Archive for January, 2011

This and That: Financial Crisis report, CRTC ISP ruling and more…

January 28, 2011

  1. What caused a financial crisis so severe that 12 out of the 13 largest were at a risk of failure within a week or two? The Financial Crisis Inquiry Commission blames lax regulation, poor risk management at huge financial institutions, highly leveraged balance sheets and poor crisis management among others. The entire report is available here.
  2. Blessed by the Potato is hopping mad with a CRTC ruling forcing Teksavvy to match Bell’s outrageous internet bandwidth charges. Shame on you CRTC!
  3. A recent story in The Ottawa Citizen offers one more reason to be careful about what you post on social media sites: insurance companies are mining these sites for inconsistencies with insurance claims.
  4. Canadian Money Forum members share a chuckle over Derek Foster’s ill-timed move to dump all his holdings.
  5. My Own Advisor reviews Lowell Miller’s Single Best Investment, a bible for the dividend investing crowd.
  6. The Financial Blogger wrote a very funny post making super heroes out of bloggers.
  7. Larry MacDonald wonders if the rising cost of Government means taxpayers in all brackets are better off avoiding RRSPs. Check out the comments for some dissenting viewpoints.
  8. Money Smarts Blog offered his take on the new US-Friendly RRSP from Scotia iTrade.
  9. Financial Highway offers five super smart tricks for living within your means. The key is picking a saving strategy that suits you. Once saving becomes a habit, it becomes easy to stick with it.
  10. Million Dollar Journey reveals that Derek Foster has published a new book on how anyone can become wealthy by picking “idiot proof” stocks. Put me down in the skeptic column.
  11. Canadian Couch Potato warns investors against buying a stock just because you use its products or services. One hopes buyers of Derek Foster’s new book are listening.
  12. Michael James liked Rob Carrick’s Guide to What’s Good, Bad and Downright Awful in Canadian Investments Today.

Just a quick reminder that you can read my posts in your favourite reader or delivered by e-mail. Have a great weekend everyone!

Beware of hidden foreign currency conversions

January 24, 2011


A recent note from a reader prompts me to reprise the topic of forced foreign currency conversions in registered accounts such as RRSPs, TFSAs and RESPs at many discount brokers. The self-directed registered accounts offered by most discount brokers are denominated in Canadian dollars. When an investor purchases a stock or ETF that is trading on the US exchanges, the broker charges a mark up when converting Canadian dollars into US dollars or vice-versa.

Let’s take a concrete example. If the CAD and USD are trading at par, an investor buying $10,000 (US) worth of Johnson & Johnson (NYSE: JNJ) would pay $10,150 in Canadian dollars because the mark-up on foreign exchange conversions is typically 1.5%.

Fast forward a few months and our investor is frustrated with the flat-lining performance of JNJ. She wants to sell the dog and buy another stock, say Disney (NYSE: DIS). The dollar is still at par and our investor assumes that when she completes her two transactions she will own $10,000 (US) worth of DIS. Sadly, she is mistaken. Our investor holds JNJ in her RRSP account and her broker doesn’t offer a way to save on foreign currency conversions. When she sells $10,000 (US) worth of JNJ, the broker will first convert USD into CAD and our investor is left with proceeds of $9,850 (CAD). And when she turns around and buys DIS, the broker will convert CAD back into USD and our investor will now have just $9,702 worth of DIS shares. She has lost 3% of her investment in needlessly converting USD into CAD into USD.

Fortunately, some brokers provide their clients a way to avoid these expensive and hidden foreign exchange conversions. TD Waterhouse’s wash trading allows investors to park proceeds of US dollar trades into the TD US$ Money Market Account. RBC Direct Investing, Questrade and QTrade offer ways to settle US stock trades in US dollars. Scotia iTrade now offers a US-friendly RRSP. Even BMO InvestorLine sort of allows wash trading for clients jumping through some hoops. Clients who have accounts at the few holdouts should demand that their broker offer a way to avoid punishing foreign exchange conversions. If the brokers fails to heed their demands, they should vote with their wallet and move their accounts to a broker who doesn’t penalize buying and selling on the US exchanges.