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BMO InvestorLine tops our list
Savvy investors figure out their needs and then pick a broker. In our third annual survey of on-line brokers, ROB CARRICK ranks 14 of them in six key areas for self-directed RRSPs.
00:00 EST Saturday, January 26, 2002
There are two methods for choosing an on-line broker for a self-directed registered retirement savings plan—the loafer's way and the savvy way.
Loafers trudge into their usual bank branch and ask to open an account with the in-house on-line broker.
Do this and you take your chances on paying high fees and receiving little or nothing in services. Savvy types figure out their investing needs for their self-directed plans and then find the broker that suits them best.
To help you with this task, we present the third annual Globe and Mail survey of the best on-line brokers for self-directed RRSPs. This year, we evaluated 14 on-line brokers in six key RRSP investing areas: Annual administration fees, mutual fund commissions, stock-trading commissions, the availability of on-line bond trading and investing tools, and special deals for RRSP season.
The perfect on-line broker would have:
- No annual administration fee for small accounts and beginners.
- No buy or sell commissions for mutual funds of all types.
- Low commission for trading stocks.
- On-line bond trading.
- Unique on-line tools or services to help you with your financial planning or selection of investments.
- Special deals for new or existing clients.
The best all-round choice for this year is BMO InvestorLine, thanks in large part to its reasonable fees and commissions, its excellent on-line retirement planning tool and its on-line bond trading feature. Other good choices are Charles Schwab Canada, E*Trade Canada, Merrill Lynch HSBC and TD Waterhouse.
Now lets look at the scoring:
Annual administration fee
- Overview:
- Someday, on-line brokers will get rid of these annoying fees for all clients, not just those with assets of more than $15,000 to $25,000. If you have less than this in your account, you could face annual charges of between $25 and $100.
- Recommendation:
- The best fee is no fee.
- Top picks:
- eNorthern and Merrill Lynch HSBC have no RRSP administration fees, period. Charles Schwab Canada doesn't either, but its minimum account size is $20,000 for self-managed RRSP accounts.
- Cheaper than most:
- Royal Bank Action Direct, Disnat and BMO InvestorLine charge $25 for accounts with less than $25,000.
- Middling costs:
- E*Trade Canada charges $38.88 for accounts of less than $20,000, Sun Life Securities charges $45 for less than $15,000; Qtrade Investor $40 for less than $25,000, National Bank Discount Brokerage $50 for less than $20,000, Credential Direct charges $50 for less than $25,000.
- Be wary of:
- TD Waterhouse, which charges $100 for accounts of less than $25,000; CIBC Investor's Edge and Scotia Discount Brokerage charge $100 for accounts of less than $15,000. Note that Waterhouse and Investor's Edge have junior RRSP accounts with annual fees of $25, but you can only hold funds and fixed-income securities like guaranteed investment certificates.
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Mutual fund commissions
- Overview:
- On-line brokers are an ideal place to buy mutual funds because most offer a wide variety of mutual funds with no purchase commissions. Many firms still charge $40 or so when you sell a front- or no-load fund, and most will penalize you if you sell a fund within the first three to six months after you buy it.
- Recommendation:
- If mutual funds play a big role in your RRSP, go with a broker that charges nothing to buy or sell them.
- Top picks:
- Fee-free fund investing is available at eNorthern, E*Trade Canada, Merrill Lynch HSBC, Schwab Canada and TD Waterhouse.
- Good picks:
- BMO InvestorLine, CIBC Investor's Edge, Credential Direct, Disnat, Qtrade, Scotia Discount Brokerage and Sun Life Securities let clients buy funds commission-free, but charge redemption fees of anywhere from $27 to $45.
- So-so picks:
- Royal Bank Action Direct and National Bank Discount Brokerage require you to have $15,000 in your account to buy funds commission-free, and they also have redemption fees.
