[Remembrance Day 2010]

Qtrade once again finished first in the Globe and Mail’s annual ranking of online discount brokers. This is the fifth year running that Qtrade is walking away with the top honours. Rob Carrick, who assembles the annual ranking, writes that Qtrade’s consistent winning record can be attributed to its habit of quickly matching any new feature introduced by a competitor. Case in point? Qtrade quickly matched TD Waterhouse in lowering trading commissions for many clients. RBC Direct Investing (review), BMO InvestorLine (review), TD Waterhouse (review) and Credential Direct (review) round out the top five.

Some interesting tidbits from the Globe and Mail rankings:

  • This year’s ranking also included a table (not available in the online version) on how much each broker charges for a foreign exchange transaction. TD Waterhouse charged the lowest by a wide margin. Disnat, Scotia iTrade and Scotia McLeod Direct charged the highest.
  • The difference between the lowest and highest after a foreign exchange conversion was as much as $88 on a $2,500 (USD) trade. The most investors would have paid for the equity trade is $29 (US). That suggests that investors who convert currencies frequently should look for a broker that provides the best rates, not the one with the lowest trading commissions.
  • It is surprising to me that Questrade consistently scores high in the customer satisfaction category. There must be a lot of satisfied Questraders out there.
  • There is one new broker in the survey (Virtual Brokers) and no dropouts from last year’s survey. But Rob Carrick notes that Scotia McLeod Direct will be merged with Scotia iTrade in the months ahead.

I wouldn’t read too much into a broker’s rank and instead pick one that offers most of the features I am looking for. For instance, I’ve held accounts at RBC Direct Investing and TD Waterhouse and like the latter best. Others might find RBC Direct Investing’s US Dollar RRSP, lower cost D-series funds and online GICs more appealing. Pick one that you think will work for you. If it does not work out as you had hoped, you can always transfer your account to another broker at a later date.

This article has 46 comments

  1. Wow! 88/2500 = 3.52%. That’s a lot for a one-way currency conversion. It makes me wonder how it was calculated. Was the currency conversion cost going to be $88 in the other direction as well?

  2. The rankings by foreign exchange costs table is actually online – http://ow.ly/37Xel – click on the “Total Transaction Cost” column header and it will sort.

    Something seems to be off, though. First, it is hard to believe that TDW would beat everyone on small-amount forex – you’d think at least one of the small-fry would sharpen their pencils to attract clients. Also, the TD amount ($2541) seems roughly in the right 1.5% ballpark. But that would mean that RBC at $2610 would be around 4%? That certainly can’t be right, and I wouldn’t be surprised if these numbers are glitched, or perhaps include commissions in some cases?

    The recent MoneySmart blog report on brokerages (http://ow.ly/37XqF) listed forex fees, and most of the bigbanks show between 1.25% and 1.6%.

  3. I find the forex rankings strange as well. I wouldn’t have expected TDW to end up at the top of the list either. Thanks guys for pointing to the online forex chart.

  4. You’ve mentioned getting burned by Questrade in the past IIRC. I’m just wondering if you’ve ever written about it and what it was about? I’m curious.

  5. I use BMO Investorline and am frustrated by the trading minimums for mutual funds. $25,000 minimum to invest in non-BMO money market (or high interest account) mutual funds, and $5,000 minimum to invest in BMO money market funds. Who wants to keep $25,000 in cash in a retirement account? Even the $1000 minimum for initial purchase of mutual funds and $500 for subsequent purchase causes problem when you are at the beginning stages of building an RESP portfolio or if you are trying to rebalance a portfolio.

  6. @Invest It Wisely: I had a couple of issues with Questrade. The most serious was not marking me down as a Canadian resident resulting in unrecoverable 30% withholding taxes on US investments.

    http://www.canadiancapitalist.com/check-your-withholding-tax/

    http://www.canadiancapitalist.com/giving-up-on-questrade/

    @Greg: Does BMO have any of these high-interest savings accounts available?

    http://www.canadiancapitalist.com/high-interest-savings-accounts-at-discount-brokers/

    TDW carries many of these and the initial minimum is typically $1,000. I’m surprised the BMO MMF minimums are so high.

