Category: Investing

Apparently most investors are using their TFSAs for safe instruments such as GICs and high interest savings account, even though they are eligible for equities, such as stocks and bonds.  I’ve seen a couple of instances where the name “Tax Free Savings Account” was blamed because it contains the word “savings” which apparently is confusing. Gordon Pape brought it up in his article and Jonathan Chevreau wrote a whole post on the theory.

For some background, here is my post on TFSA rules.

The name has nothing to do with it – think about this – RRSP is a very successful account used by many Canadians.  What does the “S” in RRSP stand for?  Wait for it….yes, “Savings”!

How is that Canadians are comfortable putting equities in their RRSavingsPs, and yet they are so confused by the TFSavingsA, they are stuck investing in GICs and high interest savings accounts?

People who think that you can only buy GICs in TFSAs are the same people who think you can only buy GICs for the RRSP or worse – they think you “buy an RRSP”.  That issue is just plain investor ignorance.  No name change can combat that sort of thing.

Here are my reasons why investors like having GICs and high interest savings accounts in their TFSA

Advertising

The banks advertise more.  ING in particular, easily smoked every single other financial institution out there with its marketing and implementation when the TFSA came out.  People associate banks with GICs and high interest savings accounts, which is one of the reasons for a lot of investors playing it safe.

Simple marketing

If you are trying to attract customers to sign up for a new type of investment account, the last thing you want to be doing is confusing them.  The TFSA has a set of new rules to be learned, adding more investing options like stocks and mutual funds doesn’t make for good advertising.

Good implementation by the banks

ING was the first institution to offer a “pre-TFSA” account in the fall of 2008, so you could make your contribution early.  They didn’t really put the money in a TFSA account, but rather a non-registered account.  The interest in a non-registered account is taxable so they doubled the interest payment to cover the taxes, in effect creating their own temporary synthetic TFSA account.  On January 1, 2009 they transferred the money to a TFSA account and everyone was happy.  They have continued to offer this “bonus” every fall.  Obviously they spent a ton of dough on advertising, but it seems to have paid off.

What were other companies doing? Not much – I recall Scotia allowing people to set up their accounts early, but I don’t know about the other banks.  What about the discount brokerages and mutual fund companies?  They did nothing, while ING and the banks got all the TFSA money.

I’m not trying to play the blame game here – it really doesn’t matter to me which companies have more TFSA assets.  However, the point is to show why most people set up TFSAs with their bank and invest conservatively.  It’s not because they are stupid or are poor investors – it’s because the TFSA was a new investment account and the banks (especially ING) were the only visible option at the time.

Small account size

TFSA contribution room was only $5,000 per person in 2009.  In the grand scheme of things – this ain’t much.   GICs are easy – some of this money will get converted to mutual funds and stocks/ETFs over time.

Emergency fund

I can’t speak for anyone else, but my wife and I decided to start an emergency fund.  This has to contain liquid investments which means a high interest savings account.  The interest on this money, while puny, is considered taxable income.  Putting this money in a TFSA is the smartest choice for us.

Tax sheltering makes sense

You can talk about different tax strategies until the cows come home, but the fact is that if you are going to own investments which produce interest income – putting them into a tax-sheltered account makes the most sense.

Short term investment horizon

The TFSA is far more suited to short-term investments than the RRSP.  Someone who is saving for a house downpayment, a new car, a vacation, a house renovation will have a fairly short time line for that money and needs to keep it safe.  Hello GIC!

Fees

A lot of discount brokerages charge a lot of money for trading stocks and ETFs – it’s just not worth it for a smaller account.

What will happen in the future?

Going forward, I think the amount of TFSA assets invested in equities will increase as investors have more contribution room to play with.  The TFSA account is still pretty new – as more investors learn the rules, more will open accounts that can invest in mutual funds or stocks and ETFs.

If you are thinking about moving your TFSA from one company to another – check out my TFSA December strategy to save transfer fees.

What do you think?  Any particular way the TFSA should be used or is any method ok?

There are many things you should consider when choosing a financial advisor.  One of the items is their academic training.  Would you rather be advised by someone with the minimum amount of qualifications or someone who has made the effort to take extra financial planning courses?  Unfortunately, in Canada it is possible to become a “mutual fund salesperson” with very little training.

Here is a list of Canadian fee-only financial planners.

Depending on what you want from your advisor, their qualifications might or might not be important to you.  If you want to quickly set up an RESP account at your local bank, the in-branch investment specialist will probably be good enough.  If you are looking for advice on retirement planning including tax and estate issues, then you will want someone with more knowledge.

I’ve listed four common financial planning courses and designations.  When you are researching potential advisors, ask what courses they have taken.  Another idea is to ask when the last time they took any kind of training.  If they haven’t done any training in a while, ask how they keep up with recent changes in taxes, laws etc.

As Dr Rathgeber pointed out in the comments – don’t forget that just because someone has qualifications and knowledge, doesn’t mean they will use it for your benefit.

There are many other courses that are available – feel free to list any in the comments if you think they should be mentioned.

