Online Trading
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Of Note:

After a year of stellar new account growth, these brokers have made a priority of trying to help newcomers become
effective investors.

There's some self-interest here as well, of course. Clients who buy and sell investments generate commission and
fee revenue. Nobody - neither brokers nor clients - benefit when money lies fallow in an account for extended periods.


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Before you hit 'buy'



Rob Carrick

Globe and Mail
Mar. 04, 2010

Many people need to invest in their financial education before jumping into stocks, bonds and funds.

The online brokerage business stands ready to help. After a year of stellar new account growth, these brokers have made a priority of trying to help newcomers become effective investors. Where once a macho "experts only" atmosphere prevailed, brokers now offer video tutorials on how to trade, practice trading accounts, tools for choosing stocks and funds, financial planning calculators and guided portfolios tailored to a client's particular needs.

"It's so easy to open an online brokerage account," said Connie Stefankiewicz, president and chief executive officer of BMO InvestorLine. "We want to make sure that if you do open an account and you fund it, that you actually get the benefit from it."

There's some self-interest here as well, of course. Clients who buy and sell investments generate commission and fee revenue. Nobody - neither brokers nor clients - benefit when money lies fallow in an account for extended periods.

Helping new clients become successful has become a hot issue for online brokers after a boom that began in late 2008, even as most other segments of the investment industry were staggered by the global financial crisis.

The analysis firm Investor Economics says the number of new accounts surged 26.5 per cent the year prior to Sept. 30, compared with 6.7 per cent for the year before that.

These clients include newcomers to investing and people who have sized up their advisers and decided to take on part or all of their investing themselves. However new clients find their way to an online broker, they all face the same trade-off of low fees and commissions but zero advice. It's a package that is well summed up by the alternative name for online brokers - discount brokers.

Securities regulations prohibit online brokers from providing advice on what investments to buy, and they regularly monitor the products and services they offer to ensure that no lines are being crossed. Online brokers describe their new educational offerings, guided portfolios and tools as an attempt to assist new clients, not advise them.

"We can't give advice, but we can point out the tools that are available to help clients make decisions, and take them through the process of how to use the tools effectively," Ms. Stefankiewicz said.

InvestorLine offers video demonstrations for three types of investors - active traders, long-term investors and people nearing retirement. There are also tutorials on basic functions such as how to place an order for a stock, option or fund, how to use charting tools and how to get the most from a retirement planning calculator.

Brokerage executives have in the past noted that clients weren't making extensive use of the tools they provided. That may explain why InvestorLine is giving its customers some encouragement to use what's available. Example: To qualify for a recent promotion involving Air Miles travel reward points, customers had to use an online tool that helps them come up with a mix of stocks, bonds and cash that corresponds with their tolerance for risk.

Once clients have come up with an asset mix, they can either build portfolios themselves or use the guided portfolios that InvestorLine assembles. "They're aimed at individuals who would like a starting point to develop an investment portfolio that is appropriate for their risk profile," Ms. Stefankiewicz said.

Recognizing how intimidating it can be to place your first order for stocks, bonds or funds online, RBC Direct Investing has introduced practice accounts where clients can get a feel for the trading apparatus using virtual money. Even Questrade, a firm that caters more to experienced, active investors, has created online tutorials to guide rookies through the trading process.

TD Waterhouse, Canada's largest online brokerage firm, has been adding content to its website to help people become effective investors. But it has found that service over the phone is also essential to making new clients feel comfortable.

Tony Ierullo, senior manager of investor services at TD Waterhouse online brokerage, noted that the vast majority of trades are now placed online. But his firm has nevertheless been adding to its roster of staff that take calls from customers looking for help on such matters as how to use online stock and fund screening tools.

"We take those calls all the time," Mr. Ierullo said. "We will coach people about how to use the tools, but we will not go to the extent of helping them pick individual stocks."

Waterhouse has specialty desks that can help clients with questions in specific areas such as bonds and guaranteed investment certificates - aka fixed income - as well as mutual funds, options and new stock issues. For example, the firm's FundSmart mutual fund specialists can help clients narrow down a broad list of funds in a particular category and find information about specific funds.

While the foundation of do-it-yourself investing is self-sufficiency, the online brokerage industry has recognized the benefit of nurturing newcomers who are bewildered by the technology and choices available.

"When people go out on their own, there is a tendency to feel somewhat unsure about how to go about the process," Mr. Ierullo said "But what we also see is that if investors are willing and committed, they can quickly become more comfortable building a portfolio."

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HELP FOR ROOKIES

Ways online brokers are reaching out to new clients:

Video tutorials

They include demonstrations of how to trade stocks, funds, bonds and options, and how to use research tools and calculators.

Seminars and webinars

Experts conduct sessions on investing topics.

Guided portfolios

Pre-packaged bundles of mutual funds or exchange-traded funds that correspond to different investing profiles.

phone staff

They can't advise but they can explain.

Practice accounts

A way for clients to practise trading with virtual money.

Rob Carrick



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