SEPTEMBER 6, 2003

THE GLOBE AND MAIL'S ON-LINE BROKER SURVEY - 2003

BMO STILL TOP OF CLASS

In Globe Investor's yearly look at on-line brokers, Rob Carrick reports on the good, the bad and the just plain ugly

This is a time of sweet vindication for the on-line brokers who defied the epic bear market of the past few years by building a better product.

With the stock market in revival mode, these brokers are ready to welcome a new crop of on-line investors and retain the business of old clients who are starting to trade more actively again. A perfect example would have to be BMO InvestorLine, which ranks No. 1 in The Globe and Mail's on-line brokerage survey for the second straight year. Here's a broker that offers an ideal package for on-line investors: Reasonable costs, a well-crafted Web site and the tools and services needed to build a successful portfolio.

Other top-ranked brokers this year include E*Trade Canada, a close second, and TD Waterhouse, a winner a few years ago. Next come a gaggle of solid but not spectacular players, followed by the also-rans. In standing still in the past few years, or even slipping back, these laggards have opened a wider-than-ever gap between themselves and the elite. You'll see this reflected in the marks below.

Before we get to this year's rating criteria, let's look at the sort of investor for whom this survey is designed. First off, this individual would trade stocks periodically, while also investing in mutual funds and, most likely, bonds. In no way would he or she be classified a hyperactive trader. The target investors for this fifth-annual survey are Web savvy, so they'll be demanding about the sophistication of a broker's on-line service. While they understand the markets, these investors nevertheless want tools and research to help them build a portfolio blueprint and then choose individual stocks, funds and bonds. Finally, these investors understand the way that the fees and commissions a broker charges can affect their returns.

A total of 12 brokers were evaluated this year on six criteria.

Cost: Commissions for trading stocks and funds are most important here, but annual administration fees for registered retirement savings plans and account inactivity fees were also given some weight. Only on-line commissions are considered here because trading by phone is so much more expensive.

The on-line experience: Public Web sites are the first contact investors have with an on-line broker, so they're evaluated here. But more weight is put on the utility and design of the secure Web site for clients. State-of-the-art brokers have account summaries that are updated in real time and show the book value of your holdings so you can document at a glance how you're doing.

Tools: Analyst reports for stocks and funds, stock- and fund-screening tools and financial planning software are all highly desirable. Lower marks are given for tools that are available elsewhere on the Web at no cost.

Trading: The best brokers offer a precision trading platform that gives you short-selling of stocks, limit orders and real-time tallies of how much money you have available in your account to invest. On-line bond trading is a must for consideration as an elite broker.

Electronic services: This section is all about giving the client ways to conduct business or do administrative tasks electronically, as opposed to wasting time while waiting to speak to someone on the telephone.

Customer satisfaction: Marks in this category come from an on-line survey of 2,509 investors conducted in August on the Globeinvestor.com Web site. Participants were asked to indicate whether they were satisfied or dissatisfied with their brokers.

THE GLOBE AND MAIL'S ON-LINE BROKER SURVEY RESULTS

BMO InvestorLine -- A

The good: The most innovative of the brokers examined here. The attitude at InvestorLine seems to be: anything the others can do, we can do better. Highlights are on-line trading of bonds and guaranteed investment certificates, real-time account updates and trailing stop orders, which help you protect gains you've made on stocks. On the cost side, there are $25 market orders and commission-free funds.

The bad: InvestorLine is the only on-line broker owned by a big bank that does not offer clients equity research from its full-service brokerage arm. Also, InvestorLine shuns small accounts (under $5,000 in assets).

Verdict: The boss.

E*Trade Canada -- B+

The good: The days of catering to active investors while letting the service for regular folk slide are over. There's a great new account summary page with real-time updates and gains/losses expressed in percentages, links to a technical analysis tool and buttons that instantly analyze your asset allocation and tally the foreign content in registered retirement savings plans. Costs remain reasonable and the menu of electronic services is unparalleled.

The bad: Needs more Canadian content in its market analysis and equity research areas; financial planning tools are lightweight.

