non-registered accounts | Financial Crooks

We’ve actually managed to save enough money in our chequing and savings accounts that I’m considering opening a new kind of brokerage account: a non-registered account. The very thought makes me nervous which should tell you how risk-averse I am. I can put money within a brokerage account into a daily interest savings account fund or into GICs, though, as I remind myself. I don’t actually have to bet the money we’re saving for our next car on Okinawan penny gold stocks or Russian computer-chip manufacturer high-yield bonds.

So What Exactly Is a Non-Registered Online Self-Directed Brokerage Account?

Basically, it’s an account this is NOT

a RRSP
a RRIF
a RESP
a RDSP
a TFSA

See I’d say it’s an account without the word “registered” at the beginning, but then they invented the TFSA which IS a registered account but doesn’t have an R in its acronym.

Do Non-Registered Accounts Offer Tax Advantages?

No.

Non-registered accounts are “real money” accounts.

Putting money into the account doesn’t get you a tax refund.

You have to pay taxes every year on any realized profits you make in the account. For example, you have to pay taxes if you

earn interest
receive dividends, even if you use the dividends to automatically buy more shares
are paid distributions
receive a return of capital
etc.

You don’t have to pay taxes on any “paper” capital gains you make when the value of your shares or bonds etc go up. You only pay the taxes when you actually sell the shares or investments and “realize” the profit. So if this year you buy some shares of Cineplex at $40 and they climb to $42, you don’t have to pay tax on the $2 per share capital gain if you don’t sell the shares. Once you sell the shares, though, you have to pay income tax on the capital gain.

Because you have to pay tax each year on your earnings, you don’t have to pay any extra tax when you take money out of the non-registered account. (This is different from a RRSP or RRIF where you must pay tax when you take money out unless you have an incredibly low income.)

Unlike a RRSP, RRIF, RESP, RDSP, or TFSA your money does NOT grow tax-free. You pay taxes each year.

Any money you make within the account is taxable under the regular tax rules.

That means if you sell an investment and make a capital gain, you have to pay capital gains tax on the amount.

It also means that if you sell an investment and suffer a capital loss, you can claim the capital loss on your taxes against taxable capital gains to hopefully reduce how much tax you pay on other gains.

Remember if you use a “self directed” brokerage account then you personally are responsible for tracking your investments for tax purposes. While your brokerage might provide you with some of the information you need to do the math, it’s up to you personally to ensure you get all of the information and that you use it properly. It’s not like a RRSP where you can just ignore capital gains, return of capital, adjusted cost bases and the like. Nor can you expect an accountant to sort out your mess. You have to give the accountant useful numbers before she can prepare your tax return!

What Can You Invest In with a Non-Registered Account?

For most online self-directed non-registered brokerage accounts, you can buy

American Depositary receipts, ADRs
Bonds
Equities
Exchange traded funds, ETFs
Guaranteed investment certificates, GICs
Mutual funds
Shares
Stocks
Term deposits
Units in a high interest savings account fund (that acts like a savings account)

There may be some other things you can buy as well depending on the brokerage.

CAUTION: Don’t buy anything if you don’t know how to collect the tax information and perform the tax calculations for it! For example, do you know what withholding tax you will face on a specific ADR? Do you know if and how you can re-claim some of that withheld tax? If not, don’t buy that ADR in your account!

(OK, here’s a hint for someone tripping over the word ADR. If you want to buy shares in a company like Toyota on the New York Stock Exchange you can’t. You can buy an ADR for Toyota on the NYSE though. It is NOT the same as buying shares of an American company listed on the NYSE though. Among other things, the taxes are handled differently.)

Who Offers Non-Registered Self-Directed Brokerage Accounts?

The list of financial institutions offering these types of accounts is almost identical to the list of brokerages for RRSP and TFSA accounts.

For example, you can open an account with

BMO InvestorLine
CIBC Investor’s Edge
HSBC InvestDirect
National Bank Direct Brokerage
RBC Direct Investing
Scotia iTrade
TD Direct Investing

There are also brokerages that are not tightly linked to banks, including but not limited to

Qtrade
Questrade
Interactive Brokers

Newspapers like the Globe and Mail, magazines like MoneySense and various websites provide reviews and comparisons of the various brokerages.