CFP – Certified Financial Planner

This is the only course listed that I haven’t completed any part of.  It is a very demanding course with two lengthy exams.  Basically you have to take the course approved by the Financial Planning Standards Council.  Then you write the exam and pray that you pass.  In order to get the actual CFP designation, you need three years of direct financial planning experience.

The material is quite extensive and covers all the various financial planning areas such as taxes, retirement, estate, investment planning.

I would suggest that if you want to hire a financial advisor that the CFP is the main designation that you look for.  It really encompasses all the subject areas necessary for financial planning.

CFA – Chartered Financial Analyst

The CFA designation is more appropriate for investment management, rather than financial planning.  Portfolio managers, investment analysts are the key jobs for this designation.  It is however, fairly common for CFA graduates to become financial planners. I would say this is the hardest designation to get – you have to write three lengthy exams and have four years of related investment experience.

Back in a former lifetime, I passed the first level of this exam.  I did the reading for the second level, but due to a career change – I never completed the 2nd level.  I’d love to get this designation now, but you need several years of investment experience to get the designation, which I can’t get with my current job.  It’s not worth the effort and money if I can’t get the actual designation to brag about.  🙂

PFP – Personal Financial Planner

This PFP is a Canadian program offered by the CSI (Canadian Securities Institute).  I’m not personally familiar with this course, but apparently it is popular with bank employees.  It is a CFP qualifying course which is a definite vote of confidence.

FCSI – Fellow, Canadian Securities Institute

This section was provided by reader JT

FCSI is Fellow, Canadian Securities Institute. As you can probably guess from the name, it’s the CSI’s highest level of recognition and its requirements are the most demanding.

To get it, you need to complete:

• One of the CSI’s accredited designations: CIM, CSWP, FMA (although this has been being discontinued);
• One additional course (easily satisfied by completing the CPH)
• One ethics module

In addition, you need a testimonial from an existing FCSI holder and need to satisfy certain CE requirements.

Despite the list of requirements, it’s not *that* much work for a career advisor. I think you’ll find this designation should be pretty widely-held amongst full service advisors.  It’s unlikely that someone selling mutual funds in a bank branch would have it, though.

CSC (Canadian Securities Course)

This course is a much harder course than the IFIC.  The material is more detailed and there is a lot more of it.  I remember thinking that this course wouldn’t be a lot of work, but I was wrong.  The CSC covers all the material from the IFIC plus topics like stocks, options, and bonds.

For any job involving investments other than mutual funds, the CSC is usually mandatory.  A broker’s assistant would need this, call centre employees for discount brokerages should take this.

For investors – this is a decent course to take.  It’s a fair bit of work, but you will learn quite a bit.

This course is self-study with a written exam.  It is suggested that 135-200 hours of study are necessary and I will agree with that.

IFIC – Investment Funds in Canada

This course is the easiest financial planning course available.  It is the minimum qualification to sell mutual funds in Canada.  How easy is it?  I wrote the exam without studying and passed easily.

The IFIC is suitable for a beginning investor, however I’m not sure if it’s worth the money given the plethora of financial advice articles on the web.  It covers basic financial planning and mutual funds.  If your (future) job involves selling mutual funds or giving advice on mutual funds then you will need to take this course.

More information

Check out my post on how financial advisors get paid.

Canadian Penny Stocks Blog wrote a good analysis of the CSC – Is the Canadian Securities Course For You?

I had someone ask me recently what a “cash account” was. They were under the impression that it was a temporary holding account for doing RRSP transfers between financial institutions, which is not the case.

A “cash” or “non-registered” account is an account that is not tax-sheltered in any way. Any kind of income or capital gains will be taxed. Most people have chequeing or savings accounts which would be considered non-registered accounts. You can also have a non-registered or cash account at a brokerage where you could buy stocks or bonds.

An RRSP account is considered a registered account. Contributions produce a tax receipt and withdrawals are considered taxable income. Any earnings inside the account are not taxable.

If you withdraw money from your RRSP and put it into a non-registered account (or spend it), that withdrawal is considered taxable income. The money is no longer tax-sheltered.  If you wish to transfer RRSP money to a new RRSP account at a different bank, you can do this without doing a taxable withdrawal by completing a T2033 RRSP transfer.  Doing a T2033 RRSP transfer properly will ensure that you maintain the tax-sheltered status of your investment money.

How to do a T2033 transfer

• Step 1 is to set up an RRSP account at your new financial institution.
• Step 2 is to request a transfer from another institution. You will then be asked to fill in a T2033 form.

You don’t have to notify or talk to your current advisor or institution.  They will get the transfer request and will send the money along.

Most of the form will be self-explanatory – generally you have to provide the account number and address of your existing financial institution.
One section which is a bit trickier is the “in-kind” or “in-cash” transfer section.

In kind transfer

If you transfer your investments “in kind”, that means that you transfer your specific investments over to the new company without selling and buying. An example would be if you own 100 shares of BMO stock at Scotia iTrade online brokerage. You’ve decided to go with Questrade brokerage because you like the name better, so you tell Questrade to complete the transfer “in kind” because you don’t want to sell the BMO shares.

