Best discount brokers for RRSP season

Remember this when choosing an on-line broker for your RRSP: It's you who should be piling up wealth, not your broker.

A major benefit of investing for yourself through an on-line broker is the cost savings over a full-service broker or financial adviser. Still, you can waste a fair bit of money on fees and commissions if you hold your registered retirement savings plan at the wrong on-line firm.

Are you setting up a brand new self-directed RRSP? Watch out, a few brokers have no-fee plans, while others will hit you with annual fees of as much as $100 a year until your account gets up to the $15,000 to $25,000 range.

Do you mainly invest in mutual funds for your RRSP? Some brokers will nick you with fees and commissions when you buy or sell funds, while others have pretty much trimmed their costs to zero.

Want to slowly and steadily build a portfolio of stocks for your RRSP? You can pay as little as $20 for an on-line stock trade, or as much as $33.

Costs are a big part of The Globe and Mail's survey of the best brokers for RRSP investing, but you'll also find a discussion here about which brokers offer the best tools for researching stocks and funds, which broker is best for buying bonds and which have the best promotions to lure new clients.

The ratings below are meant to help you pick the broker that best suits your own personal needs. If you're looking for an overall winner, it's Merrill Lynch HSBC. Look no further for a combination of low fees and useful amenities. Other top choices are BMO InvestorLine (on-line bond trading), Charles Schwab Canada (overall quality), eNorthern (overall cheapness) and E*Trade Canada (nice overall package). TD Waterhouse also looks good, but only for larger-sized accounts.

For additional intelligence on on-line brokers, check out the annual survey The Globe published in September. It's archived on the Globeinvestor.com Web site (http://www.globeinvestor.com) -- just scroll to the bottom of the homepage.

As with this broader survey, the RRSP rating focuses on investing over the Internet. On-line brokers, also called discount brokers, offer service over the telephone as well as over the Internet, but it's both more expensive and less convenient.

Before getting to the ratings, it's important to address any lingering concerns that people might have about service levels at on-line brokers.

Last year at this time, investors, excited over the buoyant state of the markets, applied for new RRSP accounts in such high volumes that it took weeks to be able to start trading. Once you were up and running as a client, you often found the service stunk.

Now, account applications are being handled in a matter of days and waits on the phone and on-line are generally not a problem. If you think you can handle the job of running your own RRSP, get going.
Who's good and bad
on annual fees?

Overview: On-line brokers often pick on the little guy with their annual administration fees for self-directed RRSPs. While a few brokers have no fees at all, most levy a charge of anywhere from $25 to $100 on accounts of less than $15,000 to $25,000.

Recommendation: Paying $25 or so a year is borderline acceptable, but paying $75 to $100 a year is a large, fat waste of money.

Top picks: eNorthern and Merrill Lynch HSBC, which have no fees at all. Charles Schwab Canada also has no fee, but it won't accept accounts with less than $20,000 in assets unless you choose a brand new fund-only product.

Okay picks: Royal Bank Action Direct, BMO InvestorLine and Disnat, which have a $25 annual fee that disappears if you have more than $25,000 in your account. Others are E*Trade Canada, which waives its $38.88 fee at $20,000; National Bank Discount Brokerage, which waives its $50 fee at $20,000.

Investors with small accounts should avoid: CIBC Investor's Edge, which will ding you for $100 a year unless you have $15,000 in your account; TD Waterhouse, which charges $100 a year until you reach $25,000 annually (both Investor's Edge and TD Waterhouse have $25-a-year "junior" accounts that can only hold mutual funds and fixed income investments); Sun Life Securities, which charges $95 a year until you reach $15,000; Scotia Discount Brokerage, which charges $75 for account smaller than $15,000. Also note that Canada iNvest Direct (this is Canada's newest on-line broker) has a $50 annual fee that applies to all accounts.
Who's the cheapest broker
for building a stock portfolio?
Overview: Commissions are a fact of life when you buy stocks, but stop for a moment and consider that each dollar you pay out of your RRSP is one less dollar compounding tax-free for your retirement. To compare trading costs, each broker's minimum on-line commission was used. In most cases, this will buy you up to 1,000 shares (convert to U.S. dollars when buying U.S. stocks; different rules may apply to penny stocks).

Top picks on pure cost: At $22.95, Canada iNvest Direct is the country's cheapest trade on a consistent basis. Scotia Discount charges $20 for trades valued at less than $2,000, but costs rise sharply for larger orders. Other lower-cost operators are eNorthern at $24 and National Bank Discount Brokerage at $24.50.

The mid-range: E*Trade Canada charges $27, while BMO InvestorLine charges $25 for market orders (where you pay the going market price) and $29 for limit orders (where you put a cap on what you'll pay or accept).

The most expensive: CIBC Investor's Edge at $28, Disnat, Merrill HSBC, Royal Bank Action Direct, Sun Life Securities, TD Waterhouse at $29, Schwab Canada at $33.
Who's best for mutual funds?

Overview: On-line brokers want your fund business for a couple of reasons, the main one being that they get to collect the trailer fees most fund companies pay sellers to compensate them for continuing service to the client (such as it is at an on-line broker). Another is that today's fund investor is tomorrow's buyer of commission-generating stocks and bonds.

