Zecco/TradeKing deal could bring changes to online investing

— -- Q: What does the pending merger of online brokers Zecco and TradeKing mean for online investors?

A: Zecco and TradeKing have been trying to disrupt the online brokerage business with low commissions. Now, they're coming together to try to turn it upside down.

Online investors have no shortage of choices when it comes to brokerage firms. There are the giants such as TD Ameritrade, Charles Schwab and Fidelity, which all have very competitive offerings. But there have also been scrappy competitors such as Zecco and TradeKing, which have been pushing new features and lower prices to give investors a strong alternative.

For instance, both Zecco and TradeKing charge $5 for online stock trades, which is well below the roughly $10 charged by most of the large brokerages. Both Zecco and TradeKing, too, have been aggressive in making trading and market data available on social networks.

But in mid-May, TradeKing and Zecco said they will combine forces and merge. Since the companies are private, terms of the deal haven't been disclosed, and it's unknown what the surviving brand will be. The combined brokerage will have 500,000 accounts with billions in client assets, the companies say.

"We're both battling the big guys (brokerages)," says Don Montanaro, CEO of TradeKing. "We thought, "Why are we beating each other up? Why not combine forces?' "

Such consolidation is the norm in the online brokerage business. The more accounts a brokerage has, the more it's able to spread its costs over a larger number of customers and remain competitive. "This deal creates a firm of size," he says.

Current Zecco and TradeKing customers shouldn't expect any big changes with the combined firm, Montanaro says. The pricing is to remain the same, $4.95 for stock trades.

Longer term, though, the merger could open the door for changes. Eventually, the new firm might be in a better position to improve some of the back-office challenges both Zecco and TradeKing have faced in the past.

For instance, some customers were annoyed when they didn't get their brokerage tax statements until well into March this year. Both Zecco and TradeKing use the back-office processing services of another firm, which was the root of the issue. "This merger gives us more options to correct issues," says Zecco CEO Michael Raneri.

More broadly, the combination of Zecco and TradeKing might very well signal another rash of consolidation in online brokerages. "Consolidation (among online brokerages) comes in waves," Montanaro says.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz