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Online Brokers

If you’ve decided that you want to manage your own investments and use ETFs, you might be asking “Now what?”

If you’re investing in ETFs, you really have two options for getting invested: doing it yourself using an online broker or using a robo-advisor. In some cases, you may be able to own ETFs through a financial advisor but generally you’ll need an online broker to take full advantage of passive investing.

Don’t be intimidated by the name; an online broker is simply a company that provides a service for people to trade stocks. There are two main functions of an online broker: the first is that it is a financial institution that holds your money and facilitates the trades. It also provides the web-based platform where you can see your accounts and place your trades.

Choosing an online broker

The are many online brokers to choose from in Canada. Each of the big banks offers the service, and there are non-bank companies like Questrade, Q*Trade, WealthSimple, and Interactive Brokers. Each broker has its strengths. When choosing which broker to use, here are some considerations:

1. How much commission to they charge?

2. How detailed are the reports on your portfolio?

3. Is it easier for you to have an online brokerage account with your bank?

Online brokers may charge a commission to place trades: each time you buy or sell something, you pay a fee. The commission fees vary a lot depending on which broker you use. For example, WealthSimple charges no commission to buy and sell ETFs. Questrade charges no commission to buy, but it charges $9.99 to sell. Scotia iTrade has a list of ETFs that are commission-free. RBC charges $9.95. If you don’t plan trading a lot, the commission structure isn’t very important. Trading fees are only one input to your decision.

Although you don’t need a lot of bells and whistles, it’s nice to get a bit of detail on your portfolio. WealthSimple offers very little, while the bank platforms offer more than you need. What you really want is to see how your investments have performed, what the asset allocation is by cash, fixed income, and equity and a breakdown by geography (Canada, U.S. and international). That’s pretty much all you need.

Perhaps the most important consideration is convenience. Unless you are very motivated when it comes to your finances, it’s generally easiest to have your online account with your bank. You can see all of your money in one place and it’s super easy to transfer money back and forth between accounts.

And don’t worry: all of the brokers in Canada can be considered safe. They are regulated by IIROC, the Investment Industry Regulatory Organization of Canada, which sets and enforces standards of practice. Funds invested with online brokers are protected by the Canadian Investor Protection Fund (CIPF), which protects investors against the insolvency is a broker. All of this is to say that whichever online broker you choose, you can feel confident that your money won’t disappear.

Using an online broker

Using an online broker is quite simple and for most people, quite intuitive. Once you logon, you will be able to see a list of your accounts – RRSPs, TFSAs, RESPs and any other accounts you have. Clicking on the account will show you a deeper dive into what investments are held in each account and other information like book value (the value when you bought it), market value (the value today) and how it has performed.

Placing trades is also straight-forward. All you need to know is the name and/or ticker symbol of the ETF you want to buy. You will probably have to do some basic math to determine how many units you want to buy. For example, if you have $5,000 to invest and the ETF is valued at $58 per unit, you’ll probably need to pull up your calculator and do the simple “$5,000 divided by $58” calculation to figure out the number of units you want to buy.

You will have to choose the type of order you want to place. The choices are Market Order and Limit Order. A market order means when you place a trade to buy an ETF, the broker will buy it a whatever the price is when you place the order. A limit order allows you to specific a price at which you’d like to buy (or sell) an investment. In my opinion, always use a market order; if you use a limit order, there’s a chance the order might not actually be placed if the price of the security doesn’t reach the level you want.

Overall, using online brokers is quite simple, but you do have to feel comfortable with everything being online and confident that you can invest without guidance from a real person.

Robo-advisors are also online platforms. In fact, many online brokers offer both a “do-it-yourself” option and a robo-advisor service.

If you have a financial advisor, you could approach them to see if you can lower your fees by using ETFs or index mutual funds. This could be a touchy topic if your advisor depends on trailer fees for even a portion of their compensation, since ETFs and index mutual funds don’t pay a trailing commission. Still, it’s worth a conversation because in some cases, these products are available from your advisor – they just might not actively offer them to you up front.

Photo credit: Kari Shea, Unsplash


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