You can only do an “in kind” transfer if the investment you own is available at both financial institutions. Most stocks for example, would be available at all brokerages whereas as a GIC purchased at a particular bank wouldn’t be offered anywhere else.

Why do an in kind transfer?

The main benefits for an in-kind transfer are:

• Taxes – No tax consequences resulting from selling your existing investments. This only applies to investments in a non-registered account.
• Cheaper – Some securities such as stocks cost money to buy and sell.

In cash transfer

Moving your investment “in cash” means your investments at your current brokerage will be sold and the resulting cash will be transferred to the new broker where you will then buy new investments. This also referred to as a “cash liquidation” transfer. If you ask for an ‘in-cash’ transfer, you don’t have to do the actual selling – your financial institution will handle that for you.

Why do an ‘in cash’ transfer?

Typically you would do an “in cash” transfer if your current investments are in-house investment products that are not sold at the new institution. An example might be a certificate of deposit or a mutual fund. For example you might own 3 mutual funds at fund company ABC – you decide you would rather invest with fund company XYZ, so you would do an “in cash” transfer – sell the ABC funds, move the cash, then buy your new funds at XYZ.

Transfer fees and how to avoid them

Most institutions will charge a transfer-out fee is you move your account to a different company.  They usually range from $125-$150 for stock account and can be as low as $50 for mutual fund accounts.  Check with your current financial company to see if there will be a transfer-out fee.

The way to avoid the transfer fee is to ask your new financial institution to cover the transfer fee.  If you are moving a decent amount of money, then the odds are quite good they will pay it.  It doesn’t hurt to ask!

Summary

If you are moving registered money (ie RRSP,TFSA,RRIF) from one institution to another financial institution – you need to complete the proper transfer so that the government doesn’t think you have cashed in your account, which will have tax consequences.

For RRSP accounts, doing a T2033 transfer will maintain the tax-sheltered status of the RRSP funds.

• Transfer in-kind means you are moving your existing investments to the new account.
• Transfer in-cash means you are selling the investments and moving the cash.

Most companies charge transfer out fees – ask your new financial institution to pay it.

For a detailed comparison of all the Canadian brokerages – check out my Canadian discount brokerage comparison.

CIBC Investor’s Edge is owned by the Canadian Imperial Bank of Commerce (CIBC), which is not too hard to figure out from the name.

Overall impressions

Investor’s Edge is pretty typical for the big bank-owned discount brokerage in that the trading fees are sky high unless you are an active trader.  They recently made a big change to their fee structure so that you can qualify for cheaper trades if you have $50,000 in household assets with CIBC.  These assets include mortgages and bank accounts.  I’m assuming they use the positive value of the mortgage.  🙂

Please note that the cheaper trades don’t come into effect until January 1, 2011.

If you already bank with CIBC and qualify for the cheaper trades or if you trade 50 or more times per year, then it’s a pretty reasonable option.

Online trading commissions

• $28.95 is the default commission.
• $6.95 – If you have at least $100,000 in household assets.  This includes any CIBC products including bank accounts, mortgages.
• $9.95 – If you have at least $50,000 in household assets.  This includes any CIBC products including bank accounts, mortgages.

If you would like to compare all the different Canadian discount brokerages, check out the Canadian discount brokerage comparison.

Phone trading commissions

• $50 minimum for a phone trade placed with a representative.
• The basic cost is $35 plus a fee per share.  The exact pricing is here.

Annual account fees

• RRSP, RRIF, LIRA, LIF – $100 unless balance of all registered accounts is greater than $25,000
• RESP – $50 unless balance is more than $15,000
• TFSA – $50  This fee is starting Sept of 2011 – waived if you have a registered account as well
• FundPlus account – $25  This account can only contain GICs, mutual funds and fixed income
• Non-registered – $60 unless balance is greater than $10,000 or you have a registered  account

Foreign exchange fees

• Spot rate + 1.4%

If you are exchanging a larger amount ($10k or more) or have a lot of assets, then phone and try to negotiate a better exchange fee.

Mutual funds

• Full range of mutual funds available.

Free real-time quotes

• No

Minimum to open account

• None

Some opinions on CIBC Investor’s Edge

I asked a few people over at the Canadian Money Forum what their opinion of Investor’s Edge was:

Scomac:

I’ve been a CIBCIE client for many years, in fact we do all of our banking with CIBC. This has a lot to do with the strength of relationships we have with the individuals at the local level. That said, I don’t feel as though we are missing out on anything.

I will preface my remarks by stating that I am typically a buy and hold type of investor. Our investments consist of common and preferred shares, a few trusts/REITs, investment grade bond ladders and a high interest savings account. My taxable investment account is marginable.

