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News from The Globe and Mail An on-line broker for you Whether you are a novice or a sophisticated investor, ROB CARRICK rates the choices -------------------------------------------------------------------------------- Advertisement Hide advertisement -------------------------------------------------------------------------------- By ROB CARRICK 00:00 EST Saturday, February 07, 2004 On-line RRSP investing hasn't looked this good in years. The stock markets are in fine shape right now and much the same can be said of Canada's on-line brokers, or discount brokers as they're sometimes called. There's a growing list of elite on-line brokerage firms that offer all the tools and products you need to build a sound registered retirement savings plan. Some brokers are better for certain types of investors, though. That's why this year's version of Globe Investor's annual on-line brokerage rating for RRSPs sets out three different investor profiles -- the neophyte, the established investor and the active investor -- and then outlines the best and worst choices for each. For example, you'll find that BMO InvestorLine is the top choice for established investors, but neophytes should avoid it. TD Waterhouse has a lot to offer all three types of investor, but neophytes /////tyros//// have to be careful about which account they choose. Before we look at the ratings in more detail, let's go over the basics of on-line investing. Some investors are better off using a financial adviser, but there are others who are quite capable of choosing their own securities and building a balanced portfolio. For these investors, on-line brokers offer such advantages as the following: Cheap fees and commissions: You can buy thousands of mutual funds with no upfront or deferred sales charges, and stock-trading commissions are about a third of what a full-service broker charges. Variety: The best on-line brokers offer funds and stocks, of course, but also access to government and corporate bonds and guaranteed investment certificates from various issuers. Flexibility: You can mix stocks, exchange-traded funds, mutual funds and bonds in your portfolio, whereas many financial advisers are limited to mutual funds. Convenience: You can monitor your account, research stocks and funds and place orders any time of the day or night. (Orders are executed when the market opens.) THE NEOPHYTE INVESTOR Profile Has a small portfolio of no more than $5,000 to $10,000 and mainly plans to hold mutual funds and possibly guaranteed investment certificates or bonds. People with small accounts have to be careful when selecting an on-line broker or they'll find themselves paying annual administration fees as high as $100 a year. Do the math: On a $5,000 account, a $100 fee equals 2 per cent of your portfolio. Top choices 1. TD Waterhouse. This broker's basic RRSP restricts you to mutual funds, guaranteed investment certificates and bonds, but this seems a fair bargain for beginners because the annual administration fee is just $25 plus tax until you reach $25,000 in your account. TD also offers a wide selection of mutual funds with no buy or sell commissions through its FundSmart OneStop plan, including some good in-house TD funds. Once you build your account up to $25,000, you can switch over to a regular RRSP account and have the option of buying stocks. 2. CIBC Investor's Edge. The FundPlus self-directed RRSP account is similar to TD's Basic RSP, allowing you to invest in funds and fixed income for a fee of $25 a year until you have $15,000 in your account. Investor's Edge is reasonably good on fund commissions, charging nothing to buy load or no-load funds on-line and up to $30 to sell them. Note: Both TD and CIBC charge $100 a year in administration fees for small-sized regular RRSP accounts. The rest HSBC InvestDirect charges $50 for RRSPs until your assets reach $15,000 and it has no fund commissions. Disnat, Credential Direct and Qtrade Investor have annual RRSP administration fees in the $40 to $50 range and a fund commission schedule that charges nothing to buy, and a small fee to sell. Not recommended BMO InvestorLine, which has a $5,000 account minimum and a $100 RRSP administration fee that disappears only after your assets rise above $15,000; RBC Action Direct and National Bank Discount Brokerage, which have $50 RRSP administration fees and charge commissions to buy funds if you have less than $15,000 in your account; E*Trade Canada and ScotiaMcLeod Direct Investing, which have administration fees for small accounts of $75 to $100. THE ESTABLISHED INVESTOR Profile Has built up his or her portfolio to a point where annual administration fees aren't a factor. Also, this person is an experienced, long-term investor who wants bonds as well as stocks and funds, and who appreciates the value of tools for creating a diversified portfolio and for researching stocks and funds. Top choices 1. BMO InvestorLine. This is the best all-around choice for established, middle-of-the-road investors. There's on-line access to bonds and GICs, commission-free mutual funds and useful tools for designing RRSP portfolios. This year, InvestorLine has added a list of recommended funds and model portfolios from fund expert Ranga Chand. 