It’s really an umbrella term that today refers to two types of services:
Investment advisor – A licensed individual or company who provides investment advice to clients and works on their behalf to buy and sell stocks, Exchange Traded Funds (ETFs), and other securities on major markets, such as the New York Stock Exchange (NYSE) and Toronto Stock Exchange (TSX).
Online broker (sometimes called a discount brokerage or direct investing) – A licensed brokerage firm that provides a platform that investors can use to buy and sell stocks and other securities on their own. Online brokers do not provide investment advice, but they may provide tools and resources to help investors make their own investment decisions. Investors who work with an online broker are referred to as self-directed investors.
These licensed individuals who work for a licensed brokerage firm can provide investment advice to clients. They can help you choose or recommend which stocks or securities to buy and sell and when to do so. They can help you choose the type of investment accounts that may be best for you. They can make recommendations about what industry sector to consider. They will recommend/create a portfolio of your investments and manage them for you. Other individuals in the firm may be licensed as Registered Representatives (RR) and can facilitate transactions for the IA but cannot provide advice.
These services come with a fee. Investment Advisors are typically paid a percentage of the assets they are managing or on a commission basis, but some may be paid by the firm they work for.
Online brokerages are licensed firms that provide online trading platforms along with tools (access to market research) and other resources (educational materials) to self-directed investors.
When you place an order on the trading platform, your online broker routes it through to a market to be filled then routes the shares back to you. At TD Direct Investing, we provide a variety of trading platforms to suit the experience and expertise of our investors. We have self-service knowledge bases, along with webinars, and master classes to help you gain knowledge about trading on your own. We also offer phone support through licensed Investment Representatives who can place trades for you or help you use the platforms.
There is a commission fee to buy and sell securities.
It’s up to you to determine what works best for you. Do you have the time and knowledge, or the time to gain knowledge to invest on your own? Are you excited about the thrill of being part of the stock market? Then, you may consider opening a self-directed account.
To trade stocks in Canada, you’ll need an investment account with a brokerage.
There are a range of investment accounts to choose from, depending on your investment goals, knowledge, and comfort levels. These come in the form of either registered or non-registered accounts.
Registered investment accounts, including RRSPs, TFSAs, RDSPs and RESPs offer tax incentives that may help your investments grow, but are subject to investment limits and other rules and restrictions. Non-registered accounts, like cash and margin accounts don’t provide the same tax incentives. They can, however, offer more flexibility.
It's important to remember that trading comes with its fair share of risk, even for seasoned traders. Whether you take the DIY approach, or you have an investment advisor help with your investing goals, the more you know the better off you are towards making informed decisions.
Learn more about your investing options in the article on How to Invest Your Money.
Here are 7 things you may want to consider when starting your investment journey whether you are a self-directed investor or work with an Investor Advisor.
Whether you want to do it yourself or work with an advisor
Investment Advisors provide their clients with investment advice and help them make strategic investment decisions but typically at a higher cost. Online brokers, on the other hand, provide tools and resources to help clients make an informed decision on their own. It’s important to think about how much support you’ll need making investment decisions or whether you’re comfortable making investment decisions alone.
Your savings goals and objectives
Think about why you want to invest and the type of investor you want to be. Are you saving for a big purchase or your retirement? Is it to supplement your income source or maybe replace it? How much time do you want to spend managing investments? Are you looking to trade daily or just pick a couple of securities to invest in for the long-term? Your investment goals may also influence the type of account you choose to do your investing.
The type of brokerage account you want (registered / non-registered)
Most online brokers may offer a range of different investment account options, including Registered Retirement Savings Plans, Registered Education Savings plans, Tax-Free Savings Accounts and margin accounts. Registered accounts like RSPs are generally used to invest for retirement while RESPS are used to save for future education needs. There are limits to the amount of money you can put in a registered account but there are tax advantages associated with these account types. Non-registered accounts like cash or margin accounts do not limit the amount you can put in them but lack special tax advantages.
What you want to invest in
Your broker should offer a range of investment products, stocks, bonds, mutual funds and ETFs. Think about what you’re looking to invest in now and in the future.
Broker fees and commissions
While fees aren’t everything, it's important to understand the costs associated with certain brokerages. Some may charge fees and commissions for different services, usually depending on the level of support or expertise being provided.
Whether you want basic or advanced trading tools and platforms
If you’re new to online trading, and you prefer to be a self-directed investor, you may want to consider an online broker that offers both simple, intuitive platforms for beginners as well as advanced tools for experienced traders. That way, you can scale up as you evolve into a more seasoned investor.
Access to additional investment research and advice
Some online brokers will also offer a range of advisory services for a flat fee or on an as-needed basis. Many online brokers give investors access to investment research simply for using their platforms. Even if you plan on doing your own research, it may not hurt to have access to additional resources. For example, TD Direct Investing offers a range of educational programs and resources, including webinars, YouTube videos, Master Classes and more.
How much money do I need to have to use an online broker?
There is no minimum to get started. Some online brokerage services such as TD Easy TradeTM don’t have any investment minimums and in fact, you can buy and sell TD ETFs at no commission. However, if you're looking for a broader range of securities to invest in, consider TD Direct Investing. There are no investment minimums. Plus, if you meet basic investment minimums or make 3 trades a quarter or sign up for regular monthly contributions (auto deposits) of $100 or more, you can avoid the $25 quarterly maintenance fee.
What are brokerage fees?
A brokerage fee is the amount of money your brokerage firm (or online broker) charges you to maintain your brokerage account and access trading platforms, market research reports, and other tools. These brokerage fees vary from one broker to the next and are generally charged as commission fees on trades you perform. Investment advisors usually charge you a percentage of the assets under management to manage your money.
How can I transfer funds to my brokerage account?
Transferring funds can be easy and may not require much time at all. In fact, it can be done in 3 simple steps:
Make sure you have online access to your banking information such as bank balances, deposits, and withdrawals
Establish a link between your brokerage account and your bank account
Initiate a transfer from your bank account to your brokerage firm to fund your account
TD Direct Investing makes it easy to transfer funds from your TD Canada Trust account with the funds transfer feature. You can also deposit funds into your account at any TD Canada Trust Branch or even over the phone. Transfer requests from your TD Direct Investing account made during normal business hours are processed immediately and dated the same day.
Can I withdraw all the money from my brokerage account?
Yes, but it's not like withdrawing cash from an ATM or from your savings account. You or your investment advisor will need time to sell enough of the securities you hold (like stocks, bonds or mutual funds) to cover the amount you want to withdraw. This can often take a few business days. Also, you may need to pay account closing fees if you're transferring to a different broker or cashing out. The rules for withdrawal of retirement accounts are different depending on your age. Some registered account types, such as RRSPs or RIFs, have restrictions on the contributions and withdrawals.
You've got to decide what is best for you.
Do you want to have an investment advisor who can manage your accounts for you and recommend when and what to buy and sell? Or, do you want to DIY…and be a self-directed investor and place your own trades on an online trading platform? Either way there is risk when you’re dealing with the stock market.