TD Waterhouse used to be a leader at offering innovative features at least among bank-owned brokerages. They were the first to offer wash trading as a way around avoiding forced currency conversion charges in RRSP accounts. They were also the first to lower trading commissions to $9.99 for clients with accounts above a certain threshold. But recently, TD Waterhouse has gotten complacent. While RBC Direct and BMO InvestorLine have introduced the ability to separate US Dollar holdings in RRSP accounts, TD Waterhouse has not follow suit. As a result, TD Waterhouse has now slipped to the bottom half of the pack in the Globe and Mail’s Annual Discount Broker Rankings put together by Rob Carrick.

One could argue that separate US Dollar RRSP accounts are less of an issue at TD Waterhouse because a client can take advantage of automatic wash trading these days and completely avoid currency conversion from US dollars to Canadian dollars and back when selling and buying US dollar denominated securities. However, there still remains the issue of forced conversion of US dollar dividends received in RRSP accounts. For instance, an investor owning a US stock that pays a 4% dividend is losing 8 basis points or so (assuming currency conversion costs 2%). If the investor turns around and buys another US stock and converts currency at the retail rate, it will cost her another 8 basis points for a total of 16 basis points. The same investor could have avoided the currency conversions entirely if she had transferred her account to a competitor offering US Dollar RRSP accounts.

It is possible that TD Waterhouse is saddled with legacy systems that make it difficult to offer completely segregated US Dollar RRSP accounts. But they should try and offer clients a way to avoid forced conversions of US dollar dividends into Canadian dollars. They can do so by either waiving the retail markup on foreign exchange conversions for US dollar dividends or allowing clients to wash US dollar dividends into the TD US Money Market Account (TDB166). Otherwise, current TD Waterhouse clients might be tempted to take their business to more nimble competitors.

This article has 6 comments

  1. Couldn’t agree with you more on this.

    I think you’re also being quite charitable by giving TDW a pass on trades because of automatic wash trading. I suspect the vast majority of their clients are not aware of this and not taking advantage of it. I’ve never received anything in the mail from TDW mentioning wash trading, and as far as I know, it’s not mentioned on their website either. Unless one reads the personal finance blogs or forums (and especially your blog), there’s little chance that a person would know anything about TDW’s wash trading rules and policies. Most investors are probably getting the default, which is profitable for TDW.

  2. I totally agree with you. I think it is only a matter of time before they are forced to make this happen. My 2 cents.

  3. @Viscount: On second thoughts I agree with you. Wash trading is not something that is widely known, so it’s a good bet that a large percentage of investors are needlessly paying currency conversion charges when selling US stocks one day and buying them in another in RRSP accounts. Good point and thanks for your comment.

    @Francois: I hope so too. I haven’t been bothered too much about this but why pay needless currency conversion charges that can be avoided elsewhere.

  4. It would be interesting to know whether TDW’s slow action on U.S. dollars in RRSPs is mainly due to a desire to maintain revenues or mainly due to the effort required to update their legacy systems.

  5. @Michael James
    There’s also the issue that one of their competitors has a pending patent on a system for maintaining a single registered parent account with different currency subaccounts. TDW might be concerned about a litigation risk there. But you’re probably right that it’s either one of the reasons you’ve given. The way TDW implemented international exchange trading as a completely separate and disconnected module suggests that they have difficulty updating their legacy systems.

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