  7. I’m sorry to hear about your bad experiences with them, CC. I personally have not had any troubles with them but I don’t hold any U.S. securities and I don’t actively use the account that much. Thanks for sharing your stories.

  8. Yes they do have some of the high-interest accounts. But, they appear subject to the same minimums as the money market funds.

  9. As far as I know, TDW charges 1.5% for USD -> CAD (and vice versa) conversion, and Questrade charges 0.5%.

    Is that correct? Why does this post seems to say that TDW charges less?

    I’m currently thinking of opening a Questrade account because I need to invest a lot of USD in my RRSP and TFSA, and because I don’t want to pay 1.5% in my TDW account. Am I missing something?

  10. I am with Scotia iTrade. I am generally happy with them but am frustrated by a) really high forex charges, b) lack of online GIC purchase option and c) lack of USD-RSP account. They will lose me soon to either CIBC Investor’s Edge or RBC DI if things don’t improve.

  11. Has any other broker than Questrade started to allow holding USD in your RRSP or TFSA?

    I’m paid in USD, so I would find it ridiculous to get paid, then convert it to CAD in my RRSP, then buy a USD stock (another conversion), and then whenever I sell, to see it converted again to CAD. Especially if the spread is 1.5% on each conversion.

  12. Answering my own question here: It seems like most of what I found doing searches was old information, because there are a few other brokers now offering USD in RRSP/TFSA accounts. RBC looks like the most interesting one at a glance.

  13. @Invest It Wisely: Fortunately, my account was a small one (I had moved just our taxable account).

    @Mike: One option you have is to purchase US dollar security in a taxable account and contribute in-kind to a RRSP even if the broker doesn’t offer USD RRSP accounts. Of course, you have to watch out for tax implications but as long as you do an in-kind contribution quickly, there shouldn’t be much tax consequences.

    @DM: Lack on online GICs is a big drawback at TDW as well. They are promising to fix it “soon”.

  14. This is slightly off-topic for this thread, but while I’m on the topic of foreign exchange, I’d like to ask this group of knowledgeable investors:

    Where can I get the cheapest CAD -> USD conversion rate? Is there any company that doesn’t take a ridiculous spread? Interactive Brokers seems to take only 0.01% over the market rate, but I don’t want to open an account with them just for that (I’m now seriously considering RBCi).

    I need to do a one-time conversion of a rather large sum, and I’d love it if there was a way for me to just bring my CADs somewhere and get back USDs while paying as little as possible for the privilege.

  15. Thank you. I will definitely check it out.

    I also found your old post about another way to avoid conversion fees (journaling stocks between US and CA exchanges):

    http://www.canadiancapitalist.com/save-on-canadian-dollar-to-us-dollar-conversions-and-vice-versa/

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  17. @Mike – I’m also looking at converting a very large one-time sum to switch my portfolio into $US-denominated ETFs. I’m at TDW, and for over $100K you can phone in and get a rate that seems to work out to around 30 basis points (0.30 spread). Between $60-$100 you can do with them online at around 67 basis points, and around 82 basis points for $30000. I thought I had a 10-20 basis point quote from them yesterday on the >$100K, but it seems to have been just a goofup in one of the decimals in the rates they gave.

    I have a few links to Norbert’s Gambit articles on a calculator page I whipped up (http://www.northernraven.ca/financial/NGcalculator.php). Don’t trust the calculator numbers too much – it seems like the time delays on the stock and forex feeds I’m using are different. If you need to do this inside an RRSP you have to do the journalling thing, but an unregistered account could sell short.

    Knightsbridge told me about 20-30 basis points on $150K (but perhaps as low as 10-15 for regular customers), and 40-55 basis points for $25K. But I’d have to set up and account and get the money in somehow. TD and other brokerages have big wire fees ($80-$130), and I can’t wire out of Ally or ING. BMO bill payment would work, but there are daily limits ($10K or $25K) which would make it impractical for my gigantic amount.

    I’ll probably wind up getting my TDW account switched to allow margin so I can do the shorting version of the gambit, but if I could have persuaded TDW to do it at 10-15 basis points as a favour I probably would have done so and avoid the complications.

