Halloween isn’t the only scary event to come along this October. Beginning this month, Canadian discount broker Questrade officially starts charging for inactivity fees – $19.95 per quarter to be exact. Once billed as the “no fee” discount brokerage, Questrade faced a strong backlash from its client base on Canadian deal site RedFlagDeals.com back in May of this year when Questrade departed from their long held stance against inactivity fees and announced the introduction of these fees. Not long after this announcement, however, it became apparent Questrade’s clients were more than unhappy at the news. In a highly responsive move, Questrade’s Director of Communications Lynn Suderman responded to their customers on the forum with the following statement:
Thank you everyone for your feedback here in RedFlagDeals. We’ve read each of your comments, which led to a passionate discussion among our staff. Our CEO said it best: the real value of Questrade is our clients. Yes, we have to implement pricing changes to reflect the changing nature of this industry. But we have to do it without compromising our promise to you: provide all Canadians with cost-effective brokerage services.
I’d like to address the changing industry first. The costs of maintaining a brokerage account, active or not, are going up. Until now, and unlike the majority of brokerages, we’ve avoided inactivity or maintenance fees to pass on those costs. But this is no longer prudent. We are at the point where our more active clients will be subsidizing inactive clients. (You can find the full statement here)
As a consequence of the client feedback, Questrade moved its original implementation date back to October from July 2012. In addition, Questrade offered a number of exceptions to the inactivity fee. Account holders under the age of 25 and charitable organizations are exempt from getting charged the inactivity fees as are Questrade clients with $5000 or more in combined equity across their accounts as well as those clients who place at least one “commissionable” trade per quarter. Basically, the client that this fee impacts the most is the 25+ year old who does not make any trades in a quarter AND who has less than $5000 in combined equity across all of their Questrade accounts. So what options does that person have to avoid the dreaded inactivity fee?
The first option is to top up their account with a deposit so that the total balance (across all accounts combined) equals $5000 or more. If making a deposit isn’t an option, they could place 1 trade per quarter for a year racking up a total bill of anywhere between $19.80 to $39.80 per year in commission costs (plus what the trade itself costs). If, however, they are bent on not making any trades whatsoever, that person could choose to pay $79.80 per year ($19.95 x 4) and remain inactive. Of course, as a last resort, they could close their account with Questrade altogether which is free to do. With an inactivity fee of anywhere between $19.80 and $79.80 per year, however, Questrade could be the cheapest account of inactivity-fee charging brokerages to maintain or if not the cheapest, then certainly not the most expensive.
One silver lining of the Questrade approach to inactivity fees is that if you do happen to incur an inactivity fee in one quarter, Questrade will apply that $19.95 fee as a credit against any trades you make the following quarter. From a strategic perspective, if you have an investment account and you can’t find a trading opportunity (either a reason to buy anything, sell anything or re-balance your portfolio) within 3-6 months and your combined equity across comes in at less than $5000 you still might not be ready to take on investing quite yet.
For those consumers who absolutely must have a no inactivity option, however, there are still three Canadian discount brokerages: Virtual Brokers, Credential Direct and Qtrade who offer no inactivity fee accounts to their customers (optionsXpress is currently not accepting new Canadian accounts otherwise there would be four) , with Virtual Brokers having the cheapest commissions among the three.
While the move on Questrade’s part is a departure from their historical position as the “no fee” brokerage, their move into charging fees is certainly a measured one and they appear to be working hard to preserve the relationship with their customers. As the Canadian discount brokerage landscape continues to get more competitive, only time will tell if other discount brokerages will lower or eliminate activity fees to grab market share or if other low-cost discount brokerages will start to implement activity fees to keep up.
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