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Each digital broker has its pros and cons, and determining which is right for you depends on your priorities and what type of investor you are.Getty Images
In June, The Globe and Mail released its latest ranking of 15 online brokers in Canada. Independent brokers Questrade and QTrade top the list, while the No. 3 and No. 4 spots go to two of Canada’s big banks: Royal Bank of Canada RY-T and Toronto-Dominion Bank TD-T. Wealthsimple and Bank of Montreal BMO-T are near the bottom of the list.
But that doesn’t mean that Questrade is the best option for you, or that you should shun Wealthsimple. Each broker has its pros and cons, and determining which is right for you depends on your priorities and what type of investor you are.
You might be tempted to go with the lowest-cost option. A Globe and Mail survey of self-directed investors showed that fees are their top consideration. That makes sense, since keeping your investment costs in check can make a significant difference over time.
Fees matter more to some people than others, however. If you are an active trader – someone who buys and sells stocks and ETFs frequently – then fees matter a lot as they reduce overall returns. They matter even more if you are trading small amounts, since a flat commission can be a large percentage of your trade.
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For investors who take a buy-and-hold approach to investing, fees aren’t as big a concern. If you’re only placing a few trades a year, paying $10 a commission should not be a determining issue.
Even if you want to keep costs low, fees don’t differentiate the brokers the way they used to. Trading costs have come down a lot over the past five years, and most brokers offer, at a minimum, free trades on select ETFs, allowing investors to build a great portfolio for dirt cheap.
Keep in mind that BMO will get a boost in its ranking next year as it just eliminated trading fees on all stocks and ETFs. It’s the first of the Big Five banks to do so, and it might spur others to follow suit.
The Globe’s ranking also considers the usability of the desktop and mobile platforms, and the products and services available. This includes how easy it is to open an account, what kind of market research capabilities are available and how extensive the brokers’ portfolio monitoring services are.
There are plenty of items to consider in this category, but unless you are an active trader, you just need to focus on a few important qualities such as robust performance reporting, an accurate asset allocation breakdown and detailed income forecasting, which is how much income you will receive from interest and dividends. Placing trades should also be easy.
A few special considerations aren’t addressed in the rankings. For example, if you want to buy and sell investments in U.S. dollars, what are the costs?
All online brokers will allow you to hold both currencies, which reduces the need to convert between U.S. and Canadian dollars, but if you frequently exchange between currencies, you’ll want to use a broker that charges low foreign exchange commissions.
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You may also want a broker that makes it easy to use Norbert’s Gambit, a tactic that allows you to avoid paying foreign exchange fees by using dual-listed securities, especially if you’re converting large sums of money back and forth. These fees are all over the map, so you’ll need to do a bit of research on this one.
If you are one of the 1.1 million people who qualify for the disability tax credit, you will want to have a registered disability savings plan, or an RDSP. The only broker offering a self-directed RDSP is TD Direct Investing.
Lastly, consider the convenience factor. Using the online broker offered by your primary bank allows you to keep your money in one place. When you log on to your banking platform, you will get a snapshot of all of your accounts, making it easier to see the big picture. It also makes transferring funds in and out of your online brokerage accounts easier and usually faster.
Self-directed investing is getting better all the time, so take full advantage of what’s on offer to find what’s best for you. The Globe’s ranking is an excellent place to start.
Anita Bruinsma is a Toronto-based certified financial planner at Clarity Personal Finance.