  18. I think there’s something wrong with the forex values. Since the comment in the globe and mail article says they were asked to use the exchange rates available to small account customers on Sep 20, 2010, I am assuming the dollar values are CAD amounts. I’m not sure what value brokerages use to set exchange rates, but if we assume in this case it was the lowest intraday value from all of Sep 20 and the previous business day (Sep 17), then the spot rate would be 1.0254 (source: http://www.bankofcanada.ca/en/rates/exchange-look.html — select range of dates Sep 17 – Sep 20, check US Dollar (low)). $2500 * 1.0254 is $2563.50.

    I would expect ALL values to be higher than this, and how much higher would indicate the spread they charge.

    This seems to suggest TD is charging a negative spread, which I don’t believe.

    I wonder if there was some confusion over what was being asked for when the forex portion of the survey was done? Perhaps some quoted amount in CAD vs amount in USD?

    I can’t imagine all values are in CAD as this suggests iTrade charges almost 5%, and I can’t imagine all values are in USD is it indicates TD charges a negative spread. I’m with iTrade and while the forex fees seem high, they definitely aren’t 5%. I’d estimate 2 – 2.5%.

  19. NorthernRaven: Thank you for this tip, I think I could live with a 30 basis point spread (0.3%).

    Could you please elaborate a bit on what the procedure is to get that kind of deal out of TDW. Is there a special number you need to call? Something specific you need to ask for, etc? I’m relatively new to all this and haven’t contacted them much yet, so I’m not sure how it works. Any details you could provide would be much appreciated.

  20. @Reaper – I emailed Rob Carrick at the Globe and actually got a quick reply. The brokerages were ask to use a forex rate available to the general public (not high net worth clients) for a purchase of MSFT at 9am – it is supposed to be “apples to apples”. I’ve not seen a date mentioned anywhere – where did you come up with Sept 20?

    If I punch a purchase of $USD 2500 into TDW’s Webbroker quoting, and then a reciprocal sale of $USD 2500, the rates work out to a spread of 1.57%. Using this the CAD->USD sale rate that produces $C 2541 for $U 2500 with this spread is exactly parity (to a couple decimals, anyway). I’m wondering if TD and perhaps some of the others applied their forex spread to a hypothetical transaction with the dollar at parity, instead of the rate on some particular day. The ones at the high end of the table probably used an actual rate, and this would explain things. Setting the rate at parity so the TD figure produces the expected 1.57% spread put CIBC at 3% and RBC at 4%, which certainly can’t be the case.

    The other thing I’m wondering is that the article says “buy MSFT at $25/share”. I’m assuming this iwas a hypothetical and the intent was really to price a $2500 conversion transaction. But if some of them actually took the price of MSFT (at 9am?) on some date, perhaps that is causing the trouble as well?

    I sent another not back to Rob Carrick pointing out the high rates implied if TD really was around 1.5%, but I haven’t heard back. I’ll point him to this page – I really can’t see how the table can be accurate.

  21. @Mike – just call the regular TDW number (800-465-5463) and speak to a representative. They’ll put you on hold while they check with TD Securities, who actually come up with the rates. I’m pretty sure you have to be over $100K for that 32 basis point rate – anything under seems to give you the same 67 points that WebBroker quotes.

    Note that they give you a sell rate, not a spread. What I’ve been doing is asking them for a buy rate for the same amount. I’m assuming the average of the two is approximately the spot market rate, and the percentage difference between that and the sell rate gives me the spreads I’ve been coming up with.

    I’ve not actually done a trade with a called in quote request. I’d assume you’d set up a quote with them and then have them execute a trade and apply it. I’m not sure if you can get them to apply it to a WebBroker trade you’ve just entered (like a same-day wash), but definitely ask them for the proper sequence. If you are buying equities and they have to do the trade, I suppose they might charge you the $30 phone commission, so it might be better have them just convert from your $C to $US cash accounts, and then make the purchase yourself. If you are doing this in an RRSP you could purchase the TD US Money Market fund (TDB166), then sell it off (it would take a day) and buy your equities using their same-day wash trade feature.

  22. @NorthernRaven: Thank you. My preference would be to have them convert it from my CAD account to my USD account so that I can then trade or do whatever I want myself, so that should be fairly simple (if they allow it — I hope so).