Trading platform

1) The trading platform is fine for my needs. Execution is quick and I’m not getting whip sawed on the spread. The interface between the web broker and on-line banking is seamless which really simplifies moving moneys around. Margin interest rates are pretty typical at prime +2.5-3. The only weak spot from my perspective is with the bond desk. The inventory isn’t as broad as some of their competitors and spreads can be plenty wide at times. Never-the-less, with patience, I’ve always managed to find something that would work for our bond ladders. If I was predominantly invested in fixed income securities, then I might be more likely to switch to a provider with a broader inventory such as BMOIL.

Customer Service

2) My experience with customer service has been generally excellent. Sometimes, you may not get the most knowledgeable individual on the other end, but all issues have been solved readily. No problems executing Norbert’s Gambit on several occasions or connecting with a knowledgeable bond trade to source corporate strip bonds.

Research reports

3) I do most of my own research, so I don’t rely on the brokerage’s research reports. That said, I have full access to CIBC World Markets, Reuters and S&P research. The equity research from CIBCWM is pretty typical of sell-side analysts. I find the economic reports more useful. For US stocks, the S&P reports are particularly well done and provide a very good overview without a lot of bias. For those who like to read, there is a lot of choice.

In terms of tools, I’m not really keen on the functionality of their proprietary stock selector tool. They have a few pre-set screens that may offer something to others. The universe of stocks I follow is generally fairly small, so these features don’t have a lot of value to me.

Belguy:

No problems but I don’t trade much or ask much of them. I just invest for the long run mainly in broad-based ETF’s and trade periodically for rebalancing purposes.

Mario 1

Great pricing , if you’re a trader.
Terrible platform/interface.
Decent customer service and research tools.

Financial advisors come in different shapes, sizes and compensation methods. Some will charge you directly for their advice, while some appear to be offering a free service since you never see any fees.

Rest assured, nobody works for free. It’s important to learn the different styles of compensation, so you can make an informed decision about which type you prefer. The compensation methods are not mutually exclusive, it’s possible to find advisors who offer every type listed below.

Here is a list of Canadian fee-only financial planners.

Front-end sales commissions on investment products

Some investments product provide a commission to your advisor as soon as you make the purchase. If you use a stock broker and make a trade, they will get a percent of the trade commissions. Mutual funds can have two types of commissions – front end or DSC (deferred sales charge).

Front end fees are a percentage of the transaction amount. For example if you buy $10,000 of mutual funds with a front end fee is 1.5%, your advisor will get $150 and the remaining $9,850 will go into your account.

DSC fees or back-end fees are paid to the advisor by the mutual fund company, so you never see them. For example; if you buy $10,000 of a DSC type mutual fund with a 5% commission, your advisor will receive $500 from the mutual fund company and your entire $10,000 will go into your account. Sounds like a great, right? The catch is that if you withdraw money from the fund company within a set period of time, you will pay a DSC redemption fee.  Here is an article on why DSC fees are not so bad for smaller investors.

Investment products which offer a sales commission can encourage advisors to sell more investment products to the clients, regardless if the products are appropriate or not. For example, a retired person might be a good candidate to put some of their money in equities and some in an annuity. It would be more profitable for the advisor to recommend that the client put all their money into equity mutual funds, rather than allocate some of it to an annuity.

Ongoing trailer fee commissions

Another type of commissions that financial advisors can receive from mutual funds are called trailer fees. These are ongoing commissions paid to the advisor by the mutual fund itself, as long as you own the fund. They typically range from 0.25% to 1.0% per year.  Trailer fees also encourage advisors to recommend clients to be invested in mutual funds rather than alternatives, such as annuities or using money to pay off debt.

Another problem with trailer feesis that equity-based mutual funds tend to pay a higher trailer fee commission than fixed-income funds which could lead to your advisor recommending a higher equity allocation because it is more profitable for the advisor.  This is known as equity bias.

Commission as percentage of assets or regular scheduled dollar amount

This type of compensation is part of “wealth management” services and is usually reserved for clients with larger portfolios. The idea is that the advisor will manage the portfolio and charge a set percentage of the portfolio size – perhaps 1.0% per year.  In this type of arrangement, the advisor will usually have the ability to change your asset allocation and buy and sell investments. The larger your portfolio is, the lower the annual fees as a percentage should be. A similar arrangement can occur when a company charges you a fixed dollar amount per month instead of a commission.

You need to shop around to make sure you get the best fit for the advisor as well as a good price. One of the big downsides of this type of plan is that the advisor may not do much once you are signed up. She will get the same amount of compensation whether she spends 30 minutes per month working on your account or 10 hours.

Fee-based charge

This type of compensation is known as fee-based. This type of advisor will charge for their service the same way a lawyer does – either by the hour or a set fee for certain tasks.

For example if you want an advisor to put together a comprehensive financial plan, they might charge $100 and work 10 hours for a total of $1,000. Or they might have pre-set packages so you can pick how much service you want for a pre-determined price.

This type of payment can be very useful, since you can hire the advisor when you need them. Most people do not need a comprehensive financial plan drawn up for them every year.  Ideally one might pay more money for a financial plan and then just pay smaller amounts for subsequent annual or bi-annual checkups.

