For years, Canadian direct investors have envied the rock-bottom commissions that American discount brokers offer on equity trades. The contrast in fees is particularly obvious if you consider Toronto-Dominion Bank's discount brokerages in the two countries.
TD Ameritrade, the American discount brokerage, charges US$9.99 to trade an unlimited number of shares, with no minimum account size required. Across the border at TD Waterhouse, the commission for the same trade has been (until recently) $29, unless your household accounts at TD Waterhouse held the $100,000 or more needed to qualify for $9.99 flat-rate commissions. Fortunately, the price war that has broken out of late among Canadian discount brokers is narrowing the gap between Canadian and American brokerage commissions.
The initial volley of this war was fired on Oct.19. TD Waterhouse, the biggest discount broker in Canada, announced that, as of Nov. 4, it was extending its $9.99 flat rate commissions for online or automated-telephone equity trades to clients holding $50,000 or more in household assets at TD Waterhouse. Customers not meeting the $50,000 threshold continue to pay $29 for most trades. There is a slight catch: clients must sign up for eServices -- meaning they get electronic statements and trade confirmations.
The privately owned, Vancouver-based Qtrade Investor, long a leader in customer-centred innovation, quickly responded to TD's new pricing. Clients with account assets of $50,000 or more now qualify for $9.95 flat-rate commissions.
On Oct. 28, CIBC Investor's Edge joined the skirmish with some very aggressive pricing. Effective Jan. 1, 2011, online trades will cost $6.95 per trade for clients who do $100,000 or more business with CIBC. Given that deposits, investments and loans (including mortgages) all count in the calculation, many CIBC banking customers, even those with only small sums to invest, will be able to take advantage of these low commissions.
Investors unable to meet the $100,000 hurdle will also benefit under the new pricing with flat-rate online trades of $9.95 for those with $50,000 to $100,000 in a CIBC online brokerage account. Reasonable pricing for equity trades at CIBC's discount brokerage was long overdue. I left them a few years ago, largely because their commissions were not competitive.
On Nov. 2, the battle moved over to BMO InvestorLine with the announcement that clients would qualify for $9.95 flat rate commissions if they held $50,000 or more in combined assets in BMO InvestorLine accounts over which they have trading authority. Previously, to receive the $9.95 flat rate, clients needed $100,000 or more in their BMO InvestorLine account. This new rate structure begins on Dec. 1, and applies to online or automated telephone trades.
Just a day after BMO InvestorLine made its move, RBC Direct Investing joined the fray on Nov. 3 with new commission rates that closely mirrored their competitors. As of Dec. 22, the minimum account size to receive their $9.95 flat rate commission for online or automated telephone trades will drop from $100,000 to $50,000 in household assets in RBC Direct Investing accounts.
Scotia iTrade, the innovative discount brokerage owned by Scotiabank, has long offered $9.99 flat-rate commissions to clients with $50,000 or more in their accounts. So it hatched a different and revolutionary battle plan: "Buck a Bond" visible commissions for bond trades. As of mid-October, clients can now buy or sell bonds for $1 for every $1,000 face value of a bond, with $19.99 minimum and $250 maximum commissions. Qtrade Investor, always attuned to the latest trends, quickly matched this pricing. Other discounters have yet to follow suit.
Investors should check with their discount brokers to confirm that they are eligible for the reduced commission rates. In addition, they need to remain vigilant about the multitude of other ways discount brokers extract money from clients. Margin loans, foreign-exchange conversions, registered-account administration fees, fees for low account activity and various other service fees, and mutual-fund trailer fees are all ongoing sources of revenue.
Pocketing trailer fees that fund companies pay financial advisors for providing advice to clients is a little-known money grab that particularly irks me. Discount brokers tell us that they don't give advice. Why, then, are they pocketing fees for service not rendered?
Lower pricing for trades at Canadian discount brokers is a welcome development, but our discounters have some distance to travel to catch up to their American counterparts. There are still those hefty minimum account sizes that most Canadian discounters require in order to qualify for low, flat-rate trades.
Also, no Canadian discount broker advertises such head-turning promotions as the commission-free online trades that U.S. discounter Charles Schwab offers on its house-brand exchange-traded funds. BMO InvestorLine, please take note.
The Canadian dollar is within striking distance of parity with the U.S. dollar. We can only hope that the commissions and fees charged by Canadian discount brokers follow this direction and reach parity with those of our American cousins.