Choosing a discount broker

An individual who is just starting to save has a relatively small amount of money to invest. A tax-fee savings account (TFSA) and an RRSP are likely the only accounts she plans to open. To avoid relatively costly trading commissions and gain adequate diversification, she wants a discount broker with a reasonable selection of mutual funds and perhaps some commission-free exchange-traded funds. Being new to investing, she needs comprehensive educational resources and tools.

Most discount brokers have no minimum account size, but discourage small accounts by charging various fees and, in some cases, higher trading commissions. Maintenance fees of $50 or $100 per year for RRSPs are common for accounts under $25,000. Some brokers even levy quarterly inactivity fees. The impact of various administrative fees on the returns of small accounts can be significant. For example, a $100 fee on a $5,000 RRSP is an automatic 2% hit to returns. (TFSAs are usually exempt from maintenance fees levied on small accounts, which makes sense since the TFSA contribution limits are much lower than for RRSPs.)

RBC Direct Investing is one of the best choices for an investor of modest means. Most brokers require a minimum RRSP account size of $15,000 to avoid pesky account-maintenance fees. RBC's minimum is $15,000 total assets (TFSA, RRSP and any other accounts), so a new investor may be able to avoid these fees even if her RRSP is quite small.

RBC offers an extensive selection of Series D mutual funds, which are designed for self-directed investors and have relatively low management-expense ratios. Its educational resources are extensive and include personalized learning plans and practice accounts. RBC's performance reporting is among the best in the Canadian discount-brokerage industry.

If you have less than $15,000 in total investments, RRSP maintenance fees are almost inevitable. In this case, Qtrade Investor is a good choice since its account-maintenance fee for RRSPs is a relatively cheap $50 a year. Qtrade's mutual-fund selection includes strong performing, low-fee funds from Mawer Mutual Funds, Leith Wheeler Investment Counsel Ltd. and Steadyhand Investment Funds Ltd. These funds aren't offered by RBC because they pay no trailer fees to brokers.

Qtrade has a well-deserved reputation for great service; I can confirm from personal experience that a real person answers the phone promptly. Another plus for Qtrade is a limited selection of commission-free ETFs. Also, Qtrade is one of the few discount brokers that report personal rates of return to clients.

If an investor has $25,000 or more in RRSP assets, BMO InvestorLine is another good choice. With this account size, there are no administration fees.

BMO scored the number one spot in Surviscor's most recent Canadian Online Discount Brokerage Review and took home the Best Online Brokerage award at the 2013 Morningstar Awards. BMO's fund line-up includes the aforementioned low-fee mutual funds from Mawer, Leith Wheeler and Steadyhand.

As for services, BMO's InvestorLine adviceDirect is unique in Canada's discount-brokerage industry. It's a fee-based option that provides personalized advice. Inexperienced investors may find adviceDirect particularly useful. As with Qtrade and RBC, clients at BMO are able to track the personal rates of return of their accounts.

A mid-career individual with sizable savings has cash to invest beyond contributions to a TFSA and RRSP. His list of requirements also includes a regular investment account and perhaps a registered education savings plan (RESP) to save for his children's education. Buying stocks directly is on his radar screen, making access to top-notch stock research and competitive pricing essential.

He owns some foreign equities in his RRSP and wants a U.S.-dollar RRSP account to avoid extra foreign-exchange costs. Portfolio performance reporting is a must to ensure he is meeting his retirement-savings objectives. Due to time pressure, a broker that responds promptly to inquiries is important.

BMO Investorline, National Bank Direct Brokerage, Qtrade Investor and RBC Direct Investing are the four discount brokers that offer all the above noted features.

The best choice(s) for an individual investor depends on whether his portfolio size qualifies for the extra customer services that brokers offer to high-net-worth clients.

Qtrade Investor's high-net-worth program embraces a broad definition of what constitutes an affluent investor, since it's available to clients with total household assets of $50,000 or more. There is a dedicated customer-service team and priority phone and email service. To qualify for this service, clients must access trade confirmations and statements electronically.

With a $250,000-plus portfolio, investors are eligible for RBC Direct Investing's Royal Circle program and access to a preferred telephone line and service from the most experienced staff members. This portfolio size would also qualify for BMO InvestorLine's 5-Star program and exclusive access to a dedicated customer-service team.

National Bank Direct Brokerage offers an enhanced customer-service package to clients with $500,000 or more in family assets. However, it is their Private Direct Brokerage program for families with $1 million or more that stands out, due to the exceptional customer service. This program features a dedicated account manager, private telephone access, personalized electronic communications and annual account reports plus follow-up on debt maturities.