In part one of this series, we looked at the recent moves by Canadian bank-owned online brokerages to reduce their standard commission fees. Since standard commission fees are just part of the fee picture, part two focuses on how to evaluate the other fees that clients may still be on the hook for.
For individuals with less than $50,000 combined in their investment accounts, the access to better commission pricing is most certainly welcomed. That said, there are still minimum account balance thresholds (between $10,000 and $20,000 depending on the brokerage) that can result in fees being applied against an account.
Fortunately, all of the online brokerages promoting sub-$10 standard commissions offer some type of option to have these additional fees waived. The current options fall into the following three categories:
- Executing a certain number of trades per month, per quarter or per year
- Contributing a certain amount per month to a pre-authorized investment plan
- Holding additional accounts with the same discount brokerage/parent bank
In deciding on whether doing something to save on a fee is a sound strategy, it is important to first understand the cost of ‘doing nothing’.
In comparing the current sub-$10 commission fee offers, the administrative fees (also called custody fees, maintenance fees or account minimum fees) that are charged by the four bank-owned brokerages are about the same when compared on an annual basis. Across the board, the annual fee works out to $100 per year although how this is calculated varies from brokerage to brokerage.
Three online brokerages (BMO InvestorLine, RBC Direct Investing and TD Direct Investing) assess this fee ($25) on a quarterly basis. National Bank Direct Brokerage, however, evaluates trading activity on an annual basis and charges $100 per year for those that don’t meet the activity/balance minimums by a specified cut-off date each year.
Strategy 1: Trade to Save
Each bank-owned discount brokerage currently offering sub-$10 trades allows clients to trade a certain number of times (e.g. quarterly, semi-annually, or annually) to avoid the maintenance fee.
While each offer may vary in the time frame over which they require trading, annualizing the cost of trading in order to qualify for fee exemption allows for comparison between plans and also presents an interesting result.
As shown in the chart below, at three out of the four brokerages (BMO InvestorLine, TD Direct Investing and National Bank Direct Brokerage), it is actually cheaper to trade the minimum activity than it is to pay the maintenance fee. At RBC Direct Investing, however, trading to avoid the maintenance fee is actually more expensive than paying the maintenance fee because clients have to trade at least 3 times per quarter to qualify for an exemption.