The downsides of this sort of arrangement are:

Too expensive for small accounts. Paying $1,000 for a financial plan when your portfolio is only $2,000, does not make any sense.
Possibly too much detail. If you are close to retirement, you want your advisor to spend lots of time analysing your finances because you need to make sure you’re on the right track. If you are younger, then your financial plan will likely be simpler and you should be paying less than someone who needs a more comprehensive financial plan.

Salary

The last compensation type is salary. This investment professional does not get commissions based on the investments they recommend to you. There could be a bonus based on volume of business.

This type of advisor can still be quite biased if their employer pressures them to sell certain in-house products. It is likely that the range of investment options can be smaller than a regular financial planner.

Summary

There are many different compensation models available to financial advisors.  As an investor, it’s important to know how your advisor is being paid.  There aren’t any good or bad payment methods – at the end of the day, it’s the total amount of fees that you are paying which really matters.

Should advisors disclose their commissions?

Do you know how your financial advisor is paid??

Canadian Online Discount Stock Brokerage Comparison

This comparison is intended to show in one place, all the important information that someone who is looking for a discount brokerage would want to know – trading commissions, account fees etc.  There are also links to more detailed individual brokerage reviews.  Of course, all this information is available on broker websites, but as I’ve found out – it can be very difficult and time consuming to compile even basic information from a broker website.

Things to look for in a discount brokerage

• Trading commissions – Don’t pay $29 for a trade when you could be paying a lot less.  That’s just not a good deal.
• Account fees – there are a lot of conditions for account fees, so study these carefully.  Most of the time, investors with large balances can get the fees waived, but smaller investors should look for an account with no fees.

New to online investing?  Learn how to buy an ETF or stock using a discount brokerage – step by step instructions.

Related Article:  Learn how to sell an ETF or stock – step by step directions

Learn to negotiate

I can’t emphasize enough that if you have a decent amount of assets, then try to negotiate fees.  As to how much you need in assets to negotiate – try it and find out for yourself.  Here are some suggested negotiation areas:

• Trading commissions – Are you at a big bank and are not too far away from having enough money to qualify for $10 commission?  Ask for them now.  TD and Qtrade just joined Scotia by lowering their cheap trade threshold to $50,000.  Ask your bank to do the same for you.
• Currency exchange fees – Before doing a trade between currencies, it is worthwhile to call and see what kind of preferred rate might be available.
• Transfer to new brokerage fees – If you are moving to a new brokerage, ask them to pay your transfer fees.
• Account fees – If you are close to the threshold for no account fees, ask if they can be waived.

Recommendations

Overall best

• Questrade is my favourite – They have every account type, you can have US$ in your RRSP account, 2nd lowest trading commissions (after IB).  As a very passive investor, I wouldn’t consider using anybody else. Check out the full Questrade discount brokerage review which also offers a $50 free trades promotion code.

Lowest commissions

• Interactive Brokers has the lowest commissions and exchange rate of all the brokers listed.  The main drawbacks of IB are that they only have non-registered accounts available and there is a $10,000 account minimum.

Active traders

• Investors who trade frequently get the best deals on commissions.  Interactive Brokers has the best deal for non-registered accounts with a minimum of $10,000 ($3,000 minimum if you are 21 or younger).
  The big banks have good deals for active traders at $6 to $7 per trade, which is only slightly more than Questrade.

Table layout

It would be nice to be able to put all the data onto a table for easy reference, but unfortunately nothing is that simple.  There are so many conditional fees that I ended up putting some information on the table and also created a detail section for each brokerage below the table.

If you see an asterisk * in the field – click on the field and it will take you to the appropriate information below the table.  Alternatively look for fields with links – and click on them for more information.

For example in the “Online Trade Commissions” column you will see the commission range of “$24.99 to $6*” in the field next to “Scotia iTrade”.  If you click on that link, you will then be taken to the detailed trade commissions for Scotia iTrade where you can read how to qualify for the different trade commissions.

I’ve also linked to my reviews of each brokerage which will contain more in depth information.  Click on the brokerage name to see the review.  At this time, there are only a few completed, but I will be publishing more in the coming weeks.

Please do not copy and paste the information in the tables to other websites.  You are welcome to link to this page.

[table id=3 /]

More information

Please do not copy and paste the information in the tables to other websites.  You are welcome to link to this page.

[table id=5 /]

Extra brokerage details

Questrade

Holding US$ in an RRSP and other registered accounts

Questrade has three currency settlement options for all registered accounts:

• Managed Cdn$ – All cash is converted to Cdn$ (i.e., any US$ funds are automatically converted to Cdn$).
• Managed US$ – All cash is converted to US$ (i.e., any Cdn$ funds are automatically converted to US$).
• Trade currency – Both Cdn$ and US$ can be held and no automatic conversion takes place.

If you with to maintain US$ in a registered account, set the currency settlement to either managed US$ or trade currency.

Note that if you are doing a currency exchange more than $10,000,phone Questrade to try get a discount on the exchange rate.

