If you have just opened a trading account with a new discount broker or you have accounts in different places and want to consolidate, you’ll need to transfer your holdings between brokers. In this post, I have put together a detailed checklist on what you have to do to make this process as painless as possible.
I’ve held all our investment accounts at TD Direct Investing (TDDI) for a number of years. When I moved to TDDI, they were one of the few ones around that offered wash trading in registered accounts, which helped save a pile on currency conversions when switching from foreign stocks to broad market ETFs. Since then, a few discount brokers — RBC Direct Investing and BMO InvestorLine prominent among them — have started offering US Dollar RRSPs. Clients in other brokers like Scotia iTrade and CIBC Investor’s Edge are now reporting that US dollar dividends in registered accounts are converted into Canadian dollars at favourable rates. TD Direct Investing, unfortunately, is not only dragging its feet on offering a US Dollar RRSP but also refusing to do anything about currency conversion charges in registered accounts. At the very least, to remain competitive, TD Direct Investing should convert US Dollar dividends in registered accounts at favorable rates but in recent communications, TDDI indicated the best they can do is wash US dividends into the TD US Dollar Money Market Fund but only for selected clients and only if the client calls before the dividends are due and requests a wash trade. To be fair, TDDI is reported to have stopped double dipping on US dollar dividend reinvestments as it did in the past but that is of little use to non-DRIPers.
It is more than 3 years now since RBC Direct became the first big bank discount broker to offer a US Dollar RRSP. The next year, BMO InvestorLine followed suit and allowed clients to segregate the US dollar investments in their RRSPs. While TD Waterhouse (now called TD Direct Investing) reacted to these moves by implementing an auto wash feature, it is disappointing to note that the broker still does not offer a true US Dollar RRSP account. It is doubly disappointing because TD Direct’s customer service representatives had been hinting to clients that a US Dollar RRSP is in the works and expect it to launch in the first half of 2013.
It is easy to quantify the cost of sticking with TD Direct Investing when some of the competition offer true US Dollar RRSP accounts. The automatic washing helps in saving on currency conversion charges when selling a security denominated in US dollars and buying another USD security even on different days. But, due to the lack of a true US Dollar RRSP, US dollar dividends received by a TD Direct Investor are forcibly converted to Canadian dollars and charged a fee of approximately 1.9 percent.
Let’s quantify the hit to an investor due to the lack of a true US Dollar RRSP. Take John, a self-directed investor, who holds $100,000 worth of Vanguard Total Stock Market ETF (VTI) and $100,000 worth of Vanguard FTSE Developed Markets ETF (VEA) in a TDDI RRSP account. John receives about $5,000 worth of dividends in US dollars from these two holdings and since the currency is being converted at 1.9 percent, staying with TD Direct is costing John $95 per year compared to RBC Direct and BMO InvestorLine.
What TD Direct Investing Customers can do
Clients of TD Direct Investing should quantify their cost of staying (1.9 percent of total US dollar dividends received in registered accounts) and determine whether it is worth their time and effort to switch to a broker that does offer US Dollar RRSP such as RBC Direct Investing or BMO InvestorLine (as an added bonus Norbert Gambits at these two brokers are fully automatic even in non-registered accounts). Clients may well decide that they are willing to bear the cost for the convenience of having all their accounts in one place.