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Stock-trading commissions
- Overview:
- The latest trend in this area is for brokers to charge one fee for market orders, where you pay or receive the going market rate for a stock, and slightly more for limit orders, where you specify exactly what you want to pay or receive. RRSP investors can often get away with market orders.
- Recommendation:
- Commission costs aren't a big deal if you mainly buy mutual funds, but if you invest heavily in stocks it pays to find a low-cost broker.
- Top picks:
- eNorthern is the cheapest broker out there, with a $24 minimum trade, while CIBC Investor's Edge is next at $25. National Bank Discount Brokerage charges $24.95 for market orders and $27.95 for limit orders, while BMO InvestorLine, Charles Schwab Canada and Credential Direct charge $25 for market orders and $29 for limit orders.
- Middling picks:
- Qtrade and E*Trade Canada have a $27 minimum trade, Scotia Discount Brokerage charges $25.95 for market orders and $28.95 for limit orders.
- So-So Picks:
- Disnat, ML HSBC, Royal Bank Action Direct, Sun Life Securities and TD Waterhouse have a $29 minimum commission.
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On-line bond trading
- Overview:
- Last year's stock market decline has highlighted the appeal of having bonds in your portfolio to supply a steady stream of income. You can buy bonds over the telephone from an on-line broker, but doing it on the Internet is much better because you can do searches according to your own criteria, say strip bonds with a yield above 6 per cent, then see your broker's inventory right there in front of you.
- The best:
- BMO InvestorLine, Royal Bank Action Direct, TD Waterhouse and E*Trade Canada have on-line bond trading.
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Tools and services to help investors
- Overview:
- On-line brokers have long offered resources to help clients choose stocks and funds, but lately a few have branched out into the area of financial planning tools.
- Recommendation:
- Fund and stock research can be quite useful, but you may actually find financial planning tools more useful in effectively assembling an RRSP.
- Top picks:
- BMO InvestorLine's retirement planner is exceptionally useful for designing an investment strategy based on your personal needs; ML HSBC's library of stock research by Merrill Lynch analysts is vast; TD Waterhouse has a huge selection of research on stocks and funds.
- Best of the rest:
- Scotia Discount Brokerage, with a good selection of fund and stock research from Scotia McLeod, its full-service sibling; E*Trade Canada and Qtrade, which have a good mix of planning tools and stock and fund research; CIBC Investor's Edge, which offers CIBC World Markets equity research; Charles Schwab Canada, where a service called Sounding Board will give you a personalized asset allocation plan for your portfolio.
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Deals
- Overview:
- Some brokers try to entice new clients with contests and promotions that may involve free stock trades or reimbursements for fees incurred in transferring assets from other accounts. Note that minimum account sizes may apply in some cases.
- Recommendation:
- Stock traders, take a close look at E*Trade Canada's offer.
- Top choice:
- E*Trade's offer of 25 free stock trades for accounts of $25,000 or more (note that you'll only have 30 days to make your trades), as well as up to $125 toward transfer fees and a choice of one-year's free subscription to the GlobeinvestorGold Web site or a deluxe stock quote package. E*Trade is also offering 10 free trades if you can muster between $10,000 and $24,999.
- Other goodies:
- Schwab Canada is offering five free on-line trades, plus reimbursement of up to $100 in transfer fees; BMO InvestorLine is offering $200 toward transfer fees, Royal Bank Action Direct $100; ML HSBC has a couple of offers going, one of which is a free year's subscription to the new GlobeinvestorGold Web site; Credential Direct has different deals available through various credit unions, including one free trade, a transfer fee rebate and a one-year holiday from annual administration fees; TD Waterhouse will waive its annual administration fee this year if you make a $10,000 RRSP contribution, and it offers a free QuickTax on-line tax return for people who sign up with its e-services offering (this means receiving trade confirmations and monthly statements on-line).
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One final note: If you're looking for a more detailed comparison of on-line brokers, check out the report card archived on Globeinvestor.com.
Rob Carrick
Copyright © 2002 The Globe and Mail
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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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