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  (Jori Bolton for The Globe and Mail)

 

(Jori Bolton for The Globe and Mail)

The best, and cheapest, online brokers in Canada Add to ...

The best reason to be a do-it-yourself investor is to cut costs, and the online broker that helps you do that best is Virtual Brokers.

Cost is a huge category in the 15th annual Globe and Mail ranking of online brokers, and VB aces it. Now you understand why this tiny firm that hardly anyone knows about has, for the second year in a row, taken top spot in the annual Globe and Mail ranking of online brokers.

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VB is no one-trick broker. It ticks off several other key boxes in this ranking, including personalized account reporting to show clients how their portfolios are performing and the availability of U.S.-dollar registered accounts.

As a relatively new player in the online brokerage business, VB is still a bit rough around the edges. But over all, it emerges ahead of Qtrade Investor, long a dominant player in this ranking, and other strong options like BMO InvestorLine, RBC Direct Investing and Scotia iTrade. For the first time, the independent firm Questrade has been included with the higher-scoring brokers.

This ranking is designed for mainstream investors, not active traders, so firms are only considered if they offer all types of registered accounts, and a wide variety of investment choices and tools for research, planning and screening. All brokers included here are members of the Canadian Investor Protection Fund (CPIF), which protects account assets of up to $1-million if a broker goes under.

Brokers are evaluated on their online services, not those available by telephone.



Here’s an outline of how brokers are scored

Cost:

Brokers who do well in this category have a low hurdle for clients to qualify for sub-$10 stock trades. Commissions on bonds and mutual funds are also considered, as are administration fees for registered accounts and the availability of commission-free exchange-traded funds.

Account information:

In this category, brokers live or die by the job they do in helping clients gauge how their portfolios are performing over time.

Trading:

Brokers are graded here on the availability of registered accounts that can hold U.S. dollars (many brokers force a conversion into Canadian dollars when clients sell U.S. stocks or receive dividends from such stocks), as well as the trading experience for clients when buying or selling stocks, the range of investment products available online and the number of stocks available for dividend reinvestment plans.

Tools:

This category covers the variety and exclusivity of a broker’s research, financial planning and stock/ETF/mutual fund screening tools.

Innovation:

Shows which firms are leaders in terms of cutting prices and introducing new services, and which are followers.



BMO InvestorLine

Overall letter grade: B

  • Costs: Not a strength, C
  • Account info:Among the best B+
  • Trading: U.S.-dollar RRSPs are available B
  • Tools: Good B
  • Innovation: A strong record in this area B

The best of the bank-owned firms right now over all, InvestorLine subtly tries to raise itself above the small-account riffraff with a $5,000 account minimum (TFSAs and RESPs excepted), the highest of any firm in this ranking. Administration fees for registered accounts are also on the high side for small accounts. Aside from costs, InvestorLine does pretty much everything well. Through its AdviceDirect channel, InvestorLine even offers an advice option. Clients pay 1 per cent of their account assets annually (less for large accounts) in exchange for investing guidance delivered online and through a staff of eight investment specialists. That’s pricey, but possibly a value for DIY investors who would flounder without assistance.

CIBC Investor’s Edge

Overall letter grade: C

  • Costs: Not bad C+
  • Account info: Nobody home D
  • Trading: U.S.-dollar registered accounts unavailable C+
  • Tools: Tons of research from CIBC World Markets and other sources A
  • Innovation: Not a strong suit D

If you have $100,000 in total household business with Canadian Imperial Bank of Commerce (mortgages included), you qualify for a flat rate of $6.95 for online stock trades. For a bank-owned firm, that’s a pretty nifty value. Not a CIBC client? Then there’s little here of interest beyond the excellent library of stock research and one of the few fee-free registered education savings plan accounts in the online brokerage world.

Credential Direct

Overall letter grade: C

  • Costs: Not a leader C+
  • Account info: Good job B+
  • Trading: U.S.-dollar registered accounts unavailable C
  • Tools: A good package B
  • Innovation: None to speak of D

Welcome to Credential Direct’s bizarro world. Credential charges a minimum $19 per stock trade for small accounts, compared with $29 at the bank-owned firms. But while the banks cut your commissions to a flat $10 or so if you have at least $50,000 in your account, Credential gets you down to that price level only if you trade actively. What’s weird here is that Credential is part of a credit union movement that is supposed to represent the interests of Main Street, not Bay Street. So why does it promote the sort of active trading that generates wealth for brokers at the expense of clients? At least Credential has lowered the qualifying threshold for $9.95 commissions to 10 trades within three months from 25 trades.

Disnat Classic

Overall letter grade: C

  • Costs: A higher cost broker C
  • Account info: Good job B+
  • Trading: U.S.-dollar registered accounts unavailable, but they say they’re working on it C
  • Tools: A good package B
  • Innovation: Not much to speak of C

Three things stand out – personalized account reporting, a good collection of research on stocks and ETFs, and a feature called GPS, which offers clients model stock and ETF portfolios run by a Desjardins Securities portfolio strategist.