    Where do you see the 67 point spread in webbroker? I’ve always read that their rate was about 1.5% (which you also seem to say in your other comment above), though I’m not sure how to verify that for myself.

    And thanks for the idea of asking for both a buy and sell rate. That’s a clever way to determine what kind of deal you are getting.

  23. TDW’s spread seems to decrease as your purchase amount increases – some sort of tiers are in effect. I don’t know the exact breakpoints, but by playing around it seems like you can get 1.35% at around $15000, 0.8% at 30-35000, and 0.67 somewhere between 60-65000 (it may be the $USD amount that controls the breakpoint).

    In WebBroker, just click on My Accounts on the top row of tabs, and then Transfers from the second row. Choose “Foreign Exchange (Cdn/US)” on the right, and you can choose accounts (say Cash->US Cash)and amounts. You’ll get the final quote before you actually have to finalize the trade. Then just go back and reverse the accounts to get the reverse quote. Sum them and divide by two to get what I’m assuming would be close to the mid-market spot price. Subtract this from the buy quote, and divide the result by the buy quote, and you have their spread.

    It would be nice if their quotes showed the the reverse quote on the same screen, and calculated the spreads based on some sort of live market rate, but that would be useful to the customer and expose what you are actually paying to TDW, two things they tend to avoid!

  24. The table in yesterday’s paper noted that the Globe and Mail queried all brokers how much they would charge to buy 100 shares of Microsoft at $25 (US). It is possible that TDW misunderstood the question because TDW’s quote is an outlier in the numbers. The numbers from other brokers are in clusters of a few dollars difference. TDW is the only exception.

    I didn’t bother to take a look at the Bank of Canada’s exchange data. I don’t believe TDW numbers will come in below BoCs rates either. So, the only reasonable explanation is that there is a typo or TDW supplied incorrect numbers.

  25. Great discussion.

    When I did the research for my Canadian discount brokerage comparison, the forex info was the most work. Very few brokerages list the actual fees online (Questrade and IB are the only ones as I recall), and even when you call – some will give you the spread, but some will only give you the total rate and you have to figure out the spread yourself.

    I think this is an example of where the brokerages should be more open about the spreads. It should be listed on every broker’s website to make for easier comparison.

  26. >The table in yesterday’s paper noted that the Globe and Mail queried all brokers how much they would charge to buy 100 shares of Microsoft at $25 (US).

    The most expensive, BMO InvestorLine, would charge $26.10 to buy Microsoft at $25.00 (4.4% cost). So the round-turn cost would be something like 8.8%. That’s more than 2 years of expected returns at an equity premium of 4%! It is evident that the serious money is made not by investing, but by providing financial services to unsophisticated investors.

  27. @DavidS: Sorry, I forgot to mention that Globe queried the brokers on September 20, 2010. According to the Bank of Canada, the rate varied between 1.0341 and 1.0262 on that day.

    But I agree with your point. There is a lot of money in running the casino 🙂 Part of the reason why the banks are so profitable.

  28. I agree with you on the “meaning” of ranking – There are some features that distinguish brokers and it all depends on the investor’ profile as for which discount broker matches the investor’s need. That’s what I did for http://www.indepedentinvestor.info article (see my review on discount brokers http://independentinvestor.info/content/view/936/1/ )

  29. Even throwing out TD (which I’m pretty sure represents just their 1.57% spread on the value 2500, and not the actual cost of buying $2500 from them on Sept 20), there still seem to be problems. I’m pretty sure the CIBC value is also hosed – no currency rate puts it in a reasonable range. Setting the exchange rate to 1.031 produces 2% for Disnat, to match the value the MoneySmarts blog report published for them. It also make BMO come out to the expected 1.25%. But the Globe table has RBC and HSBC at the same amount as BMO, yet the blog has them at 1.4% and 1.9% respectively. The blog guy may have got them completely wrong, but my money is on bank or G&M goofs. If the dollar was really swinging through 80 basis points that day, if they weren’t all done at 9am then it is at best comparing Granny Smith vs McIntosh.

    @DavidS – I’d be astonished if any of the brokers were over 2% if the G&M’s table had been done right. Common sense would also suggest this – the VISA card rates run around 2.5%, and brokerage customers wouldn’t tolerate even that. BMO probably is the 1.25% that MoneySmarts reported. It’s still something to try and reduce, but not the 8.8% you feared.

