How to choose an online broker:
1. Ask friends, relatives and co-workers for a recommendation.
2. Consult The Globe and Mail's annual brokerage ranking, the latest version of which is in production right now and will be published on Nov. 21.
3. Go online – investing blogs, financial discussion forums and other resources offer a huge amount of information to help investors find the broker best suited to their needs.
I've produced the Globe's annual ranking going back to 1999, which makes it the country's longest continuously running survey of online brokers, also known as discount or direct brokers (you can read the latest ranking here). The top-ranked online broker for the past six years has been Qtrade Investor, an independent Vancouver-based outfit that combines low fees and plentiful tools and resources for the mainstream investors who are the target audience for the Globe ranking.
Consult your own circle of friends and contacts to find a broker, and consult The Globe. Then, cross-reference your findings with the many online resources available. Start with the online brokerage ratings from Surviscor, a consulting/research firm that specializes in bank and brokerage services delivered online. In Surviscor's latest ranking of online brokers, Scotia iTrade ranked No. 1, followed by Qtrade.
Surviscor's a tough marker, even though the brokers it ranks are clients. The firm has been ranking brokers since 2006 and its analysis focuses on both buy-and-hold investors and active traders.
The MoneySmarts blog's updated 2012 Canadian online brokerage comparison hands top spot to Questrade, another independent firm. Here's a case where cross-referencing makes sense. Surviscor has Questrade 11th out of 14, while I ranked it 10th out of 12. Where Questrade shines is in making low fees available to all clients, not just those with large accounts.
Bloggers are only as good as the amount of research they put into a comparison or ranking. MoneySmarts does some good work by creating comparative tables that cover fees, commissions and other features for all firms.
If you're interested in a particular broker, try a Google search along the lines of "Virtual Brokers review." Also check out online investing forums like Financial Webring, where the discount brokers category includes threads focusing on service at such firms as TD Waterhouse, Questrade and Scotia iTrade.
For a just-the-facts overview of the various online brokerage players, try a website for online investors called Sparx Trading. If you're interested in trading or monitoring your account from your smartphone, check out the mobile trading survey on this website. There's also a full pricing review covering 15 brokers.
More guidance on costs is available from a survey published earlier this year on the CBC website in which stock-trading commissions at 14 different brokers are compared. The bank-owned firms tend to cluster together on cost, but there are wide variations if you include low-cost independents like Questrade and VB.
More pricing information is available on the RateSupermarket.ca website, where investors fill out a quick profile of themselves and then get a personalized broker-by-broker cost comparison. Let's say you were an Alberta resident who wanted to open a TFSA account with less than $10,000 and you planned to make only a few trades per year. According to RateSupermarket.ca, your lowest cost options would be Questrade, Virtual Brokers and Qtrade.
A cost comparison of interest to investors using dividend reinvestment plans is available on the Canadian DRIP Primer website. Listed here is the cost of obtaining a share certificate, which is needed if you want to set up a DRIP directly with a company. You can also set up what's called a synthetic DRIP directly through an online broker – it's simpler to do, but not quite as flexible in terms of using your dividends to buy fractional shares (direct DRIPs generally allow this).
To compare brokers by their ability to keep their customers happy, check out the customer satisfaction rating published by J.D. Power and Associates. The 2012 winner in terms of overall satisfaction was Disnat, the online brokerage arm of Quebec-based Caisses Desjardins.
There's some good advice on how to conduct a search for the right online broker on the Morningstar Canada website. It's worth reading for the critique of one particular firm's online account setup process. The procedure was so frustrating that the author recommended you forget about online account sign-up altogether and instead go to your bank or credit union to fill out a paper application.
A follow-up article on the Morningstar Canada website looks at the research tools that online brokers offer clients to help them choose stocks, funds and bonds. The online brokerage business model is to provide tools and research to clients, but no advice on what to buy or sell. One exception is BMO InvestorLine, which is unique in offering clients the option of receiving help in managing their portfolios at an annual cost of 1 per cent of their account value.
There's also lots of useful information online on how to actually use an online broker. Feeling intimidated about placing your first order for a stock or ETF? Then prepare yourself by reading the MoneySmarts blog's step-by-step guides to both buying and selling stocks and ETFs. There's an exceptional level of detail in these guides that beats anything you'll find on a broker's own website.
Brokers, good and bad
I'd like to hear from you on what works and doesn't work at your online brokerage firm. Send me an e-mail at email@example.com, or jump into the online brokerage discussion thread on my Facebook personal finance page.
To see major online brokerage firms ranked, reviewed or compared
For information on commissions and fees
For investors interested in dividend reinvestment plans (DRIPs)
For customer satisfaction ratings
How to use an online broker