Online brokerages keep getting better: trading costs have been falling, more features are added, and user-friendliness improves all the time.
Do-it-yourself investors in Canada could find the array of choices confusing, and it’s tempting to just pick the one with the lowest fees, but there are other factors to consider too.
Just how important is cost? Trading fees eat into your investment returns so it’s definitely important to be mindful of how much you are paying. There are several low-cost brokers in Canada.
Questrade is the most recent online broker to offer free trades to buy and sell stocks and ETFs (previously it was only free to buy) and other brokers like WealthSimple and National Bank Direct Brokerage also offer free trades. Scotia iTrade and BMO InvestorLine charge commissions on most trades, although they have a list of ETFs that are free to buy and sell.
But for people who are long-term, buy-and-hold investors, trading commissions are not really that big of a deal. If you contribute to your registered retirement savings plan (RRSP) and tax-free savings account (TFSA) a couple of times per year, you’re not going to be placing many trades.
On the other hand, if you contribute to your accounts regularly by adding to your TFSA and RRSP with your biweekly paycheque, for example, then you are probably going to be making something like four trades a month. Considering that the most expensive online brokers in Canada charge about $10 per trade, this would add up to $40 a month or $480 a year. That’s not nothing; on $50,000 portfolio it amounts to almost 1 per cent.
There’s another consideration when evaluating the right broker for you: convenience. One of the roadblocks to managing personal finances is complexity. If you have bank accounts, credit cards, and investments spread across several places, it’s hard to see the big financial picture and it takes more time to manage everything. Things slip through the cracks or don’t get done at all.
Sometimes the price of convenience is well worth it and this might mean using the online brokerage at your primary bank. Using your bank’s discount brokerage makes it very easy to see all of your financial information in one place with one login ID. It’s also very easy to transfer money between your chequing account and your online brokerage accounts.
Each of the Big Six banks have an online brokerage. All are good and will give you everything you need to manage your investments. But with the exception of National Bank, they aren’t the cheapest.
Lastly, investors should consider the “look and feel” of an online brokerage. Some platforms are clear and easy to navigate while others can look cluttered. If you are not particularly interested in doing stock research or following the financial news – and DIY investors don’t need to be – then you will appreciate an easy-on-the eyes broker. WealthSimple comes to mind here.
No matter which online broker you choose, you can be confident that your funds are protected. All brokers are members of the Canadian Investor Protection Fund – or CIPF – which guarantees that you’ll get the money in your accounts in the unlikely event that the broker goes belly-up.
There are other secondary factors you can use as a tie-breaker – things like account maintenance fees, foreign currency exchange rates, and whether all types of accounts are available. For example, Registered Disability Savings Plans are not available at brokers including Questrade and you can’t buy guaranteed investment certificates (GICs) at WealthSimple.
Don’t let choosing your online broker be a stumbling block to getting invested and don’t overthink it. Do a little reading and just pick one. It’s hard to make a bad choice.
Anita Bruinsma is a Toronto-based financial coach and a parent of two teenage boys. You can find her at Clarity Personal Finance.