HSBC InvestDirect

Overall letter grade: D

  • Costs: A typical bank-owned firm C
  • Account info: Nil D
  • Trading: Online trading in global markets, but no U.S.-dollar registered accounts D
  • Tools: Laggards C
  • Innovation: Kidding, right? F

Hard to see why they bother.

National Bank Direct Brokerage

Overall letter grade: C

  • Costs: On the high side, but kudos for recently giving commission-free ETF trading a test drive C-
  • Account info: A bright spot B
  • Trading: U.S.-dollar registered accounts are targeted for June – they’ll improve this firm’s ranking. D
  • Tools: Strong B
  • Innovation: Signs of improvement C

These guys nailed top spot in the latest J.D. Power discount brokerage investor satisfaction survey, so their customers like them a lot. NBDB has never been a star in this ranking, but there are some signs of fresh thinking at work. Example: The firm recently concluded a six-month promotion allowing clients to trade Canadian-listed ETFs for nothing. Commission-free ETFs are a significant win for investors, so how about making this permanent?

Qtrade Investor

Overall letter grade: B+

  • Costs: Very reasonable B
  • Account Info: They were early adopters of personalized account reporting A
  • Trading: Well done A
  • Tools: Middling B
  • Innovation: Quick to adopt everyone else’s breakthroughs B

Qtrade’s second-place ranking here is mainly explained by the fact that it was elbowed aside by Virtual Brokers on cost. Qtrade remains a great choice for the mainstream investor who wants state-of-the-art service in virtually all respects. Still, we’ll have to keep an eye on Qtrade, now that Desjardins Group owns a 40-per-cent stake. Desjardins is the parent of Disnat, which has been looking up – way up – at Qtrade for years in this ranking. Qtrade says it has assurances from Desjardins that it will continue to operate independently, but you have to wonder about the economics of one firm running two separate online brokers.

Questrade

Overall letter grade: B

  • Costs: A friend to the frugal mainstream investor, thanks to a $4.95 minimum stock-trading commission B
  • Account info: Lame now, but they say personalized reporting is coming early in 2014 B
  • Trading: They have U.S.-dollar registered accounts nailed, but the lack of online bond and GIC investing is a negative. B
  • Tools: Not their strong suit C
  • Innovation: The quintessential nimble independent firm B

Questrade exemplifies the latest thinking in the online brokerage business about how you can’t build a business catering mainly to active traders. Year by year, Questrade has been making itself more appealing to the investing mainstream, especially the newbies who get their bones picked clean by bank-owned firms through high trading costs and annual account administration fees. Questrade has zero account admin fees, the second-lowest trading commissions behind Virtual Brokers and a program that allows investors to buy any ETF commission-free (you pay to sell). With personalized account reporting, this firm will be even better.

RBC Direct Investing

Overall letter grade: B

  • Costs: Not a draw for this broker C
  • Account info: First rate A
  • Trading: Strong B
  • Research: Good B
  • Innovation: Ebbs and flows C

Big blue is a strong overall broker that was ahead of the curve in offering personalized account reporting and U.S.-dollar RRSPs. Research tools are quite good, but it’s an irritation that RBC Dominion Securities stock research is reserved for active traders and high-net-worth clients. On mutual funds, RBC is both hero and villain. Clients can now buy low-fee, D-class versions of RBC mutual funds with a minimum of $500, down from $10,000. But funds from Mawer Investment Management, among the finest out there for DIY investors, are not sold because they pay no commission to the seller.

Scotia iTrade

Overall letter grade: B

  • Costs: Not bad for a bank-owned firm B
  • Account info: A black hole C-
  • Trading: Good B
  • Tools: Love their research centre A
  • Innovation: Once strong, but fading B+

Scotia iTrade has one of the sharpest websites of any firm listed here, and its research tools stand out for not relying on the Morningstar data that so many other firms trundle out for clients. In fact, everything hums along for clients until they try to find the tools that show them how their portfolios have performed over the long term. There aren’t any, and Scotia hasn’t provided any indication of when they might be added.

TD Direct Investing

Overall letter grade: C

  • Costs: One of the most expensive brokers C-
  • Account info: Not in the game C-
  • Trading: The lack of U.S.-dollar registered accounts hurts them C+
  • Tools: Arguably the best A+
  • Innovation: Lost their way C-

The former TD Waterhouse has made zero progress in filling in two gaping holes in its service – personalized account reporting and the lack of U.S.-dollar registered accounts. Are these guys on a technology strike? They don’t even allow clients to send secure e-mails to get administrative questions about their accounts answered. Add high costs to the analysis and you end up with what could be the weakest showing TD has ever had in this ranking. TD still rules in two areas – research and service, thanks to a call centre that operates 24/7 in English, French, Cantonese and Mandarin. Also, TD has really improved its visual presentation of client account holdings. Footnote: TD suckered me last year in saying U.S.-dollar registered accounts were “coming soon in 2013.” Now, they say they’re on track for a 2014 delivery.