Verdict: There's a certain fun-to-use quality to E*Trade that nobody else matches.

TD Waterhouse -- B

The good: All-around quality, from its stockpile of stock and fund research to its on-line bond trading platform and its menu of functions you can do electronically. (Example: you can view trade confirmation slips and statements on-line.) A great job on mutual funds, too. You can trade many funds with zero fees or commissions.

The bad: Surprisingly, this industry leader doesn't offer real-time account summaries. Also, the $100 annual RRSP administration fee for accounts with less than $25,000 is a poke in the eye (you can cut this to $25 if you hold just funds and fixed income).

Verdict: Late-career Frank Sinatra comes to mind. Still a force, but starting to lose its chairman of the board status.

Qtrade Investor -- B

The good: This low-profile independent -- clients are channeled in through Qtrade's relationships with credit unions and financial planning firms -- displays all-around competence. There's a good selection of tools for selecting stocks and funds, and on-line access to a full range of equity orders, including short sales. Also, you can get streaming quotes -- real-time or delayed -- if you're willing to pay.

The bad: Lacks both the visual and technological polish of some others.

Verdict: A folksy, low-stress on-line broker.

CIBC Investor's Edge -- B

The good: Cheap commissions as low as $25 for both market and limit orders, combined with an upscale ambience that features real-time account updates and access to equity research from CIBC World Markets. On-line trading of bonds and GICs is coming in the next couple of months.

The bad: Lacks the breadth of services of the leaders, but not by much.

Verdict: No broker has come further over the five years this survey has been conducted.

RBC Action Direct -- C+

The good: Action Direct filled a major hole by adding equity analysis from RBC Dominion Securities. It also offers on-line bond and GIC trading, modest RRSP administration fees for small accounts and an ultra-crisp Web site that will be still better after coming improvements.

The bad: A minimum $29.95 stock-trading commission, the most expensive in the business (RBC counters that its typical client trades stocks infrequently), plus a slightly lower-tech feel than the top-rated brokers.

Verdict: You could be happy here.

ScotiaMcLeod Direct Investing -- C+

The good: There's a commitment to steady improvement at this broker that this year can be seen in the work they've done to improve navigation on the Web site for clients -- a sore spot in last year's rating. Also, the equity and fund research centre is a pleasure to use and a great source if you're looking investing ideas.

The bad: The client Web site is much more livable, but there's still something esthetically cockeyed about it.

Verdict: Likeable, but not the prettiest.

Merrill Lynch HSBC -- C

The good: Access to global stock markets, including on-line trading on the Hong Kong Stock Exchange. There's also an excellent portfolio analysis tool and a vast library of equity research reports from Merrill Lynch, HSBC and Standard & Poor's.

The bad: Falling ever further behind the leaders in terms of the amenities it offers. And given that Merrill Lynch has bailed on this partnership, you have to wonder how long its research will be available.

Verdict: A top broker by the standards of two or three years ago. HSBC says it's committed to upgrading the service, though.

National Bank Discount Brokerage -- C

The good: On-line bond trading and a minimum commission of $24.95 for market orders.

The Bad: No bells, few whistles.

Verdict: An adequate choice if you want to consolidate all your financial business with National Bank.

Credential Direct -- D

The good: Very reasonable stock-trading commissions for both large and small trades.

The bad: A dearth of the tools, features and services that the larger, better-funded brokers offer.

Verdict: Totally overmatched.

Disnat -- D

The good: The basic Disnat service has improved a fair bit over the past year, though it still lags the big players by a virtual Grand Canyon. Sample improvements: You can now trade mutual funds on-line, and equity research from Desjardins Securities has been added. Active traders making 10 or more trades per month should check out the far superior Disnat Direct service.

The bad: Dollar store atmosphere.

Verdict: Next.

eNorthern -- F

The good: The $24 minimum commission for on-line equity trading.

The bad: Costs are rising for equity trades that don't qualify for the $24 minimum, and for mutual funds. What have they provided in services to offset this? Not a sweet thing.

Verdict: Heading south.

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