Best Online Broker in Canada 2009 / 2010

Best Online Broker 2009 / 2010

I have written about the best online broker in Canada to use before and come to a different conclusion than the one I currently hold to be true; previously, I had made my decision based on reading the Globe and Mail's survey of online brokers. Their survey is great for the average investor—an investor who knows very little about the stock market and needs to have his or her hand held when walking down Bay Street or Wall Street.  I myself was very inexperienced with the ways of online brokers only a short time ago, but what I have learned over the past couple of years, by using a couple of the well know online brokers, is that price point, and execution are by far the most important criteria to differentiate the top of the pack from the bottom.

Let me be more specific by providing my experiences and then my decision for the top online broker in Canada.

My first experience with online brokers came via Qtrade.  According to the Globe and Mail they were and still are the best online broker in Canada.  I have to admit at first they did seem like a great online broker: my trading costs were much lower, the research platform is very good, and the customer service was very good.

Did I just say their customer service is very good? What I meant to say was their customer service is very good unless you need to dip below the $1000 minimum account balance.  I ran into a bit of a shocker when I asked to dip about $200 below the minimum account balance to pay a bill before my pay cheque came in the next day.  Because they would not let me move below the minimum balance in my account for a single day I decided to close all 3 of my accounts and look for a better online broker.

This time I did my own research. I reviewed a number of online brokers: Qtrade Investor, E*Trade Canada, TD Waterhouse, BMO InvestorLine, Credential Direct, RBC Direct Investing, ScotiaMcLeod Direct Investing, Questrade, Trade Freedom, Disnat, CIBC Investor’s Edge, National Bank Direct Investing, HSBC Invest Direct, eNorthern. Just in case you didn’t guess it, this is the 2009 list from the Globe and Mail from top to bottom of the online brokers in Canada.

You have to start somewhere right.  I did my research on each myself, but don’t worry I won’t bore you with the gruesome details here.  What I decided in the end was that #8 on the list of 14 was the best for me.

#8 is Questrade.  By a long shot Questrade has the lowest fees of all the online brokers and has the best sign up process—all documents can be filled out online and then all you need is an online banking transfer and an email of your Driver’s License and SIN Card.  The process was seamless.  The trading tools are identical to the other online brokers; they all use the same software and just reorganize a little. Also, they have a 10/10 in customer satisfaction.

Trade Costs: $4.95 minimum to a $9.95 maximum no matter how many shares you trade. It’s based on $0.01 per share up to the maximum. So If I trade 100, 200, 300, or 400 shares I pay $4.95. At 500 I pay $5, at 700 - $7, at 1,200,000 shares I pay $9.95 flat.

So where are they lacking? Let’s be honest here and just say, there research sucks. They don’t give you the keys to an onslaught of analyst reports like many of the other brokers; however, if you are at all serious about investing then you should be able to find this info very easily through the web since there are tons of sites that give that info away for free.

I have used Questrade's protrader platform with streaming live quotes and their webtrader addition.  I now use the web trader without streaming live quotes because they are extra unless you make over 20 trades a month.  As I am now considering myself more of a long term trader, the webtrader system seems very fine indeed.

Don’t just take my word for it though.  Just remember most of the online brokers are begging for your business so try and get something out of them. Questrade offers a $50 credit in free trades if you are referred and gives the referee $100 in free trades. The catch though is that you must use the credit within 3 months or it vanishes. Unless the person referring you trades a lot there is no way they are going to use their credit.  If you don’t know anyone that is currently trading with Questrade and you want a referral, post a comment with your name and email and I will send you a referral and not post the comment.

New Cell Phone Competition: What’s in store for Canadian Telecom Giants?

Stock Talk
   My Advice! Don’t touch Bell BCE Inc (Public, TSE:BCE), Telus (Public, TSE:T), or Rogers (Public, TSE:RCI.B), the big 3 wireless providers in Canada with a 10 foot telephone pole.

Why?

   There has been an iron grip in the Canadian Wireless Communications Industry for years held by the duopoly of Bell, Telus, and Rogers-They hold 95% of the Canadian wireless market according to the Economics Division of the Parliamentary Information and Research Service. New competitors have been blocked time and time again through legal action and other restrictive barriers to entry in the cell phone communication sector. The Canadian Radio-television Telecommunications Commission (CRTC), has not helped anyone but the commanding corporations in the past so what’s about to change?

    There is a price war starting between the big boys, but it’s not just Bell, Telus, and Rogers on the battle field; there are 8 new wireless carriers. At first you might think, does that mean Fido, Solo, Koodoo, and Virgin plan to fight? No, no, don’t be silly Fido is run by Rogers, Koodo by Telus, and Virgin and Solo by Bell.

   So who are these Guerrilla Warriors?