Virtual Brokers

Overall letter grade: A

  • Costs: The lowest-cost broker in this ranking, period A
  • Account info: Coming along nicely B
  • Trading: Everything you need A
  • Tools: Meh C
  • Innovation: The most innovative broker in this ranking, period A

VB was last year’s winner, and some Globe readers tried it on that basis. For a while, the feedback was worrying. People said the account-opening process was abysmally slow and the firm was sluggish to respond to queries by phone or e-mail. VB says it had its hands full with two initiatives that stretched its resources temporarily. The upside of being a VB client is a mix of the lowest costs in this ranking (including a new minimum commission of a penny a share and no-cost buying of ETFs) and amenities that quite a few industry giants don’t have, including U.S.-dollar registered accounts (RESPs included) and personalized account reporting. Most important, there’s constant innovation. Just introduced is the Kickstart Investment Program, an automated program (with no trading fees) for young investors, and a new twist on DRIPs that provides a commission-free way for clients to reinvest their dividends in any eligible stock or ETF.

 

Globe app users click here for online broker tables comparing commissions, foreign exchange and interest rates on margin debt.

 

For more personal finance coverage, follow Rob Carrick on Twitter (@rcarrick) and Facebook (robcarrickfinance).

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Stock Trading Commission Comparison

Here are the online stock trading commissions that would apply in three different transactions. Where multiple prices appear, the first applies to clients with accounts big enough to qualify for commission discounts and the second applies to small accounts (see footnote for details on CIBC Investor’s Edge). Discounts for active trading are not included. Check with individual firms to see how big your account needs to be to qualify for lower commissions.
Firm200
shares
of a
$30 stock
1,200
shares
of a
$20 stock
10,000
shares
of a
$1.50 stock
BMO InvestorLine 9.95/29 9.95/36 9.95/225
CIBC Investor's Edge6.95/9.95/28.95 6.95/9.95/36 6.95/9.95/225
Credential Direct1924200
Disnat (Classic) 9.95/29 9.95/36 9.95/225
HSBC InvestDirect 9.88/28.88 9.88/28.88 9.88/225
Nat'l Bk Direct Brkrge9.95/28.95 9.95/36 9.95/225
Qtrade 9.95/19 9.95/30 9.95/200
Questrade4.959.959.95
RBC Direct Investing9.95/28.95 9.95/36 9.95/225
Scotia iTrade9.99/24.99 9.99/36 9.99/300
TD Waterhouse 9.99/29 9.99/36 9.99/225
Virtual Brokers29.999.99
Notes: Qtrade and Questrade may in some cases charge additional electronic network (ECN) fees; For limit orders placed by clients with less than $50,000, Qtrade charges an additional $4 per trade; Virtual Brokers has three commission plans - the one shown here is called "The Penny"; CIBC charges $6.95 to clients who have $100K in household business with the bank.

Forex Comparison

As part of this year's online brokerage ranking, firms were asked how much they would have charged a client to buy 100 and 1,000 shares of Microsoft at a price of $30 (U.S.) per share. Here's the price quoted by each broker, including foreign exchange charges, effective on the morning of Oct. 1. Stock-trading commissions are not included here.
Firm100 shrs
transaction
cost in C$
1,000 shrs
transaction
cost in C$
BMO InvestorLine3,096.0030,960.00
CIBC Investor's Edge3,144.9031,254.00
Credential Direct3,153.3031,218.00
Disnat3,150.3031,233.00
HSBC InvestDirect3,151.5031,545.34
Nat'l Bk Direct Brokerage3,139.5031,200.00
Qtrade3,117.9031,089.00
Questrade3,158.8231,588.20
RBC Direct Investing3,143.1031,191.00
Scotia iTrade3,148.5031,245.00
TD Waterhouse3,140.4031,194.00
Virtual Brokers3,120.3031,203.00

Interest rates on margin debt

In a margin account, an investor borrows money from his or her broker to buy securities. These are base rates that apply to Canadian-dollar balances; lower rates may apply on larger balances.
FirmRate
BMO InvestorLine4.25%
CIBC Investor's Edge4.25%
Credential Direct5%
Disnat4%
HSBC InvestDirect4.25%
Nat'l Bk Direct Brokerage4.25%
Qtrade4.50%
Questrade6%
RBC Direct Investing4.25%
Scotia iTrade4.25%
TD Waterhouse4.25%
Virtual Brokers4.50%
 

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