Interactive Brokers

Note that IB only has non-registered accounts.
Real time data plans

• Canadian exchanges – $6/month
• US exchange – $10/month – waivable if $30 in trading commissions per month

Online trade commissions

• Cdn stocks – $0.01 per share, $1 Cdn minimum, max is 0.5% of trade value.
• US stocks -$0.005 per share, $1 US minimum, max is 0.5% of trade value.
• Minimum trading activity of $10 per month ($3 if 21 years of age or less) or the difference is charged to your account.

Account setup minimum

• $10,000 or $3,000 if 21 years of age or less.

Credential Direct

Annual account fees

• TFSA/RESP/OPEN  – No annual fees
• Registered accts – $50 if balance is less than $15,000

Qtrade

Online trade commissions

• $19.00 – If household assets are less than $50,000 and less than 30 trades per quarter
• $9.95 – If household assets are greater than $50,000 or 30-149 trades per quarter
• $7.00 – If 150 trades or more per quarter

Annual account fees

• CDN$ RRSP and other registered accounts –  $50 if balance is less than $15,000
• US$ RRSP – $50
• TFSA – none
• Non-registered – none

TD Waterhouse

Online trade commissions

• $29.00 – If household assets are less than $50,000 and less than 30 trades per quarter
• $9.99 – If household assets are greater than $50,000 or 30-149 trades per quarter.  Online statements.
• $7.00 – If 150 trades or more per quarter

Annual account fees

• Registered stock trading account – $100 if balance is less than $25,000
• Registered GIC and mutual fund acct – $25 if balance is less than $25,000.
• RESP – $50 if balance is less than $25,000
• TFSA – $50 – waived if balance > $25,000 or sign up for eServices

National Bank

Online trade commissions

• $28.95 – Personal balance is less than $100,000 and less than 30 trades per quarter
• $9.95 – Personal balance greater than $100,000
• $6.95 + 1 cent per share – max $9.95    Greater than 30 trades per quarter

Note that the $100,000 required balance is for the individual – not household, which is the norm for other institutions.

Annual account fees

• Registered accounts – $100 if balance is less than$25,000
• RESP – $50 if balance is less than $25,000
• TFSA – $50 if less than one trade per year or total assets is less than $100,000
• Non-registered account – $80 if balance less than $10,000 or less than four trades per year

CIBC Investors Edge

Online trade commissions

• $28.95 is the default commission.
• $6.95 if you have at least $100,000 in household assets.  This includes any CIBC products including bank accounts, mortgages.
• $9.95 if you have at least $50,000 in household assets.  This only includes CIBC online brokerage assets.

Annual account fees

• RRSP, RRIF, LIRA, LIF – $100 unless balance of all registered accounts is greater than $25,000.
• RESP – $50 unless balance is more than $15,000
• TFSA – $50  This fee is starting Sept of 2011 – waived if you have a registered account as well
• FundPlus account – $25  This account can only contain GICs, mutual funds and fixed income
• Non-registered – $60 unless balance is greater than $10,000 or you have a registered  account

BMO InvestorLine

Online trade commissions

• $29.00 if assets you have trading authority over are less than $50,000 and less than 30 trades per quarter.
• $9.95 if assets you have trading authority over are greater than $50,000 or more than 30 trades per quarter.

Annual account fees

• RRSP, LIRA, RRIF – $100.00 unless balance is greater than $25,000
• RESP – $50.00 unless balance is greater than $25,000
• Non-registered – $25 per quarter unless balance is greater than $10,000 or at least 2 trades per 6 months
• TFSA – No fee

RBC Direct

Online trade commissions

• $28.95 – If household assets are less than $50,000 and less than 30 trades per quarter.
• $9.95 – If household assets are greater than $50,000 or 30-149 trades per quarter.

Annual account fees

• No fees if total client assets are $15,000 or more.
• If assets are less than $15,000, a $25 quarterly fee will be charged regardless of the number of accounts.  Can be avoided by making three or more trades in all accounts.

Scotia iTrade

Online trade commissions

• $24.99 per trade
• $9.99  – If you have $50,000 in combined assets or 30-149 trades per quarter
• $6.99 – 150+ trade per quarter

Annual account fees

• Non registered account – $25 per quarter unless minimum balance of $10,000 or one trade per quarter.
• Registered account – $100 if balance of all accounts is less than $25,000.
• RESP – $25 if balance of all account is less than $15,000.
• TFSA – No fee.

ShareOwner

Online trade commissions

Group trades are $9.95 each or $40 per group of trades

Annual account fees

• RRSP – $79
• LIRA/Locked in RSP – $100
• RIF – $100
• TFSA – $50

Account withdrawal fees

• Non-reg – $12
• RRSP – $48
• Home Buyers’ Plan Withdrawal – $100
• Life Long Learning Plan Withdrawal – $100
• TFSA Withdrawal – $25

Disnat

Online trade commissions

• $29 if less than 10 trades per month or balance is less than $50,000
• $9.95 if than 10 trades per month or more than $50,000
• Min. $5.00 – max $9.95 if 10 trades or more per month in the Disnat Direct solution.