Things to consider when evaluating brokerages include

minimum account balance fees,
inactivity fees,
trading costs if you plan to buy shares or ETFs,
minimum purchase sizes for GICs and daily interest savings account funds
which ETFs and mutual funds are offered for sale
fees to withdraw money from the account
what reporting is provided
how and when tax slips are provided
etc.

Why Am I Rambling On About Non-Registered Brokerage Accounts?

This isn’t just a theoretical topic. I’m actually considering opening a non-registered account. When I started writing a bit about some information I had found, though, it didn’t make sense as I’ve never provided an overview of these types of accounts. So this is meant to be the overview and gradually I will start reporting some details as I investigate further.

Please feel free to chime in with your opinions of and questions about non-registered accounts at any time! Why my articles usually start from a question I’m researching for myself, I often learn about new issues and considerations from email and comments from readers.

And for those of you thinking: “Why would she invest the money they’re saving for their next car?” I should mention that due to someone illegally driving on the 400-series highways two years ago, we have a car that’s only a year and half old. Based on our previous cars, that means we have 14-21 years before we’ll need this money.

Related Reading

[Will I Have to Pay a Fee to Take Money Out of my Non-Registered Brokerage Account?]

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Do you already have a non-registered brokerage account? Does anything about your account bother you? Did you trip over any unpleasant surprises during your first year or two of using the account? All views are welcome and please share them with a comment!

I’ve been on a mission over the last three years to re-organize our finances. This included opening some online brokerage accounts and moving funds in from all the various banks, trust companies and government offices where they’d been mouldering. I am by no means an expert on brokerages and I am still learning new things each day as I work. Recently, I learned, somewhat to my surprise, that it is possible to group BMO InvestorLine accounts under one User ID even if they don’t all belong to one person.

Why Do You Want to Group InvestorLine Accounts Under a User ID?

For the reasons why grouping accounts is a good idea, please see Why You Should Group Your BMO InvestorLine Accounts Under a Single User ID.

The key point:

If you can group accounts with $250 000 or more, you will get a different type of trading quote and you will get “exclusive access to a dedicated service team.”

Which Accounts Can I Group Under a BMO InvestorLine User ID to Qualify for the 5 Star Trader Program and Level II quotes?

If you’re like me, you can group your

RRSP
LIRA
TFSA
RESP
spousal RRSP
unregistered regular trading account

and still not get close to $250 000 in assets.

That left me wondering, is it possible to add accounts belonging to anyone else to my User ID?

Will I Be Able to See the Portfolio Details for Each Account I Group?

While I was wondering whether I could group other people’s accounts under my User ID, I also started wondering whether doing so would let me see

their total investments,
their portfolios and
their transaction history.

After all, I can see all of those things for my own accounts which are grouped under one User ID.

I knew it would NOT allow me to trade on their accounts. You need a trading password to execute a trade at BMO InvestorLine and it is different from your sign in password.

So now I have three questions to resolve:

Can I add another person’s accounts to my InvestorLine User ID?
Do they need to sign a form authorizing my access to their account information?
Who would let me see everything in their account, every asset they hold and what they’ve been doing?

I can think of one very kind man who might let me peek into his portfolio. Admittedly if I do, he will lean over my shoulder and gloat at how much better his returns are than mine, but still, no pain no gain, right?

Now to check InvestorLine’s rules.
Well at
https://www.bmoinvestorline.com/home/popups/user-id they say you can consolidate accounts under one User ID if you own them or “manage accounts for others.”
And at
http://www.bmoinvestorline.com/home/popups/5-star-program-terms-conditions
It says that the accounts cannot be “Investment Club” or “Partnership” accounts.

Whose Accounts Can be Grouped Under One InvestorLine User ID?

I wrote InvestorLine to ask this question using their secure email MyLink.

Their response was:
I can add anyone’s accounts to my User ID if I know the account numbers and the account sign in passwords.

Wow. That’s almost scary.

So I can add

my husband’s account/s
my parents’ account/s
my aunts’, uncles’, nieces’, nephews’, sister’s, brothers’, cousins’ and grandchildrens’ account/s
my friends’ account/s

If they change their sign in password, then I will also have to update their sign in password under my User ID or their account will be removed from the User ID.

