Discount brokers cater to affluent clients
I have a discount brokerage account at BMO InvestorLine and I pay $9.95 per trade. So, I’m a happy customer.
But those with less than $50,000 in assets in a BMO Investorline account are paying $29 per trade: almost three times as much. When MoneySmarts blogger Mike Holman did a detailed comparison of Canadian discount brokers, he came to a simple conclusion.
“Don’t pay $29 for a trade when you could be paying a lot less. That’s just not a good deal,” he advises readers on his blog.
Questrade had low commissions ($4.95 to $9.95 per trade) and ranked as his overall favourite. It also had no annual fees for those with smaller accounts.
Surviscor, an Oakville, Ont.-based firm, analyzes discount brokers’ services, using seven categories and 3,200 criteria questions.
Scotia iTrade placed first with an 87 per cent score in Surviscor’s latest report in August, followed by QTrade Investor (80 per cent), BMO InvestorLine and TD Waterhouse Discount Brokerage (both at 77 per cent).
CIBC Investor’s Edge was 10th at 62 per cent (the lowest score among the Big Five banks). Meanwhile, Questrade was 11th at 55 per cent.
Canadians are happy with discount brokers, said research firm J.D. Power and Associates in a recent survey. Overall satisfaction grows year after year.
However, satisfaction among Canadian investors trails that of U.S. investors by a wide margin.
Discount brokerage firms in Canada come up short in specific areas.
These include problem resolution, trading charges, and fees and interaction with clients.
Canadian brokerage firms also lag behind U.S. firms in contacting clients about products, services and seminars, website accessibility and the use of asset allocation and financial planning tools.
In J.D. Power’s ranking, the Canadian average for customer satisfaction is 700 out of 1,000. Only four discount brokers rank above that level: Disnat (768), BMO InvestorLine (720), National Bank Direct Brokerage (719) and TD Wa- terhouse Discount Brokerage (707).
Can our discount brokers narrow the gap with U.S. discount brokers?
BMO Investorline hopes to give more guidance to investors with its new adviceDirect service. It will ask a series of questions to get a detailed profile, then make specific product recommendations.
Connie Stefankiewicz, senior vice-president of BMO Financial Group, says adviceDirect is “a game changer” for online investors who don’t want to be all on their own and want “the increased confidence of having a co-pilot.”
Investors are looking for some- thing to straddle the line between full-service and online brokerage. But will they like BMO’s pricing? You need at least $100,000 in assets to open an adviceDirect account, and you pay an annual fee of 1 per cent on the first $500,000 in assets. (The minimum fee is $1,000 per year.) The fees are tiered, going down to 0.75 per cent a year on the next $500,000 to $1 million in assets and 0.5 per cent for the next $1 million and up. If you have $100,000 in assets, you get 30 trades a year with adviceDirect. BMO InvestorLine charges $9.95 a trade at that level. “Subtract $298.50 for trades and you’re paying $701.50 for advice you might not use,” says Will Ashworth, a Toronto-based freelance financial writer who follows investments closely. “At $250,000 in assets, you subtract $547.25 for 55 trades, leaving $1,952.75 for advice. The value added is debatable.” BMO gets full marks for spotting a new market niche and trying to serve it. But the pricing may be out of line with what Canadians are willing to pay for advice. Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca or www.ellenroseman.com