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1 1 of 6 11/2/2013 3:41 PM GlobeInvestor.com GlobeFund.com ReportonBusiness.com Login Fund List Stock List ProStation Search Funds Stock News Main Mutual Funds Fund Codes & Fees Top Movers Fund Profiles Returns by Asset Class 15 Year Fund Review Stocks Gainers Losers Most Actives New High/Low Current Surprises Broker Estimates Company Snapshots Rates News & Columnists Advice for Advisors Filters Reports Charts Print this Article this page Refer a colleague

2 2 of 6 11/2/2013 3:41 PM Fund alerts and market update alerts Fund Alerts:Create a portfolio of funds and receive alerts when a particular fund hits your target price, jumps 5%, or pays a distribution. Market Update Alerts: Sign up to receive daily Before the Bell, Noon and After the Bell market update s. News from globeandmail.com The advice conundrum: All, none or some? Saturday, November 2, 2013 ROB CARRICK rcarrick@globeandmail.com Today's most under-served investors are those who are halfway between being do-it-yourselfers and having an adviser. Almost nobody on Bay Street seems to have an idea of how to target these people. One exception: Bank of Montreal, through the advicedirect arm of its online brokerage, BMO InvestorLine. In the investing business, there's no surer validation of a new initiative than having your competitors copy you. AdviceDirect has struck out on that count. After a full year in operation, no one else has introduced a service where clients invest online while receiving a combination of Web-based and person-to-person advice. But advicedirect is on to something in targeting people who gravitate to DIY investing, but need help. "The

3 3 of 6 11/2/2013 3:41 PM discipline advicedirect gives a do-it-yourself investor can be very attractive for people who don't have the time, the experience or the confidence," says Viki Lazaris, president and CEO of BMO InvestorLine. The black-and-white view of investing says people like this should have advisers, but let's get real. For multiple reasons, some investors choose to go it alone, whether they're fully equipped for DIY success or not. AdviceDirect's fee starts at 1 per cent of a client's account value (there's a $100,000 minimum), which is pricey for advice dispensed without the foundational financial planning that the best advisers use to build investment portfolios. But it's a good option for the determined but shaky DIY investor who might end up building a portfolio through guesswork or letting money idle for years in cash. The bulk of advicedirect clients have come from InvestorLine and other traditional online brokers, Ms. Lazaris says. Eventually, she figures that roughly half of the clients will come from the DIY stream and half will be ex-advisory clients. BMO won't say how many people have signed up for advicedirect, but you get an idea of how busy things are in the fact that the advice team there comprises just eight people right now. If advicedirect manages to build its franchise, it will be a result of the work done by these investment specialists (that's BMO's title for them). When you set up an account at advicedirect, one of these specialists calls you on the phone to go through a "know your client" process that helps dictate the mix of stocks and bonds in your portfolio. Afterward, you can talk directly to your specialist as required, or to one of the other team members. Responding to client feedback, advicedirect has added online bios and photos for its specialists so clients know who they're talking to. Each specialist is registered with the Investment Industry Regulatory Association of Canada as a registered representative, which means he or she is licensed to give advice on securities. Some specialists have, or are working toward, designations such as certified financial planner (CFP) and chartered financial analyst (CFA). BMO claims client feedback about the specialists has been very positive. "Clients know they want to take control, but they're not fully ready to go out 100 per cent on their own," says advicedirect consultant Rob Nuyten. "They get validation and constructive help to build a portfolio, but they're still in control of selecting their investments. That's very appealing to them." Portfolio advice is dispensed online to advicedirect clients, who indicate what investments they want to focus on - stocks, exchange-traded funds, mutual funds and/or bonds and guaranteed investment certificates. Individual securities are highlighted for clients based on a scoring system provided by the analysis firms MarketGrader.com (for stocks) and Lipper (for funds). AdviceDirect monitors ratings for the securities in a portfolio and suggests clients exit when a "sell" rating comes through. The website also notifies clients when their asset allocation is out of whack, maybe because one particular stock has soared. "Maybe you've got a very good security, but you've got too much of it," says Mr. Nuyten. "We tell you exactly how many shares to sell." These days, advicedirect advisers are busy calling clients to conduct the annual reviews they get as part of the service. It's an opportunity to update the client's investing profile and discuss any issues. Mr. Nuyten says clients typically need some hand-holding in the early days, and then get comfortable taking direction via the website. "The reason why people are attracted to advicedirect is the independence. They're

