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A newcomer's guide to online investing

The unspoken truth of starting out as a do-it-yourself investor is that most online brokerage firms don't want you as a client until you have roughly $15,000 to $50,000 in your account.

At those levels, you're freed from having to deplete your returns by paying annual administration fees for registered retirement savings plans and maintenance fees for small non-registered accounts. You also benefit from much cheaper stock commissions.

So why even consider online investing if you're building an account from zero? Here are four good reasons:

Quality low-cost mutual funds can be purchased at no cost through most online brokers.

A small number of brokers offer a list of exchange-traded funds that you can buy or sell without paying stock-trading commissions. (The basic ETF is a low-cost index-tracking fund that trades like a stock.)

There are a couple of online brokerage firms that are friendly to newcomers. They have low stock-trading commissions and have dispensed with RRSP account admin fees.

Almost all brokers offer tax-free savings accounts (TFSAs) without admin fees.

As a follow-up to last week's column on how young adults can get started as investors (read it here:, let's look at some key points in how a newcomer to online investing should choose an online broker. The main benefits of using an online broker are the wide choice of available investments as well as lower costs than you would pay if you had an adviser.

Mind the fees and commissions, though. With a six-figure account, they're not a concern. But with $5,000 in your account, an annual RRSP administration fee of $100 reduces your returns by a very significant 2 per cent.

Minimum account size

Many online brokers will let you start an account with any amount of money, but a few require new accounts to have at least $1,000 and one firm, BMO InvestorLine, has a $5,000 minimum for accounts other than TFSAs (where there's no minimum).

Note, too, if any of the investments you plan to buy have minimums. Top low-cost mutual fund families have minimum upfront investments of $5,000 to $10,000.

Say you wanted a low-cost balanced fund for your start-up RRSP. Mawer Canadian Balanced RSP and PH&N Balanced D have a $5,000 minimum initial purchase requirement, while Beutel Goodman Balanced D and Steadyhand Founders both have $10,000 minimums.

Other fund companies may have minimums as low as $100 to $1,000, but they will typically have higher fees.

If you can buy ETFs with zero commissions, any account size is fine. With $1,000, you could divide your money into four funds - a broad Canadian stock index ETF, a Canadian bond index ETF, a U.S. stock market ETF and an international stock ETF.

Account fees

The easiest way to get going at an online brokerage and not pay any account maintenance or administration fees is to go with a TFSA.

Almost universally, they're exempt from either type of fee.

RRSPs are often subject to annual admin fees of as much as $100, so they're less attractive to newcomers building up their accounts from nothing. Scratch Scotia iTrade off the list of brokers without any RRSP fees. The firm re-jigged its pricing this month and now charges $100 until you reach $25,000 in assets at the firm (in any number of accounts).

That leaves just two brokers, Questrade and Virtual Brokers, with zero RRSP fees for all clients.

Another way to get around high RRSP admin costs is to use the low-fee RRSP accounts offered by Credential Direct and TD Waterhouse, which cost $25 a year until you grow your account to $15,000 or $25,000, respectively, or Qtrade, which charges nothing for its low-fee RRSP but requires you to hold funds in the OceanRock/Meritas family. These low-fee RRSP accounts are designed for people who want to hold mutual funds and GICs or bonds only.

Another twist on avoiding admin fees comes from RBC Direct Investing, which on July 1 will introduce a $25 quarterly charge for clients with less than an aggregate $15,000 in all accounts with the firm.

You'll be able to avoid this charge in a number of ways, including set-up of a preauthorized chequing plan in which a minimum $100 a month goes into your RBC Direct Investing accounts. Students and recent grads also qualify for a fee waiver.

Don't open a non-registered investment account at an online broker without first asking if there are any account maintenance fees for small balances. These fees are often waived if you also have a registered account at the same firm.

Mutual fund commissions

Most firms have eliminated fees for buying and selling mutual funds, but never buy a low-cost fund from the likes of Beutel Goodman, Mawer, PH&N or Steadyhand without first asking if there is a charge.

Brokers make little or nothing by selling these funds and in rare cases they may try to charge a purchase commission to buyers. With the vast majority of mutual funds, the management fees they charge include a hefty slice that goes to the selling broker. This is called a trailing commission.

A good mutual fund option for online investors is the TD e-series of mutual funds, which you can use if you're a client of the online broker TD Waterhouse.

If you're buying them in an RRSP account and are starting from scratch, make sure to set up a "basic" plan to benefit from the low admin fee.

ETF commissions

Scotia iTrade introduced zero-commission ETF trading last year and so far just two firms have followed suit - Qtrade and Virtual Brokers. In each case, the selection of zero-commission ETFs is limited but still large enough to allow for the building of a diversified portfolio without paying the usual brokerage stock-trading commissions.

Stock-trading commissions

If you have a very small account, think about how much emphasis you want to put on the cost of trading stocks. There's not much sense in dividing a few thousand dollars between a bunch of stocks that cost you $29 a trade. Better to use mutual funds in that case. ETFs are also an option, but the cost of buying them can rise quickly if you use one of the many brokers that price online stock trades in the $29 range for accounts with less than $50,000. Questrade is a cheap alternative here. It charges as little as $4.95 a trade. Virtual Brokers offers trades as cheap as 99 cents a pop.

More info

Check out my latest ranking of online brokers at It goes into greater detail in areas like research and portfolio planning tools and resources for tracking how your investments are doing.

For more personal finance coverage, follow me on Twitter (rcarrick) and Facebook (Rob Carrick).



Here's a rundown on costs for people starting to invest for themselves at an online brokerage firm.

BrokerMinimumaccountsizeAnnualRRSPadmin. feeAsset levelwhere RRSPfee waivedLow-feebasic RRSPaccountoptionAnnualTFSAadmin. feeMinimumonlinestocktradingcommissionComm.-freeETF trading
BMO InvestorLine$5,000$100$25,000nonone$29no
CIBC Investor's Edgenone$100$25,000nonone$28.95no
Credential Directnone$50$15,000yes/$25none$19no
HSBC InvesetDirectnone$50$15,000nonone$28.88no
National Bank Direct Brokeragenone$100$25,000no$50$28.95no
Qtrade Investor$1,000$50$15,000yes/no costnone$19/$23choice of 60
RBC Direct Investingnone$75$25,000nonone$28.95no
Scotia iTradenone$100$25,000nonone$24.99choice of 50
TD Waterhousenone$100$25,000yes/$25none$29no
Virtual Brokers$1,000nonen/an/anone99 centschoice of 100


Low-fee RRSPs can typically hold mutual funds and GICs or bonds, but not stocks or exchange-traded funds.

BMO InvestorLine has no minimum for TFSA accounts.

National Bank Direct Brokerage offers several options for clients to avoid TFSA admin. fees.

Qtrade's minimum online stock trading commission is $19 for market orders (where you buy and sell at the going market price; add $4 for limit orders (you put a floor on what you'll sell for and a ceiling on what you'll pay).

Qtrade's basic RRSP requires you to hold at $5,000+ in funds in the OceanRock/Meritas family.

RBC's account admin. fees change on July 1; clients with less than $15,000 in assets in all accounts with the firm will pay $25 per quarter in total unless they meet a variety of criteria that allow for a fee waiver.

© 2007 The Globe and Mail. All rights reserved.

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