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the shrewd investor

The time-tested axiom “if you can’t measure it, you can’t manage it,” applies to investing. No consumer should invest on her own unless she can track how well her portfolio is performing, writes personal finance author Gail Bebee.Andy Dean

Anyone planning to join the ranks of do-it-yourself investors needs a discount broker account. While also known as direct investing or online brokerage accounts, discount broker best captures what these accounts offer: the ability to invest at a substantial discount to the cost of a full-service investment adviser.

This lower cost comes at a price. No one helps you build a suitable portfolio, decide when to buy or sell an investment, or holds your hand, so to speak, when the stock market crashes. Even so, some discount brokers provide essentially all the information and tools that a consumer needs to invest successfully on her own.

If you are shopping for a discount broker, what should you look for? Which broker best meets the needs of the average retail investor? (We are not talking day traders in this article.)

Don't fixate on low stock trading commissions or commission-free ETFs when you begin your search for a broker. In my opinion, two criteria trump all others: the financial strength of the company and personal return rate reporting. This is where the process of winnowing the 15 or so discount brokers who have set up shop in Canada should begin.

If a discount broker goes bankrupt, clients might get back all the cash and securities in their accounts as all brokers are required to be members of the Canadian Investor Protection Fund (CIPF). However, the claims process will be a hassle and it could be several months or more before client assets are returned. I think it is worth minimizing this risk by choosing a discount broker that is financially strong and has a successful track record.

The time-tested axiom "if you can't measure it, you can't manage it," applies to investing. No consumer should invest on her own unless she can track how well her portfolio is performing. There are two ways to accomplish this: do the calculations yourself or patronize a brokerage which does the work for you. While there are software and online tools available to figure out portfolio return rates, this task can be tedious, especially if you add or remove money regularly or trade frequently. Unless you really enjoy crunching numbers, a discount broker that calculates the return rate of your account(s) is the way to go.

A check on which firms offer at least some form of this critical feature reduces the field of qualifying brokers to four: BMO InvestorLine, National Bank Direct, Qtrade Investor and RBC Direct Investing. All four are long-time players in the discount brokerage space and have considerable financial strength. Three are owned by large banks and Desjardins Group is a large shareholder of the fourth, Qtrade Investor.

The capability to hold U.S. dollars in an RRSP account is important because most investors have an RRSP and these accounts are usually the best place to hold foreign equities. Without this, every U.S. dollar transaction is converted to Canadian dollars and the client pays a foreign exchange markup. National Bank Direct does not offer this feature.

The other brokerage features that I think are important to consider are more subjective than the foregoing factors.

– Does the broker offer an ample choice of stocks, bonds, mutual funds and exchange-traded funds?

– Are the investment research and tools extensive, up-to-date and useful?

– How user friendly are the website and online trading platform?

– Can investors learn how to use the website from the information and tutorials available online?

– Are the investing basics adequately covered in the educational materials?

– Are client support services adequate?

– Is the fee schedule competitive?

After evaluating BMO InvestorLine, Qtrade Investor and RBC Direct Investing against these criteria, I concluded that an account at any of these brokers would serve a DIY investor reasonably well. Of the three, BMO InvestorLine gets my top pick for best discount brokerage in Canada. Here's why.

– The mutual fund lineup includes low-cost, highly ranked funds from Mawer, Steadyhand and Leith Wheeler. RBC does not offer these funds.

– BMO has the most extensive stock research. It includes Morningstar, S&P and Ford equity research. Higher-net-worth clients can also access BMO's own capital markets research.

– The ETF and stock screeners are easy to use. The sliding tabs for picking criteria with Qtrade's screeners can be tricky to use.

– The order entry is straightforward and the website is easy to navigate. The main navigation tabs have extensive drop-down menus to quickly locate a topic of interest. RBC's site can be confusing with many clicks needed to, for example, find their list of lower-cost RBC mutual funds.

– The Getting Started and How to Use BMO InvestorLine sections clearly explain how to use the website. Qtrade lacks a specific website section on this topic.

– The BMO Education section covers all the investing basics and is the only one with a Tax Corner. The Research section includes model portfolios for ETFs and mutual funds and various stock portfolio ideas. I find the RBC model portfolios overly complicated. Qtrade does not have model portfolios.

– BMO is the only discount broker with a personalized advice option. BMO InvestorLine adviceDirect is a fee-based account offering client-specific online advice.

– BMO client service ranks well. BMO scored among the top five of 16 brokers in the Surviscor 2012 – Online Brokerage Customer Email Responsiveness Review. Qtrade was third and RBC was 12th.

– BMO's fees are competitive with the other two brokers.

No broker is perfect. BMO could improve by eliminating its archaic $5,000 account minimum and introducing the transparent bond pricing offered by Qtrade. Still, BMO InvestorLine gets my vote as the best discount broker in Canada for the average investor.

Note: Gail Bebee owns a few Bank of Montreal shares, and is a client of RBC Direct Investing.

Ms. Bebee is Canada's independent voice on personal finance and author of No Hype –The Straight Goods on Investing Your Money, a popular book of investing basics for Canadians from a financial industry outsider viewpoint. Through her writing, speaking and teaching, Gail shows people how to take control of their money and achieve their financial goals. Her column will appear monthly on the Financial Road Map site. Her website is

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