Most on-line brokers charge nothing to buy load and no-load mutual funds, but some are more restrictive than others in how they do this.

Recommendation: If funds are your game, then go for a broker with a broad selection of funds that you can buy and sell at zero cost.

Top picks: Charles Schwab Canada, eNorthern, E*Trade Canada, Merrill Lynch HSBC, TD Waterhouse. All offer roughly 1,200 or more mutual funds without any buy commissions or fees. Also, there are no fees to sell your funds, as long as you don't try to get out within the first three to six months after purchase. Minimum purchase is generally $1,000.

Good picks: BMO InvestorLine, CIBC Investor's Edge, Canada iNvest Direct, Disnat and Sun Life Securities have no buy commissions for a decent selection of mutual funds, but all charge redemption fees in some cases.

So-so picks: National Bank Discount Brokerage and Royal Bank Action Direct require you to have $15,000 in your account to buy front-load funds without commissions, and they both have fund redemption fees in some cases. Scotia Discount Brokerage has a minimum purchase of $2,500 to buy front-load funds without commission, and a ridiculous $25 charge for buying no-load funds from companies other than Bank of Nova Scotia.
Who's got the resources
for helping you choose?

Overview: Just about every on-line broker offers some sort of research tools, but don't think for a moment that one broker is as good as another in this area. Fact is, some brokers provide unique material that you'd otherwise have to pay for, others have simply linked up with investing Web sites.

Recommendation: Good research tools can add real value to an on-line broker's service. On the other hand, there are lots of good, free investing Web sites out there.

Top pick: Merrill HSBC rules because it gives you up-to-the-minute access to research by more than 1,100 Merrill Lynch and HSBC analysts worldwide.

Good Picks: E*Trade Canada and TD Waterhouse, both of which have good depth on stock and fund research. Also worthy of note is Canada iNvest Direct, which gives you free on-line access to the Blue Book of Stock Reports from MPL Communications (lots of unbiased research on Canadian companies), as well as eNorthern, Schwab Canada and Royal Bank Action Direct.

Okay picks: CIBC Investors Edge; Scotia Discount Brokerage, Disnat, National Bank Discount Brokerage.

Not in the game: BMO InvestorLine (improvements coming soon); Sun Life Securities (improvements later this year).
Who's got the best
deals for new clients?

Overview: RRSP season is the key period of the year for attracting new clients, so most on-line brokers offer special bonuses of one sort or another. Watch out for minimum balances -- some brokers require $10,000 to $20,000 in assets to get the bonus (tip: you're usually allowed to reach these thresholds by consolidating several existing accounts at your new broker).

Recommendation: There are some very attractive offers out there, but don't make them your sole criteria for choosing a broker.

Best deals: For new accounts worth $1,000 or more, E*Trade Canada will give you five free trades (value $27 each) or $75 in cash, plus pay up to $100 to cover transfer account costs. BMO InvestorLine offers a choice of $200 toward trade commissions and transfer costs, or 200 Air Miles reward miles for accounts larger than $20,000.

Merrill Lynch HSBC offers three free stock trades and $100 toward transfer costs, plus 30 days' free access for prospective clients to the vast library of equity research reports from parent firms Merrill Lynch and HSBC, while Schwab Canada offers new clients a free digital cell phone.

Lesser deals: TD Waterhouse offers three free trades for new accounts valued at $10,000 or more, and it will waive its administration fee in the first year; Action Direct offers $100 worth of free trades for new accounts worth $10,000, plus an entry into a contest to win a Mercedes CLK430 convertible for new accounts worth $25,000; eNorthern will pay transfer fees of up to $150 and give you one free stock purchase (check the firm's Web site for more new client bonuses); National Bank Discount Brokerage will waive any applicable administration fees in the first year and pay transfer costs of up to $125.

Not in the game: CIBC Investor's Edge, Scotia Discount Brokerage, Sun Life Securities.
Who's best for fixed income?

Overview: BMO InvestorLine is the only one to offer on-line bond trading right now, but others such as TD Waterhouse and E*Trade Canada are working on it. Buying bonds on-line is a revelation -- it's far more expedient and transparent than doing it on the phone with one of your broker's traders.

Recommendation: If bonds are a big part of your RRSP investing strategy, then BMO InvestorLine absolutely warrants a look.

Are you a candidate for running your own show?

There are a lot of benefits to investing for yourself at an on-line broker, including low cost and a wide choice of investments. But are you cut out to handle the responsibility? After all, it's your retirement savings we're talking about.

To help you decide, take a look at this list of questions suggested by the Canadian Securities Administrators, a group comprising the 13 provincial and territorial securities regulators.
1. How much do I know about the markets and when to buy or sell a security?
2. Do I have access to information about the markets and companies that I may invest in? Am I in a position to interpret and understand this information?
3. How much time am I willing to put into overseeing my investments?
4. How can I trade -- personal contact, telephone or home computer?
5. How actively do I want to manage my investments? Am I prepared to let my investments stay in one place or do I intend to actively buy and sell securities?