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What lies ahead for Canadian online investors?

Three significant changes are occurring in the world of online investing for Canadians.

Change in Know Your Client (KYC) Standard

When online trading began, discount/online brokers went through a "know-your- client" (KYC) safety check. This safety measure was based on the industry standard of reviewing a client's application before a trade was executed, in order to adhere to suitability requirements. If an investor stated he was a low-risk, conservative investor who wanted to purchase a high-tech stock, he would receive a call from the discount broker cautioning him against the trade. According to online brokers, the long delays and lost orders, which were common during the RRSP rush in 2000, were created not only by high volume, but also because of having to manually check each client application for suitability. This "Suitability Rule"has been discontinued for online services which do not provide advice. Buyers beware. Now, more so than ever, you are your own broker.

Commissions - U.S. vs. Canadian

In the not-so-distant past, Canadian online investors could take advantage of significantly lower commissions by holding an U.S. account. This is no longer true. Canadian securities regulators have moved to halt U.S. investment services to Canadian residents. Charles Schwab and E*Trade are two examples of discount giants with operations in both the U.S. and Canada who do not permit Canadians to open accounts with their U.S. discount houses. That said, some investors are finding means of trading with U.S. brokerage firms but the practice is illegal and they have no consumer protection.

New Online Products

While most discount brokers offer no investment advice, some online firms are now extending their services to attract new customers. Recent innovations by full-service brokers are opening up new doors to online investing. For instance, ScotiaMcLeod and Nesbitt Burns have created a new product that is coupled with the investment services of an investment advisor. You can use an advisor for a sounding board before executing a trade. The advisor may recommend an investment product, and then you have the option of logging on to their web site to place a trade online. With these online full-service are products, your trades are included for an annual fee (based on a percentage of assets in your account). But if you trade excessively, you will be charged an additional fee. This product is suited to the average investor who wants to combine convenience with low-cost online investing, yet have the benefit of professional advice. In the future, investors will benefit from more of these extended services, as well as more research tools as part of the package.

Comparison Check

Here is a growing list of discount brokers in Canada: BMO InvestorLine; Charles Schwab Canada; Credential Direct; E*Trade Canada; Investor's Edge; Laurentian Bank; National Bank Discount Brokerage; Qtrade Investor; Royal Bank Action Direct; Scotia Discount Brokerage; and TD Waterhouse Investor Services.

8 Steps to Smart Online Investing