Commission-free ETFs at Questrade
As of early 2013, Questrade became the fourth Canadian discount broker to jump into offering commission-free ETF trading to clients. Specifically, Questrade’s offer allows clients to purchase any ETF commission-free and when clients sell ETFs they are charged the standard commission rates.
To Questrade’s credit although they have done quite a bit of marketing around being able to “Buy ETFs for Free” their page explaining the offer clearly lays out the terms of the offer and whether additional charges may apply. For example, even though no commissions are charged on the purchase of any ETF, fees such as ECN fees may still apply. An important point to note is that buying of ETFs does not count towards minimum trading activity thresholds now in place at Questrade. Only trades that generate a commission count towards activity thresholds and data-fee rebates (something that may impact Advantage plan users).
While there are charges associated when ETFs are sold, the fact that there is a break on the commission price at the time of purchase is a plus. It is also far less work to keep track of which ETFs are or aren’t eligible for commission-free status. As with the other discount brokerages, though, Questrade reserves the right to modify the offer at any time without notice.
Lessons Learned While Researching for Commission-Free ETFs
One of the major takeaways from doing the research on this series was how important it is for individuals to do their homework when considering commission-free ETFs. While the lure of “free” is always appealing, the kinds of marketing that gets used certainly suggests the absence of costs when, in fact, many of those costs simply show up in other places. As with any other product, caveat emptor (buyer beware) still applies – even with promotional offers from discount brokerages on ETF trading.
Ironically and unfortunately for investors, there can be obstacles that get in the way of them being able to do the homework. For example, when looking at the iShares Canada website for information on 10 iShares funds listed (GBF,IYG,IYW,DSI,ICLN,RXI,MXI,IXN,IXP and JXI) as part of the Qtrade offering, the website denied entry if you happened to be an individual investor. The website message stated that only financial professionals were allowed to view that information.
Interestingly, the information for those funds was accessible via Yahoo Finance and Morningstar. For investors looking to get information from the source provider though, this can be a confusing scenario as the provider suggests the product is only suitable for professionals whereas neither the brokerages nor the data providers (Yahoo or Morningstar) make that distinction.
The second takeaway lesson for investors considering commission-free ETFs is that keeping up with such a dynamic space is incredibly challenging. As recent articles have started to suggest, the “enthusiasm” around creating ETFs and the ease with which they can be created has led to more funds being available than there is capital or interest to purchase them. In spite of enthusiasm being pointed to by some recent ETF provider sponsored studies, supply and demand will ultimately determine which ETFs last and which fold. Funds that are popular and highly traded stand better chances of being around than do some of the more exotic or newly created funds. So where does this leave investors?
Conclusion
Ultimately the ETF providers are in business to make money, as are the discount brokerages so just because something is being offered for free doesn’t mean there isn’t a catch somewhere. It is up to consumers to figure what that catch might be. Often, a good test of value of commission-free ETFs is to see what the management fees are and whether the savings on commission fees outweigh the potential increased cost of management. From an investor’s perspective, the option that provides the better portfolio performance is the better economic decision.
Overall, commission-free ETF offers create a lot of marketing that self-directed investors need to wade through. While these plans can offer some investors a real break on costs, it is important for self-directed investors to understand exactly what it is they are being offered and whether a similar (and cheaper) alternative exists.
Individual investors are likely to benefit more from knowing what kind of strategy they want to use to invest in ETFs with before looking to these commission-free offers as selling points from any one particular brokerage. Even though there may be savings on commissions, there are always other fees that investors need to be vigilant about in order to ensure they get the best return on their discount brokerage investment.