  Globalive Wireless – Backed by Eqyptian Billionaire Oraxcom’s Sawiris 
   ($442,099,000 on 30 Licenses)

   Data and Audio-Visual Enterprises Wireless (DAVE)
   ($243,159,000 on 10 Licenses)

   SaskTel
   ($65,690,000 on 3 Licenses)

   A number company from Montreal
   ($52,385,077 on 4 licenses)

   Manitoba Telco MTS Allstream
   ($40,773,750 on 3 licenses)

   3 have TV / Internet / or Land Line to offer bundle discounts

   Shaw Communications
   ($189,519,000 for 18 licences)

   Quebecor’s Videotron
   ($554,549,000 for 17 Licenses)

   Bragg Communications’ Eastlink
   ($25,628,000 on 19 Licenses)

   In 2008 the federal government, hoping to lower wireless prices through competition, reserved 40% of the spectrum licenses for new companies entering the wireless market. This was the first time in 13 years that new licenses became available and these licenses allow providers to broadcast cell phone frequencies. To stop Bell, Rogers, and Telus from out bidding the new entrants, 40% of the licenses were set aside for new providers only.

   The new entrants are expected to begin operating in the second half of 2009. Get read for a price war.

   Price = Lower Profit Margins for the Big 3 and less subscribers = Lower profits = Stock Prices Decline to reflect the new profit levels.

   This price competition has not be limited to cellular phones. Much of this battle is also being fought through bundling of Television, Internet, and Home Phone as well. A perfect case of this was Shaw’s most recent predatory pricing that has been discussed by many on http://www.10buckstoo.com/ . This is not the end.

   There are more offers coming in the mail from competing companies as well. Telus just sent me an offer in the mail for 75 HD TV channels for $20/month.

   This price war will really heat up if the anticipated new national carrier headlined by Globalive Wireless is created.

   If you’re renegotiating your wireless, home phone, TV, or internet then get ready to squeezes these companies for all you can get.

   If you’re thinking of buying shares of Bell, Telus, or Rogers than heed my warnings.

Income Trust Pick: A&W Revenue Income Fund (Public, TSE:AW.UN)

Main competitors: McDonald's Corporation (Public, NYSE:MCD), Burger King Holdings (Public, NYSE:BKC), Wendy's Arby's Group Inc. (Public, NYSE:WEN), Jack in the Box Inc. (Public, NASDAQ:JACK),  Yum! Brands, Inc. (Public, NYSE:YUM).

A&W Revenue Income Fund (AW.UN) is one of my top picks for a TFSA or RRSP. The fund is currently trading around $13.75 and the most recent monthly distribution was announced August 5, 2009 @ $0.106 per share which works out to a yield of 9.25% annual. The dividend distribution is very good, especially if you hold this investment in an account that benefits from no taxes; however, this is not the main reason why I like this income trust so much.

Over the past month I have done a bunch of research into AW.UN and the morning of Monday August 24, 2009 I pulled the trigger and bough some in my TFSA account. The following details are what I based my decision to purchase this stock on:

1. I have reviewed the past few weeks of analysts’ reports prepared by Thomson Reuters. They rank stocks on a scale of 1 to 10 and AW.UN-T has not ranked below a 9/10 over the past year. It is currently ranked a 9 while the Travel & Leisure Sector average is a 6.8.

2. Thomson Reuters lists the trust under TRAVEL & LEISURE / TRAVEL & LEISURE / RESTAURANTS & BARS and I am not currently exposed to this sector. This has been one of the harder hit sectors during the recession since people have gone out less often and traveled less often.

3. The income trust made a new 6 month high in the beginning of August and the long term up trend has continued since October of last year. This has been a strong investment throughout the recession and the next point 4 has a lot to do with that.

4. A&W Restaurants is the fastest growing Fast Food Chain in Canada Today. Sure they are growing and they have great brand recognition with the Baby Boomers but do you think this growth will continue or their distributions continue? I would have to say yes, and yes; now let me explain:

Will A&W restaurants continue to grow in Canada?

Yes they will and I am sure you have not heard this reason before—over the past year A&W has been aggressively poaching experienced real estate professionals. They have hired a number of professionals specifically for the purposes of finding new properties to lease for their franchises. Each professional was given a Province and then they were sent travelling all over Canada looking for places to expand. How do I know this? I visited the Sauder School of Business career website over the past year on a number of occasions to see what kind of positions are out there for professionals. I remember reading the job descriptions and they required a significant amount of experience and willingness to travel within the designated areas.

Will A&W restaurants dividends continue to grow?

Yes they will because the recession has influenced peoples spending habits. During the recession more people went to A&W restaurants instead of middle of the road restaurants like Cactus Club, White Spot, Boston Pizza, the Keg, etc because they wanted to save money. The only restaurant that has seen a larger increase is McDonalds. The mentality of the North American consumer has changed during this recession from one of shopaholic living on credit to credit conscious savers. We are now more like our Grand Parents ready and willing to save for emergencies.

5. The Price to Earnings ratio of A&W Royalties Income Fund is currently only 9.91. I think anything in the single digits presents lots of upside potential.

As a result of these factors I bought A&W Royalties Income Fund and I plan to hold this in my TFSA for the long term.

I still am bearish on the overall outlook of the TSX and S&P indices, believing that a correction will take place in September; however, I do not think we will retest the lows achieved a few months back anymore, even if the commercial real estate shock occurs in the United States. Even if another correction occurred, this stock would just become a better buy for the long haul.