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Mutual Fund News

Revenge for the small-portfolio investor

On-line brokers offer a home for RRSP investors who have yet to save substantial assets in their plans, ROB CARRICK writes

The fatter your assets, the more they love you in the financial industry.

Account size is all-important in determining the level of service you'll get.

If you're just starting out or if you haven't built up your account, then you won't generate enough in fees and commissions to keep a financial planner or investment adviser happy.

How much interaction would you have if you did find an adviser to take you on as a client? Probably zero, unless you include Christmas cards and calendars.

Suggested solution for small accounts looking to set up a registered retirement savings plan: Open a self-directed RRSP at an on-line broker. If you have the time, the inclination and the knowledge to drive your own retirement savings plan, then an on-line broker can be a great vehicle. Or not. Open an account at the wrong on-line broker and you may feel as used and abused as a client of an indifferent adviser.

Small accounts need a break, which is why they're the focus of this year's edition of the annual Globe and Mail on-line brokerage guide for RRSP season. Seasoned do-it-yourself investors will find useful information here, but the emphasis is on people who want to set up a self-directed RRSP with $25,000 or less.

A dozen brokers are included in the rating and each of them was evaluated on their Web-based services alone. On-line brokerage clients can trade over the telephone, but they benefit from the lowest fees and the largest array of investment tools and research when they use the Internet.

Four rating criteria are used here.

Annual administration fees. You can't avoid them if you have a small account, but you can minimize them by choosing the right kind of account or firm.

Mutual funds. All brokers sell these obvious portfolio building blocks for small accounts, but fees and resources for helping you choose funds vary widely.

Stock-trading commissions. As your account grows, you can mix exchange-traded funds and individual stocks into your portfolio.

Retirement tools. On-line brokers provide no advice, but some offer useful tools that help you determine how much to save for retirement and what mix of investments will work best.

Using the ratings below and the accompanying chart, you should be able to find the broker that will charge you the least in fees for the assets you have to invest and offer the most resources. Let's take a look at how the players stack up.

Administration fees

Background briefing: Administration fees are the on-line broker's first line of defence against tourists who start accounts and leave them to languish. The fees range from $40 to $100 a year, plus taxes, and they disappear when you reach $15,000 in assets at some brokers and $25,000 at others. No broker is wonderful enough to justify paying, say, $100 a year in fees on a $10,000 account. That's like a guaranteed loss of 1 per cent.

Standouts: The FundPlus account at CIBC Investor's Edge costs just $25 a year until you surpass $15,000 in assets. You can buy mutual funds, bonds and guaranteed investment certificates, but not stocks.

The Basic RRSP at TD Waterhouse is much the same as CIBC's FundPlus, but you have to pay $25 a year until you get to $25,000 in assets.

Good deals: Qtrade Investor charges $40 until your account reaches $25,000, while HSBC InvestDirect charges $50 until you hit $15,000. With more than $15,000, you'll avoid fees at BMO InvestorLine, Investor's Edge, E*Trade Canada and ScotiaMcLeod Direct Investing.

Mutual funds

Background briefing: You can buy or sell thousands of mainstream mutual funds at on-line brokers at little or no cost, other than early redemption fees that apply if you sell within three to six months after you buy. Brokers don't offer a free service here -- they get a share of the continuing management fees that fund companies levy on their clients.

Some small boutique fund companies pay little or nothing to brokers, which means that a broker may levy a small fee or commission when you buy their products. Examples of these fund companies are Beutel Goodman, Chou, Mawer, McLean Budden, and Phillips Hager & North. One other point is that some brokers offer useful research to help you choose funds, while others offer prepackaged fund portfolios that can help ensure you build a properly diversified portfolio.

Standouts: BMO InvestorLine has no fees for most funds, but it charges $32 to buy and sell the likes of PH&N, McLean Budden and a few others. A big attraction here for rookie investors is the availability of portfolios assembled by fund analyst Ranga Chand from a wide variety of companies. You choose a portfolio based on your risk tolerance, specify how much you want to invest and the money is automatically distributed according to the asset allocation model. You can also buy Mr. Chand's fund picks individually.

E*Trade Canada has no buy or sell fees, period. To help clients choose funds, E*Trade offers an archive of monthly newsletters from investing expert Gordon Pape, and its fund profiles carry ratings from the independent analysis firm FundScope.

ScotiaMcLeod Direct Investing has no fees, and there's a selection of guided fund portfolios that are filled out by products from third-party fund companies.

TD Waterhouse has no fees for most funds, but it will charge you $33.75 to sell funds from some no-load families and there's a 1-per-cent commission to buy PH&N funds.

On the plus side, TD offers a list of funds selected by in-house analysts, and you get access to TD's inexpensive e-fund series of index funds.

Good deals: HSBC InvestDirect charges nothing to buy or sell funds from any company, while CIBC Investor's Edge charges only a $25 redemption fee for no-load funds other than those from CIBC's own fund arm.

Neither offers much help in choosing funds, though.

Stock trading commissions

Background briefing: Competition in this area among on-line brokers is, to put it politely, modest. The range is from $24 at eNorthern, a tiny broker with nothing to recommend it beyond low commissions, to $29.95 at RBC Action Direct. Some brokers charge around $25 for market orders, where you're willing to pay or accept the going market rate for a stock, and around $29 for a limit order, where you decide the maximum you'll pay or the minimum you'll accept.

