My cousin has an e*trade account and he loves it. He makes frequent trades, and I've never heard him complain about the fees. On the other hand, he does have a lot of money in there, so maybe he's got some special deal. I'll ask him his opinion when I see him next.
The thing I've found is that the fees don't look that high and a lot of people don't take the time to figure out what they are as a portion of the investment. So people don't complain about the fees mostly because they don't count them.
I had a client who came to me for budget help. We talked about just about everything but he said he had investing nailed and that he'd been making over 30%/year by trading. Ever hopeful but suspicious I asked him if I could look at his trades. He sent me his spreadsheet with all these pretty charts and graps and all kinds of bells and whistles. I sent it back to him with what his ACTUAL return was after fees and taxes. He return went from 30% to 5% after fees and taxes because he'd been trading small amounts on a frequent basis so most of his gains were eaten up in fees and then he had to pay STCGs on top of it. I did a side-by-side for him on what he would have made had he invested in a Target Fund, VTSMX and a couple ETFs and it would have been more than double (and in some cases triple) what he made - mostly because he wouldn't have been paying fees.
$7 doesn't seem like a lot...until you add it up. Lets compare a $333/month DCA into SPY and VFINX:
At the end of the year, you would have invested $4k into each.
The annual expenses for VFINX are: .18%
The annual expenses on SPY are: .08%
to DCA into SPY you also paid $84 in transaction fees (assuming $7/trade for 12 months) which is 2.1%.
So, in reality your 1 year expenses are:
You'll have to hold each purchase at least 20 years, depending on what your returns are, in order for it to have made more sense to purchase SPY than to purchase VFINX. And that doesn't include any extra fees you pay for selling or for reinvesting dividends and cap gains distributions - both of which happen frequently and are free with funds. When you include that it's closer to a 30 year hold.
Now I know we all say we're going to hold our investments for 20, 30, whatever long period of time, but what really are the chances that you will keep the same account and never sell/rebalance/transfer brokers/etc.? Any of those things cost even more money which means you have to hold even longer just to break even.
So this is why I'm not a fan of using anything other than funds for small amounts. The impact is just too big and lasts too long. It doesn't sound like a lot, but if you invested that $84/year for the next 30 years and got an 8% return you'd have an extra $11k in your account.
My rule of thumb and what I teach in my classes is that if the expenses for your purchase are more than 1% of the purchase price then you should stick to funds (so that's a minimum of $700-1000/transaction, depending on the broker). Ideally, you should be averaging less than the annual expense for a Vanguard Index Fund before you start paying to invest.
Now, I'm the first to admit that I'm fee sensitive, but I just dont see the need to spend money when you can get something for free.