2. (A three-way tie) E*Trade Canada, RBC Action Direct, TD Waterhouse. Each offers a solid package of services that includes on-line bonds, financial planning tools, commission-free funds and research to help you choose both stocks and funds. 3. CIBC Investor's Edge. Well-rounded thanks to the recent addition of on-line bond trading, but lacks any meaningful financial planning tools. Also, there are modest fees to sell funds. 4. ScotiaMcLeod Direct Investing. A notch behind the others because it lacks on-line bond trading (there's an on-line bond inventory only) and has some fees when you sell mutual funds. But there's pretty much everything else this category of investor needs to be successful, including a feature called Sounding Board that gives you the chance to have your portfolio's asset allocation examined by a pro. The rest Credential Direct, Qtrade Investor, National Bank Discount Brokerage, HSBC InvestDirect all offer one thing or another that's of interest to RRSP investors, but they lack the all-around usefulness of the others. Not recommended eNorthern, where the main attraction is a minimum stock-trading commission of $24, and Disnat, which is just too stripped down. THE ACTIVE INVESTOR Profile A frequent stock trader, with some interest in bonds and possibly funds. He or she appreciates sophisticated features like real-time account updates, and likes to have equity research tools on hand. Top choices 1. E*Trade Canada. This broker aggressively courts the active trader by offering commission discounts that rise as you do more transactions. Those who don't qualify for the discounts pay $27 a trade, which is mid-market. E*Trade also offers a stock-screening tool that uses technical analysis, on-line bond trading and real-time account updates that show the market and book value of your holdings, as well as a percentage gain or loss. 2. CIBC Investor's Edge. Real-time account updates are available here, and you get access to stock-screening tools and lots of equity research from CIBC World Markets. If you place a market order for a stock (where you pay or accept the going market price), then you'll pay a very reasonable minimum of $25. Limit orders (where you put a ceiling on what you'll pay and a floor on what you'll accept when selling) cost $28.95. 3. (Tie) BMO InvestorLine, TD Waterhouse. BMO InvestorLine's got a similar commission structure to CIBC Investor's Edge and other amenities, but it lacks anything special in the way of equity research. Real-time account updating is conspicuously absent at Waterhouse, which is Canada's largest on-line broker, but the compensation is a sturdy trading platform, access to bonds on-line and a good selection of equity research. The rest ScotiaMcLeod and Qtrade are worth a look. Not recommended Action Direct, which has the highest minimum on-line stock trading commission at $29.95, and minimal equity research. On-line Brokers BMO InvestorLine Parent: Bank of Montreal Web: https://www.bmoinvestorline.com Phone: [phone] CIBC Investor's Edge Parent: Canadian Imperial Bank of Commerce Web: https://www.investoredge.cibc.com Phone: [phone] Credential Direct Parent: The credit union system Web: https://www.credentialdirect.com Phone: [phone] Disnat Parent: Mouvement Desjardins Web: https://www.disnat.com Phone: [phone] ENorthern Parent: Northern Financial Corp. Web: https://www.enorthern.com Phone: [phone] E*Trade Canada Parent: E*Trade Group Inc. of Menio Park, Calif. Web: https://www.etrade.ca Phone: [phone] HSBC InvestDirect Parent: HSBC Group Web: https://www.investdirect.hsbc.ca Phone: [phone] Nat'l Bank Discount Brokerage Parent: National Bank of Canada Web: https://www.invesnet.com Phone: [phone] Qtrade Investor Parent: Privately owned Web: https://www.qtrade.ca Phone: [phone] Royal Bank Action Direct Parent: Royal Bank of Canada Web: https://www.actiondirect.com Phone: [phone] Scotia McLeod Direct Investing Parent: Bank of Nova Scotia Web: https://www.scotiamcleoddirect.com Phone: [phone] TD Waterhouse Parent: Toronto-Dominion Bank Web: https://www.tdwaterhouse.ca Phone: [phone] © The Globe and Mail