Standouts: InvestorLine, Investor's Edge, Credential Direct and ScotiaMcLeod charge $25 to $26 for market orders and around $29 for limit orders.

E*Trade, National Bank Discount Brokerage and Qtrade charge $27 for all orders.

Retirement tools

Background briefing: People who invest sensibly and effectively make happier clients, which explains why on-line brokerages offer on-line calculators to help you determine the best mix of stocks and bonds for your portfolio and develop a retirement savings strategy. Though sometimes simplistic, these tools help ensure you're on the right track.

Standouts: BMO InvestorLine offers very strong asset allocation and retirement planning tools.

Credential Direct offers a comprehensive lifestyle financial planner that includes retirement, plus an asset allocation tool.

E*Trade, RBC Action Direct and TD Waterhouse have useful asset allocation tools, but their retirement calculators are rudimentary.

On-line brokerage mini-ratings

BMO InvestorLine

http://www.bmoinvestorline.com

Parent: Bank of Montreal

Phone: 1-800-387-7800

RRSP admin. fees: 3/5 score ($100 < $15,000)

Fees and resources

for mutual fund investing: 4.5/5

Minimum stock

commission: 4/5

Retirement tools: 5/5

Score: 16.5/20

CIBC Investor's Edge

http://www.investorsedge.cibc.com

Parent: Canadian Imperial

Bank of Commerce

Phone: 1-800-567-3343

RRSP admin. fees: 4/5

($100 < $15,000; $25 for FundPlus account)

Fees and resources for mutual fund investing: 3/5

Minimum stock

commission: 4/5

Retirement tools: 2/5

Score: 13/20

Credential Direct

http://www.credentialdirect.com

Parent: The credit union system

Phone: 1-877-742-2900

RRSP admin. fees: 3/5

($50 < $25,000)

Fees and resources for mutual fund investing: 3/5

Minimum stock

commission: 4/5

Retirement tools: 5/5

Score: 15/20

Disnat

http://www.disnat.com

Parent: Mouvement Desjardins

Phone: 1-877-403-3656

RRSP admin. fees: 3/5

($50 < $25,000)

Fees and resources

for mutual fund investing: 2/5

Minimum stock

commission: 2/5

Retirement tools: 0/5

Score: 7/20

eNorthern

http://www.enorthern.com

Parent: Northern Financial Corp.

Phone: 1-888-829-7929

RRSP admin. fees: 1/5

($50 < $40,000)

Fees and resources

for mutual fund investing: 3/5

Minimum stock

commission: 5/5

Retirement tools: 0/5

Score: 9/20

E*Trade Canada

http://www.etrade.ca

Parent: E*Trade Group Inc.

Phone: 1-888-872-3388

RRSP admin. fees: 3.5/5

($75 < $15,000)

Fees and resources

for mutual fund investing: 5/5

Minimum stock

commission: 3.5/5

Retirement tools: 3/5

Score: 15/20

HSBC InvestDirect

http://www.investdirect.hsbc.ca

Parent: HSBC Group

Phone: 1-866-865-4722

RRSP admin. fees: 5/5

($50 < $15,000)

Fees and resources

for mutual fund investing: 4/5

Minimum stock

commission: 2/5

Retirement tools; 1/5

Score: 12/20

National Bank Discount Brokerage

http://www.invesnet.com

Parent: National Bank of Canada

Phone: 1-888-293-6637

RRSP admin. fees: 3/5

($50 < $25,000)

Fees and resources

for mutual fund investing: 3/5

Minimum stock

commission: 3/5

Retirement Tools: 2/5

Score: 11/20

Qtrade Investor

http://www.qtrade.ca

Parent: Privately owned

Phone: 1-877-787-2330

RRSP admin. fees: 3/5

($40 < $25,000)

Fees and resources

for mutual fund investing: 3.5/5

Minimum stock

commission: 3.5/5

Retirement tools: 4/5

Score: 14/20

RBC Action Direct

http://www.actiondirect.com

Parent: Royal Bank of Canada

Phone: 1-800-769-2560

RRSP admin. fees: 3/5

($50 < $25,000)

Fees and resources

for mutual fund investing: 3.5/5

Minimum stock

commission: 1/5

Retirement tools: 4.5/5

Score: 12/20

ScotiaMcLeod

Direct Investing

http://www.scotiamcleoddirect.com

Parent: Bank of Nova Scotia

Phone: 1-800-263-3430

RRSP admin. fees: 3/5

($100 < $15,000)

Fees and resources

for mutual fund investing: 5/5

Minimum stock

commission: 4/5

Retirement tools: 2/5

Score: 14/20

TD Waterhouse

http://www.tdwaterhouse.ca

Parent: Toronto-Dominion Bank

Phone: 1-800-465-5463

RRSP admin. fees: 3.5/5

($100 < $25,000;

$25 for Basic RRSP)

Fees and resources

for mutual fund investing: 3.5/5

Minimum stock

commissions: 2/5

Retirement tools: 3/5

Score: 12/20

© 2007 The Globe and Mail. All rights reserved.

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