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.

Small Stack

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:

1. Executing a certain number of trades per month, per quarter or per year
2. Contributing a certain amount per month to a pre-authorized investment plan
3. 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’.

Maintenance Costs

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.

 Strategy 2: Save Regularly to Save More

For those who regularly contribute funds as part of a savings program, both RBC Direct Investing and TD Direct Investing offer to waive inactivity fees for those who contribute at least $100 per month to their investing accounts.  Neither BMO InvestorLine nor National Bank Direct Brokerage currently advertise this option.

For those inclined to dollar-cost-average or to make regular investment contributions at defined intervals, this kind of strategy would be similar to what they’re already doing.  For beginner DIY investors with very modest portfolios, however, this strategy may hold some appeal to meet savings/investment goals while also avoiding additional fees.

Ultimately, clients should consider that with the predefined contribution plans, at least $1200 per year is being steered into a discount brokerage account in order to save paying $100 on balances under $10,000 to $20,000.

Strategy 3: Save in More Places to Save More

For individuals who prefer to have their registered and non-registered accounts in one place, all of the bank-owned discount brokerages allow for pooling of assets across accounts to contribute to the calculation of the minimum balance.   Some, such as BMO InvestorLine, allow pooling by ‘household’ whereas others allow pooling across different accounts to qualify for waiving fees (e.g. clients who have an RSP account and TFSA can combine the balances in both to count towards the “minimum balance” requirements).

In addition to pooling balances across accounts, BMO InvestorLine, RBC Direct Investing and TD Direct Investing allow clients holding additional account types (such as registered accounts) to possibly qualify for having maintenance fees waived.  Of course, with other account types it is important to know what fees those accounts have associated with them to see if the extra fees make sense for one’s banking needs.

The Bottom Line

While lower standard commission prices and simplified pricing structures are a welcomed development for many self-directed investors, it is important to understand that there still may be fees that could apply to having an online trading account.  This is especially true when one’s trading account balance is less than $10,000 to $20,000.

Fortunately, most brokerages offer opportunities to have additional fees waived even if clients don’t meet the minimum balance requirements.  Whether it is by trading a minimum amount, saving on a regular basis or opening another account type it is important for self-directed investors to understand the costs of actively trying to avoid fees and whether the additional efforts make sense.

Ultimately, although commission pricing is now becoming more simplified, self-directed investors should always consider what the total cost of ownership is for a discount brokerage account.  Be sure to read the fine print about fees and/or have brokerage account reps explain all of the costs and fees that could apply to your particular account situation and trading style.

Editor’s Note: Given the dynamic nature of the pricing in the marketplace at this time, we will continue to monitor pricing and update this article if/when additional brokerages shift their pricing.

References:

1. BMO InvestorLine. (2014, February 10). Commission & Fee Schedule. Retrieved February 19^th 2014 from https://www.bmoinvestorline.com/selfDirected/pdfs/FeeSchedule_EN.pdf.
2. National Bank Direct Brokerage. (2014, February 18).  Commission and General Fee Schedule. Retrieved February 19^th 2014 from http://nbdb.ca/~/media/CDBN/PDFs/February%2018%202014%20Commission%20fee%20schedculeNBDB.pdf
3. RBC Direct Investing. (2014, January 14). Commissions and Fees Schedule. Retrieved February 19^th 2014 from http://www.rbcdirectinvesting.com/pdf/commission-fees.pdf.
4. TD Direct Investing. (2014, February 7). Commission Schedule and Statement of Disclosure of Rates and Fees. Retrieved February 19^th from http://www.tdwaterhouse.ca/document/PDF/forms/521778.pdf