Archive for July, 2009

This and That: Retroactive TFSA Contribution Room, Financial Literacy and more…

July 30, 2009

  1. In a chat with Jon Chevreau, actuary Malcolm Hamilton proposes providing retroactive TFSA room to help seniors who have lost RRSP contribution room in the current bear market. While the proposal generated overwhelming support among older Canadians nearing retirement (check out these responses on the Wealthy Boomer), the younger crowd reacts coolly to the idea as the posts on this thread on Canadian Money Forum indicate.
  2. Ellen Roseman wonders if efforts to increase financial literacy work at all. Unfortunately, financial literacy is like waging an asymmetrical war. The financial firms can simply outspend schools and non-profits.
  3. Jason Zweig warns investors not to confuse economic growth with stock market returns. History suggests the two are negatively correlated.
  4. Statistics Canada reckons that Canada’s inflation rate is negative. Rob Carrick writes that he is experiencing significant inflation on many household expenses.
  5. Four Pillars says that spending cash is the same as borrowing if you have debts.
  6. Michael James says that Malcolm Hamilton’s proposal to boost TFSA contribution room amounts to a transfer of future wealth from young to the old.
  7. Million Dollar Journey weighs in on whether to pay off the lowest balance or highest interest debt first.
  8. In the light of the Earl Jones affair, Where Does All My Money Go? reminds investors to immediately check if their advisor is registered.
  9. The Dividend Guy Blog featured a post on the importance of reinvesting dividends.
  10. Chaya Cooperberg notes that the financial behaviour of our parents has a deep influence on how we handle our finances.

Scotia iTrade Review

July 29, 2009

[Scotia iTrade Logo]

When Scotiabank acquired the Canadian brokerage arm of E*Trade, the account I had opened with E*Trade to my participate in my employer’s Stock Purchase Plan was automatically converted into a Scotia iTrade account. The website remains much the same as it did under E*Trade except for some branding in the Scotia red colour and addition of research reports from Scotia Capital. As Scotia iTrade is severing links with E*Trade, I thought I’d write a review while I still have an account with them.

Administration Fees and Commissions
Scotia iTrade’s biggest attraction is the low fees, which are lower than that of the big bank brokers but higher than deep-discount brokers such as Questrade (See: Questrade Review) for accounts of modest size. There is no administration fee on registered accounts such as RRSP, RESP or TFSA but watch out for the rather steep low-activity fee of $50 per quarter charged to taxable accounts.

Investors looking for a competent discount broker would find iTrade’s commission structure to be middle of the pack. iTrade charges a commission of $19.99 for most trades but household accounts that total more than $50,000 qualify for trades costing $9.99.

Ease of Funding
Clients can take advantage of the free Electronic Fund Transfer (EFT) facility to move funds between their Canadian or US Dollar bank account and Scotia iTrade account. Note that there is no integration or direct link between Scotia iTrade and Scotia Bank accounts just yet.

Parking Cash
While the Cash Optimizer account pays a competitive rate and can be used to park cash temporarily from taxable accounts, there is no place to park the cash in registered accounts. Scotia iTrade does offer mutual funds but all funds held for less than 90 days are charged a 1% penalty.

Currency Conversion Fees
The currency fees at Scotia iTrade are rather steep. In a phone call today, I was quoted a US dollar buying rate of 1.0665 and a selling rate of 1.1055 for a spread of 3.6%, which is almost double the typical fees. Fortunately, iTrade has kept the wash trading capability introduced by E*Trade (See: E*Trade Quietly Offers Limited Wash Trades).

Guaranteed Income Certificates
While GICs are available, clients have to phone in to purchase or request quotes. The rates on GICs appear to be competitive.

A cursory check shows that iTrade has a decent inventory of bonds. The pricing seems to be slightly better than RBC Direct Investing, our main brokerage. For instance, a 5% Government of Canada bond maturing on 01-June-2014, yields 2.606% on iTrade and 2.512% on RBC Direct.

Mutual Funds
iTrade offers more than 3,200 mutual funds from all major vendors. There are no commissions to buy or sell.

Scotia iTrade is not my primary broker but I have used E*Trade for many years and found them to be a competent broker. Bank of Nova Scotia has so far kept E*Trade as is with only minor changes — a splash of red on the webpage and the addition of analyst reports from Scotia Capital come to mind. Investors who do not yet qualify for low commissions at the big bank brokerages will probably find iTrade at or near the top of their list. If you are an iTrade client, I would love to hear from you in the comments section.

Good bye Flow-Through Funds, Hello Royalties

July 26, 2009

1 comment

The Globe and Mail’s Fabrice Taylor recently wrote about an interesting alternative to flow-through funds: Oil & Gas Royalty Limited Partnerships. Unlike traditional flow-throughs, royalty LPs invest in joint venture drilling subsidiaries with established resource companies. These funds seem to address the biggest issue with typical flow-through funds: if you strip out the generous tax incentives, there is little investment merit in early-stage, exploration companies. Royalty LPs, on the other hand, have low exploration risk.

The royalty fund highlighted by Mr. Taylor was the WCSB Oil & Gas Royalty Income Partnership and it has some key differences with traditional flow-through funds. The tax deductions are spread out over five years with only half the deductions available in the first year. The partnership would be wound down after four years instead of the typical two. However, the fund aims to provide an ongoing income stream through cash distributions. While the WCSB Partnership is not a cheap fund, as an investment, it is more appealing than traditional flow-throughs.