Madhavi Acharya-Tom Yew
Business Reporter - Toronto Star
Online trading platforms give investors a chance to manage their own portfolios at a lower cost.
Today's online investors are looking for cheaper trades – but they still expect top-quality products, technology and educational and research tools.
"The typical online investor is looking for value and overall experience. They want good, trusted, reliable research. They also want a wide breadth of research, not just a few companies, but thousands and thousands," said Joel Bernard, vice-president of business development for QTrade Financial Group. "That said, you still have to be very competitive."
There's no question that the cost of online investing has declined dramatically in recent years, particularly when it comes to buying and selling equities.
"There's been intense competition in the discount brokerage industry for a number of years around stock trading commissions," said Jason Storsley, head of RBC Direct Investing.
By his estimates, commissions have dropped by about 47 per cent since 2005.
At the discount brokerages operated by Canada's big banks, trades for active investors, those who conduct 150 or more transactions in a three-month time frame, can start as low as $6.95. At independent brokerages, commissions can start at $4.95 per transaction.
That's compared to as much as $150 per trade conducted through a full-service broker.
Of course, the full-service side also comes with advice, but discount brokerages are betting that more and more Canadians will be tempted to cut their investing costs by doing their trading online, as long as they can find the research and educational material they need to make investment decisions.
Not sure where to begin?
For investors taking a first look at the Internet, Bernard offers this advice:
In terms of choosing an online broker, "identify who you are as an online investor. Am I someone who just wants to day trade, or do I need a lot of research and financial planning tools? Then go out and compare," he said.
"Some traders will only trade once a year so it's less important for them to save a few dollars compared to the research and the tools to make sure they're making the kinds of decisions that will pay off in the long run."
Even for investors who shy away from picking their own stocks, there are ways to save when buying mutual funds online.
The Royal Bank of Canada, for instance, offers a line of mutual funds that have a reduced MER. The lower management expense ratio on the D-series RBC funds reflects a reduced trailer fee. These fees would typically go to professional advisers that help investors with their portfolio selection. But since online investors are making those choices themselves, they shouldn't have to pay the trailer fee.
The MERs on these funds are about half the industry average, and range from about 0.5 per cent to 1.44 per cent. A minimum investment of $10,000 per fund is required.
Those savings can add up over time and have a substantial positive impact on a client's portfolio, Storsley said. For example, the D-series RBC Canadian equity fund series D has an MER of 1.6 per cent, compared to the 2.39 per cent for the industry average. For a $25,000 investment over 15 years, the investor would save about $11,400 in fees. "That savings associated with the D-series fund can really add up over time for online investors who are making their own investment choices," Storsley said.
Questrade offers investors a refund on trailer fees. It still charges an administration fee, but that's less than the trailer fee being returned.
Another option is TD Bank Financial Group's TD e-funds. Available online only through TD, these are primarily index funds that can be used to build a long-term portfolio. Their MERs average around 0.5 per cent, a fraction of regular mutual funds.
Investors looking to cut their costs are also turning to Exchange-Traded Funds, also known as ETFs. These investments, which are essentially index funds that trade on an exchange, typically also have MERs that are significantly lower than those of traditional mutual funds.
Vancouver-based Qtrade's online brokerage, called QTrade Investor, has repeatedly topped customer satisfaction surveys, ranking higher than the offerings by major Canadian banks.
"We spend a lot of time listening to our clients," Bernard said.
Customers, for instance, pushed the firm to provide Morningstar research on mutual funds, and a variety of options trading. QTrade was also one of the first online brokerages to offer an ETF screener to help investors choose from over 100 different products.
"Despite being one of the most competitive online brokerages in terms of pricing, our focus has always been listening to and providing services that meet the needs of our clients. By doing that, I think price becomes less of a factor," Bernard said.
The market has changed enormously in the 10 years QTrade has been in business, Bernard added.
"Years ago it was a discount broker if people were using the phone. Today less than 5 per cent of transactions actually go through the phone," he said. "The technology is always changing whether it's to do orders or stay on top of research. If you're looking inward too much, it's possible to miss the demands of your client base. You need to identify what those changes are and embrace them."
While demand for access on mobile devices may increase in the coming years, Bernard believes the real challenge will be providing the right online tools and research for online investors.
"Whether it's using an adviser or people doing it themselves, people do want to know more so giving them the tools to allow them to do that is the continuing evolution of where we're going."
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