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portfolio strategy

A shakeout is under way in the financial industry as investors take a critical look at anything that they see as having failed them in the bear market.

One trend shaping up is a migration to do-it-yourself online investing by people who are unhappy with their advisers. Online brokers report sustained surges in new account openings, and a few firms are trying to ramp things up even further. They're offering some great introductory deals that will be of particular interest to investors trying to rebuild portfolios that were hammered in the past year or so.

One of the best offers out there comes from BMO InvestorLine, a firm that always scores well in The Globe and Mail's annual ranking of online brokers. My take on InvestorLine is that it's less for stock jocks than it is for serious self-directed investors who want tools and resources to help make decisions.

The firm doesn't typically make grandiose offers to lure new customers, but until June 30 it will pay you $150 in cash and provide free trades for 30 days if you set up a new account with a minimum of $100,000. Is it renovation time in your portfolio? Then here's a cheap way to make the necessary buy-and-sell transactions.

Be sure to enquire about terms and conditions on any deals that look good. With BMO's offer, there's no limit on the number of trades you can make, but you don't technically get the transactions for free. You pay for them as usual, and BMO credits the fee back to you within two business days. The $150 is credited to your account at the end of the 30-day free trading period. If you take money out of your account for up to six months, and your balance falls below $100,000, you have to return your cash bonus and pay for your credited trade commissions.

A similar offer is available from Scotia iTrade, which is what Bank of Nova Scotia renamed E*Trade Canada after acquiring it recently. So far, the iTrade service looks very much like the old E*Trade (good news), and that includes the retention of an offer of 100 free trades for new customers.

The appealing thing about this offer is that you need to bring only $25,000 or more in assets by June 30 to qualify. Note that you'll have to pay as usual for your trades and then be reimbursed for up to $9.99 per transaction within 30 days of your order being filled. The trades have to be made within 60 days of activating the account.

Over at CIBC Investor's Edge, they're highlighting a long-standing program called CIBC Edge Advantage, where customers pay $395 for a package of 50 online stock trades to be made over a one-year period. That works out to $7.90 per trade, which is quite reasonable providing you use all available trades. If you exceed your allotment of 50 trades, you pay $6.95 per additional transaction.

Two other big, bank-owned firms, TD Waterhouse and RBC Direct Investing, aren't offering any deals for new customers right now. However, TD is touting some new additions to its list of tools available to clients. Example: A portfolio manager that lets you track your holdings with integrated real-time quotes, news and research. Don't dismiss the benefits of a feature like this. Many investors got into trouble in the bear market by not paying attention to the details in their portfolios.

The appeal of offers such as free trading or cash is that they give you a low- to zero-cost way of repositioning your portfolio. For example, you could:

Improve the quality of your portfolio by looking at beaten down blue-chip stocks, particularly those with a history of regularly increasing dividends.

Replace your unsuccessful stock and mutual fund choices with exchange-traded funds, which are low-fee index funds that trade like a stock.

Use ETFs to zero in on sectors you think will do well as the stock market strengthens.

Explore preferred shares as a way of juicing the low returns available from government bonds and guaranteed investment certificates.

Let's be clear about something - it's a dumb move to take your business to a broker on the basis of an introductory offer of free trades or cash. Only if you have done your due diligence on a firm, and found it measures up, should you make the move.

An obvious step in your research should be to go to a broker's website and check out, first, the fees and commissions charged and, second, the type of service being offered. Most brokers offer tours of their websites or demos of their trading platforms. InvestorLine has done an impressive job of showing services relevant to three types of clients - active traders, long-term investors and retirees.

Next, see how a broker fared in The Globe's annual online brokerage ranking, and in the ratings done by the analysis and consulting firm Surviscor.

Then, check out what investors are saying about online brokers on blogs and discussion forums. The Canadian Capitalist blog has a "discount brokers" category, and the Financial Highway blog posted a comparison of online brokers for RRSP and tax-free savings accounts on March 9 (you can find it in the site's archives).

Discussions about online brokers can be found on both the Canadian Business and Financial Webring forums. Try the "Need good discount broker - questions" thread on Financial Webring (you'll find it in the "Stock Picking" area of the site).

If you're curious about a particular broker, type its name into the search box on an online discussion forum such as Financial Webring. Do this with TD Waterhouse and you'll find some testy comments from investors who are angry about ongoing outages and delays on the firm's WebBroker trading site.

I asked TD Waterhouse about this and got the following reply: "Recently, there have been a few instances of issues impacting WebBroker. We have identified these as isolated, intermittent access and availability issues, linked to significant changes experienced and implemented over recent months. We do apologize for the inconvenience to our clients and are working hard to avoid these in the future."

Comments on specific online brokerage firms are also available in the personal finance area of the forums on RedFlagDeals.com, but you'll have to browse through the listings of the various discussion topics.

If anyone feels like getting a fresh forum on online brokers going, try the promising new Canadian Money Forum site. It has a thread called "choosing a discount broker," but it has been quiet so far.

Deals and due diligence

You've found an online broker offering a great deal for new customers. Here's how to get the lowdown on the firm to see if it's a good place to invest:

Step One: Check the broker's website

Look for website tours or demos, and check the fees and commissions

Step Two: Check Brokerage Ratings

The Globe and Mail's broker ranking

Surviscor.com

Step Three: Check Online Discussion Forums

Financial Webring

RedFlagDeals

Canadian Business

Canadian Money Forum

Step Four: Check blogs that cover online brokerages

Canadian Capitalist

Financial Highway

Million Dollar Journey