4 lobeadvisor.com: The advice conundrum: All, none or some? of 6 11/2/2013 3:41 PM very comfortable, once they're set up and have made some investing decisions, to let the system operate and alert them of any changes." Hard-core DIY investors will dismiss advicedirect because of the cost, and they have a point. BMO seems to concede there are pricing issues by softening the impact in the first year. New clients get $250 cash back when they activate their account and a one-year, 25-per-cent fee rebate that brings the cost to 0.75 per cent. After that, clients pay 1 per cent of their holdings in stocks, bonds and ETFs, but not cash balances (large accounts get a price break). Mutual funds held by advicedirect clients have their own embedded advisory fees, so they're not subject to the 1 per cent, either. The fee also covers the cost of at least 30 or so stock trades, more than enough to follow the kind of recommendations advicedirect kicks out over a year. Can you invest much more cheaply on your own? Absolutely. In an online brokerage account with $50,000 or more in assets, you'll typically pay nothing each year beyond a $10 per-trade commission. But can you be successful making your own decisions? That's the real test in weighing advicedirect over a traditional online brokerage account. Over the years, I've encountered hundreds of smart DIY investors who are completely self-sufficient. But in producing our online video series Portfolio Checkup - where you can get a second opinion on your investments from an adviser and me - I've seen a few serious issues crop up continually. Examples include excessive amounts of money held in cash, little or no exposure to U.S. and global markets, too much emphasis on stocks over bonds and a tendency to hold onto investments that lost money. AdviceDirect addresses all of these pitfalls. Imagine a client who is hanging onto shares that have plunged in value over the past couple of years. He may be holding on out of blind optimism, or because he doesn't understand that there are better opportunities elsewhere. In an advicedirect account, a red "sell" indicator appears beside a troubled stock with a link to a report explaining the rating. Some direction is also provided on what to do next. "If we're going to suggest selling a stock, we're going to provide alternatives for clients to take a look at, or they can go to the recommended list for the specific sector they're looking at," Mr. Nuyten says. If advicedirect clients outgrow the service and don't want to pay the 1-per-cent fee any more, they can easily have their account moved to BMO's online broker, InvestorLine. "Happy to do that," Ms. Lazaris says. ***** STRATEGY COMPARISON AdviceDirect vs. no advice Bank of Montreal's advicedirect service allows clients to invest online independently while still getting advice. Here's how AdviceDirect compares with a traditional online brokerage account. CRITERIA / Advice ADVICEDIRECT / Online guidance on what to buy and sell, plus access to a team of investing specialists who can provide personalized advice.

5 5 of 6 11/2/2013 3:41 PM TRADITIONAL ONLINE BROKER / Zero - online brokers are basically order takers who provide tools and services to help clients make their own investing decisions. CRITERIA / Ongoing account monitoring ADVICEDIRECT / Clients are notified online when there are issues with any of their holdings, and when their asset allocation goes out of balance; if clients don't act, they receive prompts from staff. TRADITIONAL ONLINE BROKER / Clients must look after their own accounts. CRITERIA / Annual reviews ADVICEDIRECT / Yes TRADITIONAL ONLINE BROKER / No CRITERIA / Place your own trade orders online ADVICEDIRECT / Yes TRADITIONAL ONLINE BROKER / Yes CRITERIA / Detailed account performing reporting ADVICEDIRECT / Yes TRADITIONAL ONLINE BROKER / Some firms have it, some don't CRITERIA / Cost ADVICEDIRECT / 1 per cent of assets, billed quarterly, plus the cost of owning investments such as ETFs; 30 stock trades a year are included; balances between $500,000 and $1-million are charged 0.75 per cent, while balances above that level cost 0.5 per cent. TRADITIONAL ONLINE BROKER / Clients pay annual administration fees for small registered accounts, and commissions on stock trades. CRITERIA / Minimum account size ADVICEDIRECT / $100,000 TRADITIONAL ONLINE BROKER / Ranges from none at some firms to $5,000 at BMO InvestorLine for some accounts. CRITERIA / Annual account fee and/or commissions at $100K ADVICEDIRECT / $1,000 TRADITIONAL ONLINE BROKER / $300, assuming 30 stock trades. CRITERIA / Average account size

6 lobeadvisor.com: The advice conundrum: All, none or some? 6 of 6 11/2/2013 3:41 PM ADVICEDIRECT / BMO says it's comfortably above the $100K minimum. TRADITIONAL ONLINE BROKER / $55,000, according to Investor Economics. CRITERIA / Deals for new clients ADVICEDIRECT / $250 cash back when you start using your account, and a 25-per-cent fee rebate in the first year. TRADITIONAL ONLINE BROKER / Some brokers offer free trades to new clients and to pay any fees for transferring in accounts held elsewhere. JOHN SOPINSKI/THE GLOBE AND MAIL SOURCE: ROB CARRICK Print this Article this page Refer a colleague On-line: Help Contact Us Globe Plus Subscription Registration Advertise: Advertise With Us Newspaper Magazines Online Marketing Solutions Group Media Central Classifieds Copyright 2011 The Globe and Mail Inc. All Rights Reserved. Privacy Policy Terms & Conditions Disclaimer The Globe and Mail, 444 Front St. W., Toronto, ON Canada M5V 2S9 Phillip Crawley, Publisher