Will I Be Able to See the Portfolio and Holdings for Any Accounts I Link to my InvestorLine User ID?

Once I linked someone else’s account to my User ID, I signed in using my User ID to see what I could see.

I could look at:

their account balance
their holdings
their transaction history

Eeps! You’d better make this part very clear to any friends or relatives BEFORE you ask them to link their account to your User ID.

Note: I can’t trade on their account because I don’t have their trading password.

Also note: They cannot see MY account information unless I add my account to their User ID. This might be handy if you want to add your children or parents to your User ID but you are not willing to reciprocate by opening your finances for review and discussion.

Do I Need Written Permission from Another Person Before I Can Add Their Account to my InvestorLine User ID?

According to the MyLink InvestorLine representative “There is no form required to be completed for this purpose.”

That also is a wee bit disturbing. I guess it’s a good reminder to keep your sign in password secure from prying eyes!

Before You Start to Create your InvestorLine User ID

You may wish to think ahead about

What 8-20 letters and numbers you want to use for your User ID. You may not use special characters such as &.
What unique challenge question that you type yourself that you would like to use to help confirm your identity. It has a maximum length of 60 characters.

To create a BMO InvestorLine User ID to Group Accounts

Sign in to one of your InvestorLine accounts.
From the Account Services tab, under the heading Account Profile, click on Create User ID.

On the screen: Step 1 of 3: Choose a User ID and Password

In the User ID: field, type the alphanumeric id you want to use to sign on to your group of accounts.
In the Password: field, type a password to use when signing in to your accounts. This can be different from the Password used to sign in to a single account.
In the Confirm Password: field, type the password again.
From the drop-down list in the Challenge Question 1: field, select a security question.
In the Response 1: field, type the answer.
From the drop-down list in the Challenge Question 2: field, select a security question.
In the Response 2: field, type the answer.
In the Challenge Question 3: field, type your own security question.
In the Response 3: field, type the answer.
Click on the Continue button.

OK, I made every possible error!

Your User ID must start with a letter.
Your responses must be at least 6 characters in length.

Now it accepts them. Phew.

On the Step 2 or 3: Link Accounts to Your User ID screen

In the Account Number field, your current account number is listed. To add this account to the User ID you must input the existing password for that account (not the new password for the User ID).
In the Account Password column, type the password for signing into the numbered account.
If desired, in the Account Nickname (optional) column, type a nickname for that specific account.
If desired, on the next line, type the values in the columns
- Account Number
- Account Password, and
- Account Nickname (optional)
for your other InvestorLine accounts.
Click on the Add More Accounts button if you have more than 5 accounts to link up.
Once complete, click on the Continue button.

On the Step 3 of 3: Provide Contact Information for your User ID screen

Review the information in the Email Address: field and make sure it is correct.
If that is the address at which you wish to receive your InvestorLine email, type it again in the Confirm Email Address: field.
In the How you would like to be greeted when we correspond with you: field, type your favourite. For example, you could try
Supreme Grand Emperor Smith
I’m not sure if that will work or not. Guess I’ll have to update my profile and see!
Rats. You can’t use that particular title as there is a character length limit of 20.
Click on the Continue button.

On the Register your User ID for an opportunity to enjoy our 5 Star program and $9.95 Flat fee commissions – Optional screen

If you wish, click to select the radio button beside Yes to have the User ID evaluated for the 5 star program.
Click on the Continue button.
If you select Yes, look at the linked accounts summary to ensure it is correct.
Click on the Continue button.

To check if all of the accounts for the User ID are set up to be evaluated for the 5 Star Program

Click on the $9.95 Pricing & 5 Star Program tab.
Under the Receive Program Benefits tab, the account should be listed as Yes. If not, click on the Edit button to update the setting.

When Will I Start to Receive the 5 Star Program Benefits?

If the combined holdings in all of the accounts under the User ID add up to at least $250 000, the accounts will become eligible for the 5 Star Program benefits. User IDs are evaluated 4 times a year, at the end of

March,
June,
September and
December.

The benefits should be available the day after the evaluation date.

So I guess I won’t know till April Fool’s Day if this worked. How appropriate!