around, easy navigation, after-hours trading, good site performance and (unlike Datek) access to options, Ameritrade has many of the elements active traders prefer (except real-time balance updates).

A.B. Watley came in third, thanks to its $9.95 limit orders, pre- and after-market trading, unlimited free real-time quotes and fast trade confirmations. Like Ameritrade, Watley offers options and lacks real-time balance updates. But its customer service desks aren't open on weekends.

FOR WEALTHY INVESTORS

First Place: Merrill Lynch Second Place: Morgan Stanley Dean Witter Third Place: Fidelity

To find the best brokers for people with at least six figures to invest, we looked for firms with a wide array of products, personalized service and perks like better access to IPOs, free proprietary research and reduced margin rates. Merrill Lynch Direct finished first for many of the reasons we named it a top mainstream site, including good customer service and incisive free research. But what cemented the decision in Merrill Lynch's favor is actually a related offering called the Unlimited Advantage account, which blends the best of online investing with the hands-on attention wealthy investors sometimes demand. For a fixed annual fee, you get virtually unlimited trading plus personal attention and planning from Merrill Lynch financial consultants. Anyone can sign up, but its pricing structure ($1,500 a year for accounts less than $150,000; 1% for accounts between $150,000 and $1 million; between 0.75% and 0.5% thereafter) really only makes sense for investors with more than a couple hundred thousand dollars.

Morgan Stanley Dean Witter, which revamped Discover Brokerage last year and renamed it Morgan Stanley Dean Witter Online, came in second. Clients with $100,000 receive access to IPOs, enhanced tax statements and e-mail alerts about analyst reports or ratings changes. Those with $500,000 get a dedicated customer service team, a priority 800 number and a Palm III organizer. Like Merrill, MSDW also has a fixed-fee option, called MSDW Choice. The plan, which charges 2.25% down to 0.3% of assets annually depending on your balance, offers nearly unlimited trading and your own financial adviser. (Although anyone with $50,000 can qualify, note that MSDW Choice is much more expensive than Merrill's Unlimited Advantage for clients with less than seven figures to invest.)

Fidelity, our top pick for mainstream investors, also offers attractive perks to customers with high balances. Preferred Services clients with $100,000 get $19.95 trades (normally, they're $30), and their calls are routed to the top of the line. Customers with $500,000 or more have access to financial representatives who answer questions over the phone and in person.

FOR BEGINNERS

First Place: Ameritrade Second Place: Datek Online Third Place: DLJdirect

"The people who first joined online brokerages were savvy about markets and computers," says U.S. Bancorp Piper Jaffray analyst Jason Lind. "Now we're seeing a second and third wave." The best online brokers for these newcomers have low minimum balances and fees, copious online help, primers, easy site navigation and attentive customer service. Ameritrade impressed us as the best place for newbies. Its $18 fee for broker-assisted trades is not a lot of money for some extra hand-holding, and its low minimum deposit encourages beginners to trade online without ponying up most of their assets.

Datek came in second, thanks to its customer service, low fees and uncluttered site. Some may criticize Datek for not offering options, IPOs or bonds, but we think this simplicity encourages novices to focus on the basics. Datek's cheap commissions and no-minimum balance are big pluses, and the firm doesn't slam small or inactive accounts with penalties.

Our 65-minute Mozart concert aside, DLJdirect is a good place for neophytes, confirms Richard Hammermaster, 64, of Puyallup, Wash. Hammermaster's wife Gayle was recently upset that her investment club sold its stake in ATM manufacturer Diebold, so he helped her to buy some shares for herself at DLJdirect. "She was impressed by how easy it was," he says. DLJ's no-minimum-balance requirements, low incidental fees, simple site and flat $20 commission for any trade up to 1,000 shares are also good reasons for beginners to log on. Just remember: If you want to talk to a customer service representative, call before 3 p.m.