Author: Mike Holman

I’ve been spending some time recently updating the Canadian discount brokerage comparison which contains lots of information about all the Canadian discount brokerages.

I decided to re-test the average wait time (when phoning) to make sure the shortcuts were up to date as well as the wait times. I thought it would be interesting to share the results here as well as look at the biggest improvements and declines.

My method is fairly unscientific (described in the last paragraph of this post) and doesn’t cover all aspects of customer service, but I think for people who are concerned with wait times when calling their broker – it might give them some idea of how the brokers compare.

Brokerages ranked by wait time

Not surprisingly, the smaller independent brokerages that scored well on wait times last year also did well this year. The main reason for this is that the bank owned brokerages have a lot more messages and more extensive phone trees.

Qtrade and Options Express which have the shortest wait times, only make you listen to a short message and no phone tree. CIBC on the other hand wins the “worst wait time” award, mainly because of the ads, messages, and lengthy phone tree which took me one minute and 46 seconds to get through. When I used the phone short cuts (available on the brokerage comparison), it took a more reasonable 25 seconds to get through.

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Biggest changes from last year

None of the brokers did appreciably worse than last year, but on the improvement side – there were a number of brokers that answered the phone much faster.

Questrade was the big winner in this category. Last year they had one of the longest wait times of 168 seconds. This time they were a more respectable 51 seconds. Interactive Brokers, ShareOwner and Disnat also made some significant improvements.

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Phone call wait time methodology

The wait time was measured from after I finished dialing to when a customer service rep started talking. The automated message system was quite time consuming in some cases, which is why if you use the key prompt shortcuts, your actual wait times should be much less. The wait time averages were based on a minimum of five phone calls made on business days between the hours of 9:30 am and 4:00 pm.

It should be noted that I did not use any of the automated message system shortcuts to save time – I wanted to replicate the experience of someone who wasn’t familiar with the automated message system.

Most Canadians do their investing with banks or financial advisors.  When they want to invest in equities, typically mutual funds are used.

Whether they are high priced or low priced, mutual funds are pretty easy to buy.  You just tell your advisor which funds to buy and hand a cheque over. Even if you are a do-it-yourself investor, it’s still easy to buy mutual funds.

Related Article:  How to sell an ETF or stock – step by step directions

Buying individual stocks or ETFs (exchange traded funds) at a discount brokerage is an entirely different experience. YOU have to set up the account, YOU have to transfer money to the account and YOU have to make the actual purchase.

It can be a bit intimidating to place a order with a discount brokerage for the first time. It’s not rocket science, but there are some things to know which will make it a lot easier.

Note – This article will not cover asset allocation or how to decide which ETF or stock to buy. This article will be useful if you already know what stock or ETF you want to buy, but aren’t sure exactly how to go about making it happen. It might also convince you to stick with mutual funds. 😉

General steps:

Pick a discount brokerage.  Here is my Canadian discount brokerage comparison for reference. There are a lot of different costs involved when choosing a brokerage, so make sure you understand what type of investor you will be and how big your portfolio is.  You can save quite a bit of money if you pick a brokerage that suits your investment style and portfolio size.

Set up the account.  This is the most painful part of the process.  You have to fill out documents, mail them in, set up logins etc.  It takes a while, but you only have to do it once.

Fund the account.  You can’t buy anything if there isn’t any money in your account.  Send a cheque, move money electronically or transfer existing stocks or ETFs from another investment account. You have to move money into the investment account where you wish to make a purchase. For example if you have an RRSP and TFSA account at a discount brokerage and you want to make a purchase in the RRSP account – move the cash into the RRSP account. I have bill payments set up for my Questrade accounts and I just have to make a payment to move money from my CIBC chequeing account.

Decide what to buy.  It’s out of scope for this article, but you should have some idea of what kind of asset allocation you want, then decide which securities you want to buy.

Buy a stock or ETF.  This is the topic which will be detailed here.  I’ll be using the interface at Questrade discount brokerage to demonstrate how to make a trade, but whatever brokerage you use should have something similar. If you notice differences with your brokerage, please let me know and I’ll add that information to this article.

Here are the steps to buy a stock or ETF”

1)  Know what security you want to buy and how much.

I’m assuming at this point, you already know what stock or ETF you want to buy. Five per cent of my portfolio is made up of real return bonds.  For this allocation, I use the iShares real return ETF.  I need to purchase approximately $1886 for rebalancing purposes. This will be the ETF I’m going to use for this article.

