Investor’s Edge | Financial Crooks

At most institutions, you really need at least $25,000 before it’s worth opening a self-directed brokerage account. Before that, you’ll get zinged with some type of annual fee, whether it’s a “quarterly fee” an “annual fee” or a “minimum balance fee.” (Some extreme discount brokerages even charge a hidden “inactivity fee.”) But once you get past those nuisance fees, it’s time for a change. Here’s why you should switch to a self-directed brokerage acount as soon as you can meet the minimum requirements.

Buying Mutual Funds in a Self-Directed Brokerage Account

If you like the mutual funds offered by your bank, chances are very good that you can buy them within their online brokerage account as well. If you like the idea of mutual funds but you don’t like the actual funds your bank offers, once you have a self-directed account you can make your purchase from a much larger selection.

Most brokerages offer mutual funds with no additional loads or fees for the purchase or sale. (The fund issuer, however, may charge certain fees for buying or selling the fund. You have to read the fund facts for the mutual fund before deciding to buy or sell.)

The Drawbacks of Buying Mutual Funds within an Online Brokerage Account

The biggest drawback is that most brokerages require you to buy at least $5000 of a mutual fund the first time, and buy at least $500 worth of the fund each time you want to add more. (Some mutual fund issuers demand even higher minimum purchases. For example, you usually need $25,000 to buy your first purchase of a PH&N fund.)

Another drawback is that the brokerage may require you to hold a fund for at least 90 days before selling it to avoid paying a high penalty fee. (Some fund issuers already have the same restriction, though, even if you buy directly from them.)

Buying ETFs May Cost Less Over Time Than Buying Mutual Funds

Some discount online brokerages offer some ETFs that you can purchase without paying a fee or commission. (Please see: No Commission ETFs in the article Are ETFs better than Mutual Funds?) , usually you will have to pay between $10-30 each time you buy units in an ETF. That sounds like a lot of money and for a small purchase it is. However, for larger purchases, the savings in the Management Expense Ratio, MER, fees each year may help.

For example, a mutual fund that replicates the TSX top 60 stocks may charge a MER of 1.75%. That means if you have $1000 of the fund, you are paying $17.50 per year in fees. (You may not realize you are paying this annual fee because it is usually taken out of the price they report for a unit of the fund (the NAV.) It won’t usually say on your statement that you are paying $17.50.)

An ETF that replicates the TSX top 60 stocks may only have a MER of 0.175% That means if you have $1000 of the ETF, you are paying only $1.75 per year in fees. The savings of $15.75 might be enough to pay some or all of your purchase commission fee. And you will keep saving that fee differential for as long as you hold the ETF.

Unlike for mutual funds, there is no required minimum purchase $$ amount for an ETF bought through a discount brokerage. Practically, though, you will not want to buy too small a number of units of an ETF, though, because you are being charged $10-30 for the purchase whether you are buying 1 unit or 1000 units. (If you are working with a brokerage that charges no fee for ETF purchases, then you can go ahead and buy them 1 unit at a time: if you really want to!)

For Some Registered Accounts, the Daily Interest Savings Rate is Higher at a Discount Brokerage

What if you want to keep your money in a registered account in a daily interest savings account? (By registered account I mean a TFSA, RRSP, RRIF, RESP, RDSP etc.)
You may get the best rate by keeping the account at a smaller financial institution like ING Direct. (It’s currently paying, as of October 2013, 1.35% for cash in a RSP Investment Savings Account and 1.40% for a TFSA Investment Savings Account.) Another preferred option for some investors is People’s Trust. (It’s currently paying, as of October 2013, 3% for a TFSA.)

Some of these institutions don’t offer a RESP, RRSP or other registered accounts.
If I have a RESP at BMO, my cash in a daily interest account is currently, as of October 2013, only earning 1%.

If I open a BMO InvestorLine RESP account, though, I could put the money in AAT770, the daily high interest savings account fund, and by earning 1.27%. It’s not a huge improvement but it’s a start.

Similarly, most brokerages offer a savings account option, often called a HISA, which pays 1.25% or more as of October 2013.

The drawback, as with mutual funds, is that there is often a minimum deposit required. At InvestorLine, you have to keep at least $5000 in the daily interest cash account fund. At CIBC Investor’s Edge, you have to keep at least $1000 in the daily interest cash account funds.

Buying GICs is Better in an Online Discount Brokerage Account

If you want to keep your investments in your registered account in GICs, it’s definitely worth considering using an online discount brokerage account. (Please see: Pros and Cons of Buying GICs in a Self-Directed Online Brokerage Account)

For example, if I buy a GIC in a RESP at BMO, the posted rate (as of October 2013) for a 1-year term is 1%. (I could probably get it up to 1.5% by negotiating with a customer service representative at my branch.)

At this same time, I could buy a 1-year term GIC at BMO InvestorLine paying 2% with a few simple clicks of the mouse and no beseeching required. CIBC Investor’s Edge is offering a 1-year term GIC at 1.85%.

Most discount brokerages allow you to select from a variety of GICs, including cashable, semi-annual pay, etc, issued by 10-20 different financial institutions. It’s a quick, simple way to get a competitively priced GIC.

Most discount brokerages do not charge any fee to you, the customer, the buy a GIC.

