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moneysense.ca, 18/12/06
Adieu to RBC Direct Investing
We have held investing and self-directed RRSP accounts with RBC Direct Investing for more than 5 years now but the time has come to move our accounts to another broker. I short listed just two brokerages: E*Trade (low commissions) and TD Waterhouse (wash trades, TD eFunds).
I have some experience with both discount brokers as we already have accounts with them. We got a TD Waterhouse account when our Ameritrade Canada account was moved over and I have an E*Trade account through work. I have finally decided on TD Waterhouse:
- Wash trades are the main reason that TD Waterhouse edged out E*Trade. I am planning on selling some U.S. equities and moving the proceeds to a broad-market index fund like the VTI. Converting back and forth between currencies would cost us 3% on the trade at every other broker and would far exceed any savings from lower commissions.
- TD Bank offers some of the lowest cost index funds in Canada and would be an ideal candidate for regularly investing small amounts.
moneysense.ca, 18/12/06
Congrats on moving to TD! The wash trades work great (but US dividends are still converted)
I invest with ETrade. A couple of comments:
(1) ETrade statements are kinda poorly done.
(2) Even with TD, you can buy iShares ETFs at a lower cost (MER) than TD’s index funds.
Oh yeah – forgot this one:
(3) ETrade has no high-interest account or cashable GIC for holding cash within an RRSP account.
Did you give any thought to Qtrade? Low commissions and the service is great. Can wash trades as well as long as you call it in.
Mark, with the iShares funds you still have to pay the commission to buy the shares.
So if you are investing something like $200/month in iShares and you manage to get the $9.99 trades with ETrade you still end up paying at least 0.5% in commissions before you pay the MER. With the TD funds you just pay the MER (there are no fees to buy into the funds, only early redemption charges if you sell within something like 120 days of buying).
I’ll admit that I never worry about wash trades as I have a totally separate trading account down south of the border. However, I’ve been thinking of moving from BMO Investorline to Interactive Brokers. Their interest rates on cash is impressive and their $ 0.01 per share & $2 minimum commission are friendly to my small & micro cap investment tendencies.
During the holidays I plan to do some more homework on what their interface looks like in terms of user-friendliness and such, before making my final decision.
If you’re looking for a brokerage outside of an RRSP perhaps you should look into Interactive Brokers (interactivebrokers.ca). $1/USD trade and $2/CAD trade. Cheapest forex exchange out there.
FrugalTrader
http://www.milliondollarjourney.com
Hi CC,
Are you certain that E-trade does not do the wash trades? I haven’t investigated yet, but am just starting to shop around for discount brokerages.
FC: E*Trade does not offer wash trades because I wrote and asked them and mentioned that it is a critical consideration for me. They replied: “Unfortunately, at this time, we do not offer this service”.
The whole point about wash trades is that they are possible inside of an RRSP. Outside of an RRSP it is not an issue at all. You can get a US account, Canadian account or get your own account south of the border if you want. But south of the border will not work for an RRSP so you need wash trades if you want to trade US securities without paying exhorbitant fees.
Thanks for the info CC. I talked to a rep at E*Trade today and he indicated they will be implementing a “similar service” in the first quarter in 2007. I’ll believe it when I see it though
Does anyone know if Questrade or CIBC Investors edge offers Washtrade capability?
What is a washtrade?
Anon: You can use the search on the main page to find old posts. An old post on wash trade is here:
Link
FC: It is interesting that E*Trade is introducing a wash trade or equivalent capability. Maybe I have to wait a bit now. Thanks for the heads up.
I just moved over to Credential Direct. I found that they have some great stock and mutual funds scanning tools. No charge to buy or sell mutual funds (if you hold for longer then 90 days I believe). No charge for a RRSP account with over $15K in it. I wasn’t too worried about the trading fees, but they are only $9.95 if you like to trade alot, otherwise $25 per trade. I really like the fact that I can transfer money into my accounts online, from any bank or credit union into my rrsp or trading accounts.I have an RESP account with TD Waterhouse. They seem OK for what I need.
Cheers.
CC, I read the link referring to the explanation of wash trades, and I still have some questions regarding them.
So, when you move money from a Canadian MM to a US MM, you still have to pay a fee for converting correct? The same goes for when you want to move the money back into Canadian funds…correct? So, is the purpose of the wash trade to avoid extra fees, on top of the conversion, when dealing with US stock? Just not quite sure?? Any feedback would be appreciated.
Ryan: Wash trades help you when you sell one US equity in your RRSP and buy another also denominated in USD. In most discount brokerages (without a wash trade), your initial proceeds in USD will be converted to CAD. When you buy another US security your CAD will be converted to USD and the round trip will typically cost you 3.0%.
With a wash trade, you put the proceeds of the initial sell order into a money market fund (making sure the fund has no fees or penalties of any kind) and then use the funds in the money market fund to buy some other US stock. In this series you would avoid the currency fees entirely.
Wash trades might save you a ton of money. Say you are selling $20K worth of US equities and buying VTI with the proceeds. Without washing the round trip would cost you $600!
Wash trades don’t help when you convert currencies (If you sell a US security and buy a Canadian stock you have to pay currency conversion fees).
I’ve had an RRSP and LIRA at TD for a while and have saved a lot of money using wash trades.
Unfortunately, it is a hassle and you have to put up with their generally arrogant attitude. If I call before the market closes they usually forget to wash the trades so I have to call back a second time and tell them who I originally spoke to. If I call after the market closes they complain about having to cancel and reissue the trades and they ask me to call back earlier the next time.
Recently I was overcharged on some trades that qualified for a reduced commission. After getting the runaround from 2 different branches I finally reached someone deep in the bowels of their offices. I learned that my accounts were not “linked” in their system that calculates commissions so they would not offer me a discount. Unbelievably, it was my responsibility to anticipate the deficiencies of their systems. The representative then dismissed me by lying to me about the amount of money that it was costing me and rationalizing that, “if we adjusted it for you we’d have to do it for everybody.”
Needless to say, I can’t wait to move my account but there are no competitors that offer wash trades, low commissions and good customer service.
I’d be interested in hearing when ETrade starts offering wash trades and how their customer service is.
I’m glad to hear that I’m not the only one that finds RBC Direct Investing hopeless.
https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20060916/STMAIN16
How they scored even a 4.5/10 in customer satisfaction in the Globe survey is beyond me.
I’m going back to TDW.
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