2) Find out the stock ticker symbol for the security

Every security that trades on a stock exchange will have a stock ticker symbol.  This symbol will be needed to make the purchase.

There are a number of ways to find out the ticker symbol.  In my case, I can go to the iShares.ca website and look it up. The ticker symbol in this case is “XRB”.  Another method is to type in the name of the security into a quote site like Yahoo Finance.  If I type in “iShares real return bond”, it returns the symbol “XRB.TO”.

Hmmm…so why does the iShares site say the ticker symbol is “XRB” and Yahoo says it’s “XRB.TO”?  The answer is that they are both right.  “XRB” is the basic symbol, but “.TO” is the extension which indicates which exchange the security trades on.

3) Find out which exchange the security trades on

There are different stock exchanges in different countries and the security you want to purchase will be traded on one or more exchanges.
If the security you wish to purchase is Canadian, it will likely be traded on the TSX (Toronto stock exchange) and you have to select that stock exchange when making the order.  In the case of Questrade, you don’t select the exchange – you just include the “.TO” extension for any trades.  If the security is American (such as a Vanguard ETF), you don’t need an extension – just enter the basic ticker symbol (ie VTI for the Vanguard total American stock ETF).

In my case, the iShares real return bond ETF has a ticker symbol XRB and trades on the Toronto stock exchange.  I need to use “XRB.TO” when attempting any trading of this security with Questrade.

Understand that some stocks are traded on both the Toronto stock exchange as well as the New York stock exchange.  If we look at Bank of Montreal, the symbol “BMO.TO” is the ticker symbol of the security that trades on the Toronto stock exchange.  The symbol “BMO” is the ticker symbol of the security that trades on the New York stock exchange.  Make sure you use the proper ticker symbol or select the proper exchange!

Note that other discount brokerages have their own methods of notating the exchange.

• Questrade – For TSX stocks, use the suffix “.TO” ie XRB.TO, for NYSE – use basic symbol ie XRB.
• RBC Direct and TD Waterhouse – Choose the desired exchange and then enter the basic symbol ie XRB.
• Interactive Brokers – Enter basic symbol and choose the appropriate choice from the list.  Ie enter “RY” and you will see a list of exchanges.

4) Determine the currency of the security

Basically if the security trades on the Toronto stock exchange, it will be in Canadian dollars and if it’s on the New York stock exchange, it will be in US dollars.

At Questrade, if you have a registered account or a non-registered account that is not margin-eligible, you can either convert money to the proper currency before placing the order or the brokerage will convert money for you if there isn’t enough of the required currency.
If you have a non-registered margin account, Questrade will draw into margin to fund any shortfall, they won’t convert any other currency to fund the order.

Check what options are available for currency conversion at your brokerage.

Once I calculate how much money I need for a purchase, I like to convert any money necessary to make sure that there is enough of the proper currency to cover the purchase.

5) Find the security price and calculate how many shares you can buy

Unlike mutual funds which can be purchased in partial units, stocks and ETFs can only be purchased in whole shares.  This means you probably can’t buy the exact dollar amount you planned, but will only be able to purchase a lessor amount with some cash left over.

Every major financial website will have a “get quotes” section where you can enter a security ticker symbol and it will tell you what price the security is trading at. This can also be done on the trading platform at your discount brokerage. I use Yahoo Finance for this purpose.

When I enter XRB.TO, I find out that the last trade was $23.12. I want to buy $1886 of XRB or as close to that amount as possible to complete my rebalancing process.  To calculate how many shares I can buy, I have to divide the desired purchase amount by the share price and then drop any decimals.

$1886 (desired purchase amount) / $23.12 (share price) = 81.57439 shares.  I drop all the decimals and I’m left with 81 whole shares which will cost $1,872.72 at a share price of $23,12.

If you have enough money in the account to cover, you also have the option of rounding up the number of shares to 82 shares.

Don’t forget to make sure you have enough cash to cover the trading commission when buying.  The trading commission will be deducted from your cash in the account.

At this point I have the:

• Stock ticker symbol – XRB.TO
• Number of shares to buy – 81
• Approximate share price – $23.12
• Enough cash in the proper currency in my account – $1886 of Canadian bucks.

Now I know exactly what I’m buying and how many shares. I’m still not ready to place a trade, because there a few more things to cover.

6)  Market order vs limit order

When placing a purchase order, you can indicate that it be placed as a “market” order or a “limit” order.

