Now that I have been using an online brokerage service (OBS) for direct investing, it is hard to believe it took me so long and that I was so hesitant.  So please don't be like I was, if you haven't, sign up, get started and be a direct invest savvy saver.

It matters not that you are Generation
 X, a Millennial or a Boomer.  It matters not, if you have limited or extensive knowledge of financial products or even an aversion to banks.  What does matter, is making informed buying decisions to build a solid investment portfolio (read Rob Carrick’s “Nine essential tools for the DIY investor” http://bit.ly/1pE97jl ), eliminate or minimize fees,  and have a central place to hold your savings until ready to invest…either a bank account or mattress will do.

A few years ago, I was in one of those “do something you 
haven't done before” moods and opening a direct invest account was an open loop on my “to do” list.  So, on a whim, I decided to go to my retail bank branch to gather information. 

Here is what I learnt:

  • Would have to fill out an invasive form of many pages and provide a history of personal financial information.
  • Must open at a branch that has a OBS representative, most have in major centres and communities (branch investment advisors or tellers cannot help you – some banks might differ, this was my experience).
  • Trading commissions were $30 / trade until trade volumes reached a certain level (since then rates have dropped to $9.99/trade  and some firms, with higher trading volumes reduce the price further).
  • Brokerage accounts need a minimum portfolio value in order to avoid annual fees.

Almost everything was acceptable, I did not mind paying trade commissions but I balked at paying an annual fee.  By history, I was a good saver and as a do it yourself (DIY) investor, this was another method to build financial security and retirement independence (read Brian Kelly’s article “Investors Prosper With Wealth Building Pyramid Portfolio” http://bit.ly/1nFMl0k ).  After all, you are building your wealth, and so every dollar matters.  I reasoned it would not be long before I reached the bank’s required minimum portfolio value but not immediately.  Here is where we get to discover the bad bank move and my solution.

As mentioned, I don’t pay annual fees, and I minimize fees where possible.  Being a loyal customer of this bank for most of my “earnings” life, one would think the fee would be waived, yet that was not the case (note:  minimum account value seems to be a requirement, not unique to this bank only). So as a consequence, my bank lost a direct invest prospect and their Wealth Management group lost a client at the de-accumulating stage of my life. 

My solution….I walked across the street and opened an OBS account by linking (not merging, there is a distinct difference) with my husband’s OBS account, thereby avoiding the charge.  Eventually,  if I wanted to be independent, I could delink from him once I reached their minimum portfolio value…which I reached inside of 6 months.  

With the OBS cash account opened,  (not a margin account which means investing borrowed funds), I started gaining “smart financial knowledge” and learning every day.  Here are some of my key learnings:

  • Register for some of the seminars in branch or online or have your questions answered by the highly trained OBS call centre.  Whatever method, you will learn more about using the software and about the various financial products. 
  • If your investments pays out dividends, make sure you automatically reinvest your dividends (known as DRIPs).  Ask the call centre to ensure all your stocks are set up this way, some DRIPs set up automatically, some not.  If not set up, the dividends are put back into your cash account until you buy again.  DRIPs bypass further trading commissions.
  • Open a TFSA thru an OBS, annual fee waived, no minimum portfolio value needed.
  • I buy dividend paying stock of companies with good fundamentals, but if I was buying mutual funds** thru the OBS, I would negotiate no loads (and no to front end or back end loaded ones as well).
**If you still wish to purchase no load mutual funds but in branch, note the MER is substantially higher than going back to your home and onto the bank’s web site, not the brokerage’s web site (i.e. TD.com versus TDWaterhouse.ca or rbcroyalbank.com versus rbcdirectivesting.com) and purchase online, where the MER substantially lower.  Note: the names of the funds sold in branch are not necessarily the same name as through the direct invest channel , but you get it, remember we can’t compare refrigerators store to store either for the same reason. Ouch!

Lastly, make sure you have a method to track or summarize all of your investments in one place.  Here is where you can see your progress (and being realistic, losses also).  Then experience how time and the beauty of compounding (read my blog below “A Middle Class Lifestyle”)  will incentivize you to do more.  Finally you are done, strike this off your “to do” list and congrats!