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THE GLOBE AND MAIL'S ON-LINE BROKER SURVEY TD Waterhouse gets top on-line grades In our third annual survey, Rob Carrick finds that many brokers have improved, despite the prevailing tough market conditions.
Rob Carrick
Nothing captures the boom-to-gloom decline of the on-line brokerage business like the third-quarter results at TD Waterhouse. Stock trading by clients was off by more than a third, and restructuring costs related to the slowdown helped push the firm way into the red. TD Waterhouse could have sat back and licked its wounds in an environment such as this. Instead, it improved its product to the point where it licked the competition in The Globe and Mail's third annual rating of on-line brokers. Waterhouse wasn't the only broker to make massive improvements over the past year. BMO InvestorLine, CIBC Investor's Edge and Merrill Lynch HSBC have come a long way, too. But Waterhouse stands out for offering the best overall service for middle-of-the-road investors. We're talking here about people who invest in stocks, mutual funds and bonds, and who want much more than just simple execution of trades. TD Waterhouse pretty much offers it all - a crisp new Web site for clients, smartly organized research tools and lots of extras such as on-line bond trading and a speedy on-line system for setting up a new account. All these benefits offset the fact that TD is one of the most expensive on-line brokers right now. A dozen brokers are covered in this survey, up from 11 last year. The new guy is Qtrade Investor, a privately held Vancouver-based outfit in which the big German concern Deutsche Bank has a stake. One other notable change: HSBC InvestDirect has been reborn as Merrill Lynch HSBC. As you can see from the accompanying score sheet, the highest emphasis has been placed on cost and trading of stocks, funds and bonds. Next in importance comes Web site utility, and the range and quality of on-line tools for researching investments and financial planning. Finally, the various perks and extras offered by brokers were examined, as were the on-line options for opening an account. Note that only the on-line services of each broker were evaluated. You can also trade over the telephone, but the costs are often much higher and you won't have access to on-line tools and services. Now, let's look at how the 12 brokers fared in each category. Cost Methodology: Costs were compared for five hypothetical stock trades in an effort to capture the different pricing levels for small and large orders. Mutual fund commissions and annual fees for registered retirement accounts were factored in to a lesser extent. The best: eNorthern, Schwab Canada, Investor's Edge. The worst: Merrill Lynch HSBC, TD Waterhouse, Sun Life. Heads up, bargain hunters. If you're looking for Canada's least expensive on-line broker, it's eNorthern. This applies to its flat fee of $24 for orders of 1,200 shares or less, and to its 2-cent-a-share commission for most larger orders. There are also no fees to buy, sell or switch funds at eNorthern as long as you hold for six months, and no annual administration fees for registered retirement savings plans. Now, that's an investor-friendly fee schedule. A surprisingly strong performer in this area was Schwab Canada, which used to have the highest costs by far. A reduction in stock-trading commissions this summer has made Schwab much more competitive on price. Likewise for Investor's Edge, which cut its minimum commission to $25 from $28. TD Waterhouse is among the priciest choices over all, as a result of its $29 minimum trade and its $100 annual fee for RRSPs with less than $25,000 in assets. TD scores well on funds, though. Web site Methodology: Each broker's public site and secure site for clients were put through their paces to see how easy they were to navigate, how well they answered pertinent questions that clients might have, and how fast they were. The best: InvestorLine, TD Waterhouse, Action Direct. The worst: eNorthern, National Bank Discount Brokerage. Until just recently, TD Waterhouse had a deplorably shabby Web site for clients. The redesigned site is sharp-looking over all, but pay special attention to the way that quotes, news and research reports are packaged when you research an individual stock. It's state of the art. InvestorLine has a clean, cleverly designed Web site, while Action Direct's is a model of precision navigation. Merrill Lynch HSBC is just about to introduce a redesigned Web site that is similarly well put together. The eNorthern people deserve credit for trying to do something a little different with their Web site, but the fact remains that an overload of content makes the site too slow to load. It's better than last year, though. National Bank's client site is pleasantly colourful, but sparse. Trading Methodology: The basic issue in this category is how quick and easy it is to place a stock trade. Among the specific factors considered were the variety of equity orders you can place, the number of choices for settling a trade and the ease with which you can get to the trading screen after signing into your account. Brokers also won points for offering on-line bond trading, and for their treatment of mutual funds. The best: Action Direct, ML HSBC, InvestorLine, Investor's Edge, TD Waterhouse. The worst: eNorthern, Qtrade, Sun Life. The top brokers here won points for making on-line trading exactly what it should be - slick and quick. Waterhouse, InvestorLine and E*Trade Canada all won extra points for offering on-line bond trading, while ML HSBC benefited from the fact that it offers access to global stock markets (including on-line trading of Hong Kong-listed stocks). It should be noted that the poor performers in this category are still adequate for the needs of the average investor. What's lacking is the range of services and attention to detail of the winners. Tools Methodology: Most brokers now offer at least some tools for helping clients choose stocks and funds and, to a lesser extent, do basic financial planning. The question is, are these unique, or things you can find elsewhere on the Web? The best: ML HSBC, TD Water house. The worst: Action Direct, National Bank Discount Brokerage. ML HSBC's strong showing here comes from the fact that it offers complete access to the Merrill Lynch global equity research database. In other words, you can wallow in analyst-written stock reports until you're sick of them. TD Waterhouse scores well for offering a great mix of tools, notably equity and mutual fund reports by TD analysts. Kudos to the InvestorLine people for fixing the one gaping hole in their product - a lack of tools for clients. Best of all, InvestorLine did something unique in adding a first-rate retirement planning tool. This is the sort of product that all brokers should be adding. The tools category is where Action Direct starts to fall behind. It offers stock and fund research from Globeinvestor and Globefund, impeccable sources to be sure, but also ones you can easily use on your own. Extras Methodology: Here, we're looking for those little perks that make life with an on-line broker more pleasant. Examples would be a premium account for very active traders, trading via wireless phone, e-mail trade-fill notifications and e-mail alerts to tip you off when a stock you're watching makes a price move. The best: Schwab Canada, TD Waterhouse. The worst: Action Direct. Schwab has to be singled out in this category for its sounding board feature, where clients can request a personalized asset allocation plan based on their risk level. Again, with Action Direct, the trading platform's just fine, but a no-frills policy seems to be in place. Getting started Methodology: Brokers are evaluated on how quick and easy they make it to sign up for an account over the Internet. Ideally, you would be able to fill out an on-line application, print it and then either mail it or deliver it in person. The best: TD Waterhouse. The worst: National Bank Discount Brokerage. TD Waterhouse is about to introduce a new on-line application process where you receive your account number instantly instead of in a few days. You have to follow up with signed documentation later, but you should be able to trade your account almost immediately. You'll also be able to use the TD Web site to initiate the transfer of an account at another broker, as long as you mail a signed form later.
Here are the results of a survey in which users of Globeinvestor.com were asked to specify which on-line broker they used, and whether they were satisfied or dissatisfied with the service. There were more than 3,000 respondents to the survey, which was carried out August 1-8.
Comments? Come on, everyone has an opinion about who the best and worst brokers are. Send your thoughts to rcarrick@globeandmail.ca |
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