Commission-Free ETFs: Peer Pressure?
Letting self-directed investors trade exchange traded funds (ETFs) commission-free appears to be all the rage amongst Canadian discount brokerages these days.
National Bank Direct Brokerage has now become the latest Canadian discount brokerage to offer free trading of Canadian ETFs (click here to read their press release) joining the likes of Questrade, Qtrade, Scotia iTrade and Virtual Brokers in offering some kind of free ETF trading. Specifically, National Bank Direct Brokerage is offering three months of commission-free trading of Canadian ETFs for new and existing clients.
Commission-free ETF trading offers, while great for self-directed investors, require individuals to really understand the terms and conditions that come attached to these types of offers.
The Fine Print
While they’ve done a good job of keeping the terms and conditions easy to read (there are only 17 conditions), there are a couple of important conditions attached to this ETF offer by National Bank Direct Brokerage that self-directed investors need to pay attention to.
First, the promotion applies only to Canadian ETFs (unlike other discount brokerages which do not restrict the ETFs to Canadian only). What exactly is a “Canadian” ETF? According to National Bank Direct Brokerage, the “Canadian” refers to any ETF that comes from a Canadian provider (e.g. Barclays, BMO, First Asset, Horizons, Invesco Powershares, iShares Canada, RBC and Vanguard Canada).
Second, the ETFs must be held for at least one trading day otherwise regular trading fees apply. This means that at an ETF could be purchased before closing on one trading day and then traded the following trading day without a fee. Thus, hold period is measured in trading days.
Third, trades must be at least $5000 in value in order to qualify for the commission rebate.
Lastly, according to the terms and conditions, clients must pay for the commissions on any ETF transaction at the time of purchase and they will then be reimbursed “six months after the promotion ends” (FYI: the promotion ends on July 31, 2013). The terms go on to clarify the actual refund date by stating that trades placed between April 15th and June 14th will be reimbursed on October 18th whereas trades placed between June 15th and July 31st 2013 will be refunded on December 20th. For a list of their commission rates, check our profile of National Bank Direct Brokerage here.
On the plus side, the offer allows for unlimited commission-free ETF trading (buys and sells) for three months after signing up for this account. For occasional investors or those who rebalance, this may not be a tempting offer, however for swing traders or those who have hold times for trades that are days or weeks (rather than hours or months), this offering could be attractive, especially since there are no caps to the numbers of trades that could be made.
While the timeframe to get reimbursed is lengthy, it is in line with many ‘cash back’ offerings currently available at other discount brokerages. Some tips for self-directed investors considering this offer are to make sure they keep good records of their trading activity and to have a conversation with an accountant or tax advisor to ensure proper tracking of the commission costs and rebates.