The Drawback of Buying GICs within an Online Brokerage Account

As with mutual funds, there is one drawback. Most online brokerages require you to buy a GIC with a minimum value of $5000. So you can’t just invest $100 or even $1000. You would have to keep those smaller amounts in a daily interest savings account fund at a lower rate.

Buying Stocks in a Self Directed Brokerage Account

Of course most people automatically think of buying shares when they think of brokerage accounts. It’s true that this is an option once you have an account. The fees may vary depending on your account’s balance and/or your trading habits and/or your other holdings with the bank affiliated with the brokerage. Usually they are between $30 to $10 per purchase or sale.

I don’t think you can buy shares of stock for a registered account without using a brokerage or a discount brokerage. You can buy some stocks directly from their issuing companies or their transfer agents but only if you are holding them as unregistered investments.

Should I Move our RESP to a Discount Brokerage?

Ok, I’ve convinced myself. It’s time to try to slay the paper dragon required to move our RESP to an online discount brokerage. Since we have a family RESP with my husband and myself as joint contributors, I’m nervous about what paperwork may be required. I guess it’s time to find out.

CIBC Investor’s Edge is Worth Considering for a RESP

And just as a reminder, It appears CIBC Investor’s Edge is seriously offering a no-annual-fee no-minimum-balance RESP brokerage account. It’s a bit misleading, though, as you would really need about $1000 or more to make it worthwhile opening. With $1000 or more you could save your money in a daily interest savings account fund for no fee. With $5000 or more you could buy at least one GIC or one mutual fund. But to buy ETFs or stocks, you would need at least $25,000 to bring the trading commission down to $28.95 or at least $50,000 to bring it down to $9.95. Still, it may be worth investigating further.

Check Brokerage Details Carefully Before You Invest

Before opening a self-directed brokerage account, be sure to check the details carefully. What fees or charges are applied annually or quarterly or based on activity? What mutual funds are available and what are the terms of purchase? What commissions and fees are charged for purchasing shares or ETFs? Brokerages all differ slightly: it’s worth spending some time checking what’s offered before committing yourself.

Remember these brokerages all charge high fees to close or transfer accounts. Take your time and choose one you will be satisfied with before signing anything.

Related Reading

How to Buy a GIC in an InvestorLine Account
How to Buy AAT770, a High Interest Savings Account Fund, in an InvestorLine Account
How to Buy a HISA Fund, such as ATL5000, in an Investor’s Edge Account
How to Buy a GIC in an Investor’s Edge Account

Join In
When would you move your money to an online discount brokerage? What benefits do you see? Please share your experiences with a comment.

The regular trading commission at CIBC Investor’s Edge (in October 2013) is $28.95 per trade. If you trade excessively, er, frequently, you can qualify for a lower cost. Most people, however, won’t qualify until they have over $50,000 in their account/s. The $50,000 can be combined across various accounts held by people living in the same household. For example, it could be the total held in a husband’s RRSP and his wife’s TFSA. Once you reach the magic $50,000 at Investor’s Edge what do you do to start getting the cheaper $9.95 trades?
UPDATE: Investor’s Edge now offers $6.95 trades to anyone regardless of their account balance. Be sure to have the minimum account size, though, to avoid any annual fees.

Sorry This Can’t Be Handled Online or Automatically

You’d think that with huge computer programs that can trade stocks down to fractions of a cent in less than a 60 th of a second that they could just automatically reduce the trading commission when your account balance totals over $50,000.

In reality, though, these computer programs were written before they introduced the idea of reduced fees based on the amount of money in the account/s. It’s only through aggressive competition (among banks! imagine!) that these types of reduced fees have appeared. In fact the reduced price for investors with $50,000 is only a few years old. The computer programs have not kept up.

So getting $9.95 trades requires a manual change to the program. And that requires phoning CIBC Investor’s Edge to request the adjustment.

Contacting Investor’s Edge to Reduce Your Commissions

In October 2013, the number to call is 1 800 567 3343 between 8 and 8 ET.

What to Expect When You Call

I had hoped the call would be a simple one minute “Hello. Ok. Done.” Foolish me. Phoning also gives the customer service representative a captive audience for further questions.

First they explained how with $100,000 in accounts with Investor’s Edge and other CIBC divisions, we could qualify for $6.95 trades. Next was a pitch to have my spouse move investments to Investor’s Edge. And a plug to move our mortgage. (We don’t even have a mortgage which is always extremely fun to say!)

However, within 3 minutes, the phone call was finished and the change had been made. Or had it?

Confirming the Trades Now Cost Only $9.95

Not that I don’t trust people but I did check as soon as trading started the next morning what the system said my trading fee would be. (I had phoned my request in at 7:55 ET) To my pleased surprise, it correctly states I am now charged $9.95 not $28.95. Good one Investor’s Edge!

What If I Already Executed a Trade After I Reached the $50,000 Level But Without Phoning

Many people think the $9.95 price will kick in automatically. So they put in an order to buy or sell without really looking. They realize later that they’ve been charged the full $28.95.
If you are one of these unfortunates, just phone Investor’s Edge. They should be willing to credit you back the difference in cost. ($19.) The number is the same: 1 800 567 3343 between 8 and 8 ET.

Enjoy your savings!