Shedding Tiers
One of the burning questions regarding this pricing move was ‘why now?’ especially since none of the other bank-owned brokerages have budged on their standard pricing.
According to Mr. MacDonald, the pricing move is one in a series of changes RBC Direct Investing has taken to simplify pricing and fees as well as support investors, particularly first time investors. For those investors who have had to compare rates and fees for standard commissions, figuring out exactly how much a trade will cost can be quite the chore. Thus, by eliminating pricing tiers from the standard pricing, RBC’s latest move has given other bank-owned brokerages all the more reason to follow suit.
Can Fight This Fee-ling
While the news of a commission fee drop is welcomed, investors should be aware of the other fees associated with an online trading account. Whether they’re called ‘inactivity fees’ or ‘administration fees’, paying extra fees for opening or holding an account at a discount brokerage never feels good. Of course, if understanding how and when those fees are incurred is complicated, dealing with fees can be a bit of nightmare.
In RBC Direct Investing’s case, even though ‘admin fees’ exist, they are relatively simple to understand and more importantly there are several ways in which clients can avoid paying them.
One of the most interesting ways in which a client who has less than $15,000 in assets can avoid paying these fees is by setting up an automatic monthly contribution of $100 or more. For the typical buy-and-hold investor or the ‘dollar-cost-averaging’ fans, this is a reasonable option to ensure steady building of savings and avoiding of fees.
Will They Ever be Royals?
By being the first amongst the big bank-owned brokerages to lower their fees, RBC Direct Investing has also set the tone for the conversation about fees and fee structure. In the days since the announcement, there has been significant discussion on Twitter, Canadian investment forums (see the RedFlagDeals thread here for example) as well as in the traditional media (as recently as yesterday’s Globe and Mail article).
RBC’s decision to not only lower commission pricing, but more importantly to simplify it takes a shot at all of the brokerages currently offering tiered pricing for stocks commissions. According to MacDonald, he hopes that with RBC’s latest move, the industry will rethink the way they price their offering to retail brokerage clients.
Fee structure aside, the recently launched investor “community” and practice accounts are features that other brokerages will also have to contend with in order to appeal to investors.
While other brokerages may have an edge on platforms or research, it appears that RBC Direct Investing is taking aim at acquiring clients who are more interested in getting started in the markets and those for whom extra support is desired.
With other brokerages working harder to come up with improved features, pricing and services, it is going to become increasingly challenging for consumers to make sense of what’s out there. To self-directed investors, Mr. MacDonald suggests “talking to other self-directed investors about their experiences with a brand as a good way to get informed.”
The Bottom Line
RBC Direct Investing’s new commission pricing is definitely making waves with both investors and discount brokerages. From conversations with other brokerages, price drops appear imminent in the coming months and so competitive dynamics are again creating opportunities for self-directed investors to save money. When asked what’s coming up for 2014 from RBC Direct Investing, MacDonald tactfully replied that “we’re always up to things” – of course, the same is probably true for all of RBC’s competitors who now have to get more creative in order to catch up.