Commission Free ETFs – The New Normal?
Earlier this month, Questrade made a major announcement that impacts the commission fees associated with trading or investing in exchange traded funds (ETFs). Specifically, Questrade has eliminated the commission fees associated with purchasing ETFs so that now any Canadian or American listed ETF is available for purchase commission free. Naturally with a deal this compelling, there has to be a catch and in fact there are several important ones to take note of.
First, when purchasing an ETF, customers will get charged the commission fee, which will then be rebated within two business days. Second, customers can only buy ETFs for free by using one of the IQ platforms. Third, when selling the ETF, regular commission charges apply. Lastly, some ECN (electronic communications network) fees may still apply for certain order types. Even so, purchasing ETFs through Questrade just got way cheaper.
Given the popularity of ETFs with investors and traders alike, this announcement is sure to make waves with do-it-yourself investors as well as with other discount brokerages. Message boards, forums and blogs have been buzzing with this latest offering from a company already well known for offering low commission fees.
Lowering Prices and Lowering the Boom
While some other discount brokerages such as Scotia iTrade, Qtrade and Virtual Brokers offer totally commission free ETFs (i.e. buying and selling) there are a number of conditions attached to how long one has to hold them and which ETFs are eligible for “commission free” status. In addition, there are also restrictions on which ETFs are available with iTrade offering 50 commission-free ETFs and Virtual Brokers offering 100. In Canada, data from last year puts the number of ETFs at about 250, trading across a wide variety of sectors, commodities and currencies. In the US, there are over 1400 ETFs totaling over US$1 trillion in assets.
So, as a result of this announcement, Questrade’s reduction in pricing across all ETFs addresses one of the major pain points for self-directed investors – selection. Getting affordable access to the most liquid or popular ETFs, or those with low management fees is no longer a problem for Questrade’s clients under this new pricing structure.
How Low Can You Go?
Of course, the other providers of commission free ETFs may be expected to follow suit with some improved ETF offerings of their own, but when combined with some of the lowest commission fees in the Canadian discount brokerage market, competing on pricing and selection will be difficult.
We’ll be watching to see how the other discount brokerages respond, but for now it is clear that the race for Canadian investors’ business has touched off a race to the bottom on fees.