    Hopefully the G&M will try again – a table like this with accurate values would be useful. Perhaps it was actually a test as to how well brokers can follow client directions… 🙂

  30. @NorthernRaven – Yes, the numbers must be incorrect.

  31. @NorthernRaven: with respect to where I got the Sept 20 reference:

    At the very end of the G&M article linked at the beginning CC’s post (https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20101110/GIONLINEBROKERS1110ATL), it says:

    Note: Brokers were asked to quote the exchange rate in force at the beginning of the day on Sept. 20 for everyday clients, and not those who qualify for discounts or special treatment because of active trading or large accounts.

    I feel this is an area where brokerages are fairly opaque, and yet I think it is a huge decision making factor. It’s a shame the numbers don’t make sense. I don’t think I can actually rely on them.

  32. Ah, that’s where the date was. They don’t include it in the standalone table webpage I linked to in my first comment.

    If they had included a row showing the value produced by the market or Bank of Canada rate that date (probably around the $2575 ballpark), or a column showing the calculated spreads, it would have been fairly obvious that a couple of the banks were out to lunch. I’m not a math maven myself, and tend to be as sloppy as the next person, but I used to work with a bunch of statisticians, which kept me on my toes!

    Now that I think about it, CIBC’s amount was probably the result of converting $2500 at the market spot rate, not the buy rate they would charge customers. Questrade seems to work out around 0.25%, so it is either some sort of special rate, or the 0.5% they supposedly charge inside RRSP accounts, not the 1.2% for regular accounts.

  33. I fail to see how RBC ever makes it near the top of the list, its is allways having “Technical problem” just before the market opens and last forever but they do invite you to call but fail to put more attendants on the phones. Thier Transfer feature is a dismall failure and has been since day one and works once in a while but again you are invited to call in and no extra phones are available.

  34. I am not surprised at the Questrade results CC, I guess many new investors take their first steps with them. In this case all you need is buy/sell and refresh market prices and they do a good job at that.

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  36. If TDW would bring it’s TD Amertrade Think or Swim system to Canada ,it would move to #1 over night

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  39. Daniel Ardeline

    Think or Swim is better than any of them hands down, particularly when you look at how one can graph trends or look at spreads, however one needs to be an American citizen to open an account which is protectionism to enable the mutual fund people to continue to charge us outrageous fees for funds which do not beat the index. Other than Mawer or Beutel I won’t touch any of them. To answer the earlier question on the exchange spread I believe RBC charges 1.2-1.5%. I like to use US margin in the non registered so I have to pay only interest and get out of converting from $Cdn. It’s perfect for option day trades where I’m only in debt for a short time.

  40. Thanks Danail, glad some one agrees with me…but something must be up at TDW…a lot of wealth managers are leaving….TDDB…should move to Think or Swim now

  41. Are TDW supposed to be working at integrating the Think or Swim platform with their existing TDW online stuff in some way, in some future century?

  42. I hope so….they would be #1 for sure….but after seeing TD CFO on BNN last night,i don’t think it’s on their radar

  43. Which discount broker is suit with my situation

    1. Currently have RRSP with TD for one of its mutual fund with the amount less than $10,000. I need to move this into the new discount broker account;
    2. I wil invest in mutual fund ONLY (probably Index and EFT)
    3. For sure a inactive trader. May be less than 10 time a year (dollar average);
    4. RRSP will be long term and TFSA will be depondent;
    5. I have cheques with TD and PC, and mortgage at TD。

    The critia for me will be cheaper and good service (someone pick up the phone If I call). I concentrated myself on Questrade and TD waterhouse at the beginning. Now I find this ranking and know that the the Qtrade has been on the top for severalyears, and TD waterhouse is another choice.

    Two points I like to menstion here which I got from my recently readings. The good service is important and worthy even they charge an extra. $100 extra, for instance, will be nothing for a long run and inactive investment. Another thing is not opening account with the banks which you have a cheque account with if you have a choice. The broker may acces you account to move fund in some unpleasant situations without your permission.

  44. You can compare the prices and fees of all these discount brokerages really easily at http://www.discountbrokerages.ca