Annual account fees

• TFSA –  none
• RRSP – $100 if balance is less than $15,000
• RESP – $50 unless you have $25,000 in all your accounts
• Non-registered – $25 per quarter, unless a minimum of two trades in the last 12 months.
• RRIF,LIF – $100 if less than $25,000 in the account

Options Express

Online trade commissions

• $14.95 if less than 35 trades per quarter
• $12.95 if 35 or more  trades per quarter

US$ RRSP

They only offer US$ denominated accounts and only trade on US exchanges.  No Cdn$.

HSBC

Annual account fees

• TFSA – none
• RRSP – $50 if balance is less than $15,000
• RESP – $50 if balance is less than $15,000 or have premier bank acct
• Non-registered – $50 if balance is less than $5,000 or less than 2 trades per year
• RRIF – $50 if balance is less than $15,000
• LIF – $50- if balance is less than $15,000

Virtual Brokers

Annual account fees

• RRSP, Spousal RRSP, LIRA, RIF, LIF – $50 if less than $15,000
• TFSA – none
• RESP – $25
• US$ RRSP, US$ Spousal RRSP, US$ LIRA, US$ TFSA – $50

One common complaint when it comes to mutual fund fees, is a general hatred for DSC (Deferred Sales Charge) load mutual funds. While I understand that nobody likes paying fees, I also think that this fund load is misunderstood and can be beneficial for smaller investors who invest through an advisor.

What are DSC fees and how do they work?

When you buy a DSC mutual fund from an advisor, you don’t pay any kind of direct sales fee. Instead the mutual fund company will pay the advisor an upfront sales fee – usually around 5%. This way all of your money gets invested and your advisor gets some payment.

The catch is that these funds have a DSC fee schedule which usually start at around 6% and last for approximately 6 years. The fee will decline each year until it gets to zero. The DSC fee is only applied to investors that sell their mutual fund units before the DSC schedule has finished.

Here is a sample DSC schedule:

[table id=9 /]

If you were to sell your mutual fund in year one, the DSC fee would be 6.0% of the investment amount. If you wait until year 4 to sell, the DSC fee would be 3.0% of the sale amount. Note, that some companies will calculate the fee on the original purchase amount.

The problem is that most people who buy DSC funds are not aware of how DSC fees work and consequently get upset if they sell their funds and get nailed with unexpected fees.

Why DSC fees are not as bad as you think (and ways to reduce the fees)

1) Advisors need to get paid

If you want to use a financial advisor then you have to pay them. It takes time for an advisor to meet with you, get an account set up and handle the paperwork and transactions. DSC load funds allow smaller investors to avoid paying direct fees and enable them to get all their money invested.

Trailer fees are not enough. Trailer fees are fees – usually 0.5% to 1.0% per year which are paid to the advisor from the mutual fund. These can be very lucrative for larger accounts, but for a small investor – they don’t add up to squat.

The alternative to DSC funds for a small investors is direct fees. For example, an advisor might charge $100 to set up an account.

2) DSC fees are not applied to switches between funds at the same fund company

If you own XYZ Growth Fund and you want to switch over to XYZ bond fund, then you should be able to make that switch without paying any DSC fees. The original DSC schedule should carry over to the new fund.

Of course this means you can’t leave that particular fund company without paying DSC fees, but you are not locked into any single fund.

3) DSC fees go down over time

If you wish to withdraw your money from a DSC fund, phone the fund company to find out how much the DSC charge will be. If you’ve had the account for a while, then you won’t be paying the maximum charge.

4) 10% free option

Most fund companies have an annual 10% free withdrawal for DSC funds. What this means is that you can take 10% of the fund value (as of the beginning of the year) and switch it to a non-DSC version of the fund. Or you can just redeem the 10% amount if you wish.

This is something that you have to request every year, but the more DSC load units you can switch to non-DSC load, the lower the DSC fee will be if you sell the fund.

5) Negotiate the DSC charge

While the basic DSC fee can’t be changed, you can sometimes negotiate with your advisor to reduce the amount of fee that the advisor keeps.  Any difference will be deposited in your account as a new purchase.
For example if the DSC fee is 5% and your advisor agrees to reduce her commission to 3%, then the 2% difference will be placed in your account.

This leads to the interesting situation of a “cash-back” purchase where you end up with more money in the account than you deposited.  In the example above, you would end up with 102% of your original purchase.

This is typically used when an investor is moving money from one fund company to another and is hit with DSC charges on the sell side, however it will work for any purchase.

The amount you have to invest will help determine your success with this strategy.  The more money you have, the more leverage you have.

6) Timing of the sell

Check with your advisor or fund company to see if the DSC fee will drop significantly if you wait a bit.  If you made a large purchase to open the account and you are close to a lower level in the fee scale, it might be worthwhile to wait.

Please note, that these rules are general. Phone your advisor or fund company to verify the exact fund company rules before doing anything.

Should I wait to convert my expensive funds to cheaper index funds?

No.