A market order means you don’t put any conditions on the price of your order. Once you place the order, the purchase will get completed (or filled) as soon as enough shares are offered on the exchange.  For larger companies and high volume ETFs, this will happen instantly.

A limit order means you specify an upper limit for the price of the shares.  For example my future XRB shares are trading at $23.12.  If I put a purchase order with a limit of $23.05, the order won’t get filled until the market goes down a bit and someone accepts an offer of $23.05 for their XRB shares.

On the other hand, I might place a purchase order with a limit higher than the current market price – say $23.30. The reason I would do this is to avoid the possibility that trading is light and you end up buying shares at a rate above the market.  This is practically impossible if you stick to liquid, high volume stocks that have many shares trading at any given time. Note that in this case, your order will still be traded at “market” as long as your limit is above the market price.  So putting a limit of $23.30 does not mean I’m offering to pay $23.30 for XRB shares. It just means I won’t pay more than $23.30 for the shares.

I would strongly urge that you don’t place orders when the exchange is closed, unless you put a limit on the order.

In theory, limit orders are safer than market orders.  However, I’ve completed a fair number of market orders and limit orders and never had a problem with either. My current process is to always place a limit order just to be on the safe side.

7) Log into your discount brokerage account

At this point we’re ready to log in.  With Questrade, you have to log into your main account at myquestrade.com and then log in to your trading platform.  Other discount brokerages will have just one login.

Before I enter the order, I want to make sure I have enough Canadian dollars to fill the order.  Check with your brokerage to find out what happens if you make a purchase without enough cash in that currency.

To check my Canadian cash balance, I click on the YOUR ACCOUNT tab and then “Balances”

I recently converted a lot of Canadian dollars to US dollars, so I don’t have enough for the trade.  No worries, I’ll do the trade anyway and Questrade will automatically convert the proper amount of US$ to fund the order. At Questrade, this currency conversion costs 0.5% in a registered account, so you don’t want to be converting more than necessary. Other brokerages typically charge around 1.5% for currency exchange costs.

Once I’m in the account, I select MY PLATFORMS and then Login to equities platform.  If this is your first time, you have to select which trading platform you want to use. I use QuestraderWeb which is the free trading platform.

Now I choose “QUICK ORDER ENTRY”.  The form on the right hand side is used to enter an order.

I’m going to break up my purchase order, so I can show one purchase with a market order and one with a limit order.

How to enter a market order

For my market order purchase I’ll fill in the fields like so:

• Symbol = XRB.TO
• Quantity = 41
• Transaction = Buy
• Order Type = Market
• Duration = Day*
• Preferred ECN = AUTO

*Duration – “Day” means that the order will only exist until the end of the trading day.  If it is unfilled at that time, then it disappears.

 

The next step is to verify the share price by clicking on the QUOTE button at the bottom of the form.

Now we see a pile of new information on the quote screen.

The main info I’m interested in is the Last Price which is $23.12. This hasn’t changed since I did my original share calculations.

Next step is to click on PREVIEW ORDER

This is your last chance to verify the order information. Everything looks good, so now I will click on “SEND ORDER”.

The order was filled (or executed) instantaneously at $23.12.

If I want to review the order details, I can go back to my main account page and check the “View Messages” and “Detail”.

From this I can see the commission ($4.95) and the trade total of $929.75 which represents the share cost and commission.

Some brokerages (including Questrade) add another fee to the commission called ECN fees.  They are fairly small, but if you are doing high volume trades, it can be a factor.

When I look at the execution detail after the business close, I see there is an ECN value which has been charged as well.  The ECN costs at Questrade are  $0.0035 per share for XRB.  My 41 share trade has an ECN fee is 14.35 cents which brings my total cost to $5.10.

How to enter a limit order

Most of the steps for a limit order are the same as for a market order.

Start with “QUICK ORDER ENTRY”.  The form on the right hand side is used to enter an order.

The key difference with a limit purchase is that I will be specifying a price which represents the highest price I’m willing to pay for the stock.  In the case of XRB, the current market price is $23.12.  If I select a limit that is higher than $23.12, the order will likely get filled at market (just like my market order) and the limit will just be there for protection.

Another strategy is to put a limit price that is lower than the current market price and hope that the market drops and you can buy at a lower price.  In this case you will have a pending order which can be cancelled.  This is a good scenario for using the “GTC” or good till cancel order type so that the order doesn’t get cancelled at the end of the day.

