It didn’t take long for two other major discount brokers to match TD Waterhouse’s move in lowering commissions for clients with more than $100,000 in assets. RBC Direct Investing and BMO InvestorLine will also be charging $9.95 per trade effective December 22, 2007 and November 1, 2007 respectively. E*Trade has long been offering $9.99 trades for clients with at least $50,000 in combined assets. [Update: Thanks to our knowledgeable commenters for pointing out that both RBC and BMO haven't exactly matched TD Waterhouse. RBC's low pricing is applicable for clients, not households, with $100,000 across accounts and BMO's low commissions are based on control.]
The lower commissions are great news for Canadians intent on reducing their investing costs. For the Sleepy Portfolio, assuming one buy or sell for each security every year, brokerage commissions would drop to $70 or a minuscule 0.05%. But the brokers are hoping that the lower commissions would encourage investors to trade more, writes James Daw in The Toronto Star. It is unfortunate that the major brokers are not offering low commissions for everyone because it would allow clients with smaller portfolios to build passive portfolios using mostly ETFs.
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14 responses so far ↓
1 Joe // Sep 30, 2007 at 10:20 pm
This is generally good news! However, at least for RBC Direct Investing, it does not appear to be for households.
If you’re a husband and wife with investments, you’d need $200,000 of assets before the lower commissions take effect for both of you..
2 The Dividend Guy // Sep 30, 2007 at 11:03 pm
Call me a cynic, but I see this as absolutely nuts and backwards. The people that really need the lower commissions are those with less assets and are really focused on building up their assets. It is obvious they are after the bigger accounts and have no interest in going for the younger folks with less money. Trouble is, these small accounts will grow into larger accounts and these banks will be out of the picture. It already happened to me when I had a smaller account and I was sick of RBC’s commissions and switched to the CSA for lower fees AND dividend reinvestment. At least they are going somewhat in the right direction.
3 FourPillars // Oct 1, 2007 at 6:39 am
I think this is a good move for their existing customers who have the $100k but they still don’t have the lowest commissions. If I’m looking for a new brokerage I want the lowest commissions.
Mike
4 Canadian Capitalist // Oct 1, 2007 at 8:41 am
Joe: Is that right? I’ll make a correction to the post.
5 moneygardener // Oct 1, 2007 at 8:45 am
The details on the BMO arrangement seem to involve ‘control’ of accounts rather than living arrangments….
6 Phil S // Oct 1, 2007 at 9:03 am
Moneygardener is correct. I have a cash account at BMO Investorline, I have a self-directed RSP account at BMO Investorline and I control a third account owned by my corporation which is also at BMO Investorline. Investorline grouped them all together for consideration of my total net assets calculation.
7 Phil S // Oct 1, 2007 at 9:13 am
My feelings are rather mixed with this latest news, though. I like to use the analogy of the beer industry here in Canada…
I first started buying Lakeport Light after playing sports because it is a good beer for $24 per 24, compared to about $40 per 24 for the big breweries when they first hit the market. It wasn’t until they started grabbing serious market share that the big breweries started to take notice and lower their prices, but I stuck with the Lakeport brand because they led the industry. If it weren’t for them, we’d probably be paying over $50 per 24.
Since then, they’ve been taken over by Labatt’s and their prices have been starting to go up. But that’s a totally different storyline…
8 Jon D. // Oct 1, 2007 at 9:20 am
Those with less assets, in other words, most people just starting out investing, are usually pushed towards the high-fee in-house mutual funds. In Bankspeak, “Balanced Funds” which perform no better than the comp. index, yet slice off a few points in returns each year in MER fees.
9 Phil S // Oct 1, 2007 at 10:18 am
Jon D.
At BMO Investorline, you can buy many mutual funds without transaction fees. So, if you have a small portfolio, you can still use an Investorline account, but you can avoid the trading commissions by buying mutual funds. You’re not pigeonholed into the bank’s own mutual funds in a self-directed account - you can buy pretty much whatever. A few of the mutual funds charge transaction fees and stuff, so a beginner investor with a small portfolio should ask which mutual funds are no-load, of course.
In my humble opinion, people who have small investment portfolios should stick to mutual funds anyways in order to have some diversification! I don’t think anyone would advocate to anyone with, say, $10K to invest - to put it all in 200 shares of ONE stock - even if it is, say, Scotiabank. That would be insanely UNdiversified.
TD Waterhouse has many e-funds which are low relatively low MER. BMO’s mutual funds are going to a fixed expense model, so as the NAV goes up, the fees go down.
I’m assuming that it’s basically the same case in all of the other discount brokerages.
10 Phil S // Oct 1, 2007 at 10:27 am
For anybody starting out who asks me for advice, I usually advise them to stick with mutual funds until their portfolio gets up above $100K in size. In my opinion, once you get above $100K, THEN you can buy shares in $10K to $20K chunks and make individual picks and remain reasonably diversified (5 to 10 picks). If they prefer ETFs, then it would make start to make sense sooner, such as at between $25K and $50K in portfolio size.
11 Jon D. // Oct 1, 2007 at 10:35 am
Phil, I wasn’t talking about the commissions to purchase Fund units, but rather the MER of the Fund its self. Yes, I am aware that most brokerages don’t charge to purchase units, but I won’t get into the discussion here about diversification.
12 NeverStopBuying.com // Oct 1, 2007 at 11:57 am
You can actually consider discretionary investment if you have over $100K portfolio, like CIBC Wood Gundy, etc..
TD Waterhouse requires $300K before they’ll talk to you, unless you know someone or get a referral.
Note: standard commission is 2%, unlimited trade
I know, it’s probably against the DIY investment of ETF/MF, but when you have over $100K, it may be a bit different
I do applaud TDW for leading the movement, but not yet abandoing Questrade yet
13 Outroupistache // Oct 3, 2007 at 9:55 am
Further to comment #6 by Phil S, BMOIL will also include trust accounts within a total control value for calculating the $100k base to get the cheaper trading fees.
14 Adieu to Questrade // Oct 31, 2007 at 8:53 pm
[...] accounts to Questrade to take advantage of their rock-bottom trading commissions. Since then, the bigger discount brokers (TD Waterhouse, BMO InvestorLine and RBC Direct Investing) have reduced comm… for some of their clients. Since we already have our RRSP accounts with TD Waterhouse and qualify [...]
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