If you own an expensive mutual fund with a 2.50% annual MER and wish to switch to a cheaper fund which has a 0.5% annual MER, then you will save 2.0% per year. As long as you stay invested in the cheaper fund for at least a few years, then the annual savings will quickly outpace any DSC fee.

Should mutual fund DSC fees be banned?

The main problem with DSC fees is the lack of disclosure. Most financial advisors “sell” mutual funds and DSC fees are not a good sales pitch. A friend once told me that an advisor tried to get him to invest his house down payment savings in DSC equity mutual funds. That kind of advice is as bad as it gets.

If DSC load funds were banned, then it is likely that no money will be saved by investors. Here are some things which might happen – especially for smaller investors:

• Front load fees more likely to be charged. These are fees which will apply to the sale price and will come out of the investment amount.
• Direct fees more likely to be charged. Fees like account setup fees, transaction fees might be charged.
• Refusal of service. An advisor is not going to work for peanuts – if you are not a profitable client then they will likely refuse to work with you.

Summary

DSC fees are an indirect method for mutual fund clients to pay their advisors. Lack of DSC fee disclosure is bad, but DSC load funds are not.

More information

Larry MacDonald makes a good argument against DSC fees.

This week, we are taking a look at Scotia i-Trade discount brokerage. This brokerage, is of course owned by Scotia Bank, one of the big five Canadian banks. Scotia started iTrade and then bought E-trade and amalgamated it into the iTrade brokerage. Trade Freedom brokerage has also been purchased and will be merged into iTrade as well.

If you would like to compare all the different Canadian discount brokerages, check out the Canadian discount brokerage comparison.

Overall impressions

Scotia iTrade is cheaper than any of the other discount brokerages owned by the big banks. The highest trading fee is $24.99 which is less than ~$29 for most bank-owned discount brokerage, but not by a whole lot. You only need $50,000 in assets to qualify for the cheaper $9.99 trades vs. $100,000 for the other bank-owned brokerages.

The fact that there are no annual account fees for registered accounts is a big plus for lower-asset investors who can’t normally get their fees waived at the other banks.

If you want to have a discount brokerage account at a big bank, then this is the cheapest one. You can still do a lot better on fees though, by choosing any number of the independent brokers.

Online trading commissions

• $24.99 per trade
• $9.99  – If you have $50,000 in combined assets or 30-149 trades per quarter
• $6.99 – 150+ trade per quarter

Phone trading commissions

• $45 plus online trading commission

Annual account fees

• Non registered account – $25 per quarter unless minimum balance of $10,000 or one trade per quarter.
• Registered account – $100 if balance of all accounts is less than $25,000.
• RESP – $25 if balance of all account is less than $15,000.
• TFSA – No fee.

Foreign exchange fees

• Spot rate + 1.65%

Mutual funds

• Full range of mutual funds available

Free real-time quotes

• Yes

Minimum dollar amount to open account

• None

Some user opinions on iTrade

I asked a few people over at the Canadian Money Forum what their opinion of iTrade was.

First person was Harold, who is a low-volume trader and owns individual stocks and ETFs.

Trading platform/interface:

I have been using the web platform only since I originally started with E*Trade a few years ago.  The transition to Scotia iTrade did not change much on the web platform, except replacing the purple E*Trade motif with the Scotia red look-and-feel.
So far, I have been relatively satisfied with the web platform. This is my only online brokerage account, so I can’t claim to have experienced any different.

Customer service:

So far, good.  When you call, usually they pick up the phone within a couple minutes.  On particularly volatile trading days (like May 6th), wait times are longer but I’d expect that to be the case with any other brokerage.  Their trading desk staff are courteous, understanding and knowledgeable.

Research reports and tools:

• Yes, I use the Analyst reports and they are ok.  I believe TD have better quality analysis.
• I think they can improve their data tracking and charting capabilities.  Generating price charts and other types of TA charts is not very powerful.
• They really need to build a good stock scanner into their web platform, like, yesterday.

How many transactions would you do in a month/year?

A dozen transactions, I think. Even though I don’t trade much, but I use the web tools a lot.
My usage is about 1 hr. a day on average – mostly individual stock analysis and pricing history.
I think I’m pretty familiar with all the features they have on the web platform.
Since last 2 years, I have been gradually moving my other accounts over to iTrade so I’ve become familiar with how they handle various types of accounts.
I also lived through the migration of their registered accounts from Penson Financial over to Scotia Capital (after the Scotia transition).

Frugal Trader:

• Their online interface is adequate and usable, and their prices are reasonable providing that you have a $50k balance ($9.99/trade).
• Their telephone service has been relatively quick to answer and knowledgeable from my experience.
• I do not use research reports. One thing they do lack are real-time charts for traders and candlesticks and other indicators.
• Overall, I like my iTrade account and would recommend them for accounts greater than $50k.

Mario

• I use I-trade and trade quite often.
• The platform is quite good, especially compared to CIBC my other brokerage.
• The service is average at best, and the research is like most others.

If you have any experience with Scotia iTrade and want to share your thoughts, then please leave a comment.