I like to select a limit price that is just above the market price – perhaps 1 or 2% higher. In this case I’ll try setting the limit at $23.20 which is just above the market price of $23.12.  If the stock is more volatile you might have to set a higher limit because the stock could jump past the limit before you place your order.

It’s not a bad idea to monitor the price movements of a stock for a little while to get a feel for the volatility. You want to set the limit high enough about the regular price points in order for the order to get filled quickly.  For example if you check the price of a stock every 60 seconds and see the following:  $23.12, $23.09, $23.14, that stock price is not moving around much and you can probably set a price of $23.20 or $23.30 and be fairly assured it will be filled.

For my limit order purchase I’ll fill in the fields like so:

• Symbol = XRB.TO
• Quantity = 41
• Limit Price = $23.20 Note, you have to select the order type of “Limit” before this field becomes active.
• Transaction = Buy
• Order Type = Limit
• Duration = Day
• Preferred ECN = AUTO

The next step is to verify the share price by clicking on the QUOTE button at the bottom of the form.

Now we see a pile of new information on the quote screen.

I can see that the last price for XRB has dropped from $23.12 to $23.05.

Next step is to click on PREVIEW ORDER

This is your last chance to verify the order information. It looks good, so now I will click on “SEND ORDER”.

The order was filled (or executed) instantaneously at $23.09.

From this I can see the commission ($4.95) and the trade total of $951.64 which represents the share cost and commission.

Some suggestions

It is a bit stressful to be doing your first trade with a lot of money – I suggest starting off with a small trade or two just to get familiar with the process.  Yes, you will be burning a couple of commissions, but trust me – it’s worth it.

Another suggestion is to see if your brokerage offers a “test” area where you can place dummy trades to get familiar with the trading platform. Questrade offers a free trading platform trial which you can access to try some test trades.

Another option is just to use cheap index funds – they are a heck of a lot easier!

Please let me know if you have anything to add to this information based on your experience with different brokerages.

Rob Carrick wrote about breaking the seal on the information vacuum where he covers recent proposals by the OSC and other regulators to force investment companies to disclose more information to investors.  Mr. Carrick says that as a result of these changes “Things are going to be a lot different around here”.

The financial information that investors will start to see on their statements are:

• Annual summary of all fees and commissions paid in the account in dollars, not as a percentage.
• Annual investment performance.

While, I think these change are a great idea, I don’t think this will make much of a difference for most investors.  This is not a Neo eats the red pill kind of breakthrough.

There are a number of reasons why I don’t think the information will help many investors.

Most Canadian investors are clueless

It’s my opinion that most investors fit the following profile:

• They don’t read investment statements. Any statements received in the mail are quickly tossed, electronic statements go unread. It doesn’t matter what information is in an unread statement.
• They don’t want to know about fees. It’s a chore for most Canadians to save money to invest and actually buy some investments.  As long as their account balance is increasing, they are happy.
• They think fees are irrelevant. Most investors buy actively-managed funds to beat the market. Who cares what fees are being charged if you have a great fund manager?

Fee and performance information won’t have enough context

With the new proposals, investors will see how many dollars they are paying for their investments and their advisor.  The problem is that this information is really only useful if you can compare that figure to fees charged by other options such as other mutual funds or different investment products or even a do-it-yourself solution.

The services received by the investor has to be considered.  If an investor with $100,000 is paying $2,000 per year in fees – is that too much for the investment management and financial planning (if any) they are getting?  The investor would have to be aware of the various alternatives and their costs in order to make an informed decision.

Investment performance numbers are only useful in the context of the investor’s financial plan. Will the performance numbers be measured against an appropriate index? Annual performance figures are good, but the long term numbers are what really matter.  I’m assuming that a good advisor will work with the investor to help them understand all this, but that won’t always be the case.

Hide the figures with bafflegab

The best way to hide information is to withhold it.  As Mr. Carrick noted, Canadian investment companies are very adept at this strategy. 

The next best way to hide information is to provide it in such great detail that nobody reads it. If I’m an investment company with over-priced, underperforming products I would implement these proposals in such a way that the current two page quarterly report will balloon to 12 pages of mind-numbing columns of numbers. 

Conclusion

For an investor to truly appreciate the fees they are paying and make an informed decision on the value of those fees, they have to evaluate a lot of information.  This information can only be gained by education – a quarterly or annual statement is just not going to do the job.  It’s up the investor to educate themselves and most won’t do it – even if you hit them over the head with the proper information.