Fees and Commissions
Since the moving force behind discount brokerages has long been low commissions and fees, this is one of the most important categories, sometimes the only one newer investors consider. We look at commissions for equities, options and ETFs, as well as overall Account Fees.
Investors are by now familiar with the return-impeding effect of high Management Expense Ratios (MERs) on mutual funds; ETFs generally have fees roughly four times lower than mutual funds but even here, there are discrepancies in fee levels of individual ETFs and sometimes the trading commissions levied on them; this is particularly the case when ETFs aren’t traded free of charge, as is the case with some of the firms we surveyed.
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But there’s far more to fees and commissions than expense ratios on investment funds. Keep in mind too that even the rock-bottom trading costs for which discount brokers are famous occur twice: once when you buy and again when you sell. Over-trading may be profitable for the firms but can soon add up for retail investors, not to mention the taxes that can be generated in non-registered accounts.
More sophisticated traders know they need to know about more subtle costs, such as ECN fees (Electronic communication network fees) and even – now this is ironic – inactivity fees!
Fortunately for you the reader, you don’t need to do the legwork on all 12 firms: Surviscor has done the heavy lifting on your behalf. A quick glance at the chart (under the line Basic Online Trading Commission) shows that the vast majority of Canadian online brokers charge $9.95 or $9.99 for basic trades, which most investors consider to be a round $10. But your eye may be drawn to the few that charge less: $6.95 at CIBC Investor’s Edge, $6.88 at HSBC InvestDirect, $8.75 for Qtrade, or the Questrade entry that reads “1 cent per share ($4.95 minimum to $9.95 maximum).” And of course, many firms offer active traders commissions that are well below those basic trade levels: Investors need to scrutinize the data in our grid, which reveals the circumstances under which commissions may be higher or lower than normal.
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HSBC InvestDirect now leads this category with 10 points, followed by Questrade and CIBC. HSBC moved sharply up in our fees and commissions rankings this year due to lowering the base equity commission to $6.88 for standard accounts (0-149 trades per quarter) and offering trades as low as $4.88 for active traders who trade 150 trades and over per quarter.
In our 2017 edition, Questrade and CIBC Investor’s Edge tied for top spot. Displaced this year by HSBC, Questrade is now alone in second spot on fees and commissions, and CIBC in third. The battle is fought primarily on that of basic trading commissions. As we noted last year, CIBC charges $6.95 a trade and active traders pay even less: $4.95 a trade. However, it’s hard to beat Questrade and its 1-cent trades, although investors also have to consider Questrade’s minimum charge of $4.95.
The gap between the two firms narrows more if you consider that Questrade charges ECN fees, while CIBC does not. ECN charges can soon add up, since they kick in any time you don’t trade a board lot (multiples of an even 100 shares). LaCoste continues to believe that ECN fees should be waived.
- HSBC InvestDirect – 10 pts
- Questrade – 10 pts
- CIBC – 7 pts
Service Interaction (formerly Customer Service) makes a general assessment of overall service level for each firm, plus the various methods of interaction experience clients have with individual representatives.
Intuitively, you might make the case that smaller size is an advantage here, since it should be easier to deal with a smaller number of clients, giving an advantage to the independents over the big bank-owned brokers. This is partially borne out in Surviscor’s research, with Qtrade Investor and Questrade first and third respectively in Service Interaction.
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Even so, one of the biggest banks — RBC Direct Investing – came in in second, up from third last year. As we noted last year, RBC Direct has made impressive improvements since 2015. reducing its response times by over 300% in the past 12 months.
(I might also add that personally, as a member of RBC Direct’s Royal Circle, I can find the service interaction top-notch. Generally it’s a matter of minutes before you reach a live person on the hotline; keep in mind however that to qualify you need either $250,000 in assets or you must be an active enough trader that your annual trading commissions exceed $5,000. You also get access to premium research, both from Morningstar and RBC Capital Markets).
Surviscor found that RBC’s regular service response was nine hours in 2017 and 8.8 hours in 2018. Note that this is based not on calendar years but the 12-month intervals Surviscor tracked. So in 2015-2016 it was 43 hours, with a big improvement to 9 hours in 2017-2018. All the more reason to get to the magic $250,000 and qualify for priority service!
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Investors may be surprised by the wide variance in customer response times to investor queries. The average general contact timeframe for online brokerage is a whopping 50 hours, or more than two days, which makes Qtrade’s top-ranking two hours all the more impressive. (It was also number one in 2017).
Still, across the industry, LaCoste believes the industry can do much better and should make response time a priority. If anything, service is going backwards, which he insists is “unacceptable.”
The firms say they have expanded their “touch points,” typically through social media, but it’s not clear that overall response times have improved as a result. These newer channels may appear progressive but if anything serve as a smokescreen for the fact many have actually decreased their hours of coverage. Good luck getting a live ‘knowledgeable” body on the evenings or weekends, whether by chat, email or social media. Until this is resolved, most clients will be forced to engage during the ordinary business day or market window, picking up a phone for the quickest answers.
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“The biggest problem in brokerage is that the firms do not have equal coverage,” LaCoste says, “The banks tend to share their corporate service, which means less knowledge in brokerage and most independents do not support all industry contact methods.”
For these reasons, online “chat” services are becoming important differentiators, and currently Questrade has the only primary chat service. The banks recently started to offer chat in key areas like account opening. Even so, LaCoste observes, “The overall issue with chat is that nobody supports it outside of general work hours or late evenings and weekends.” We would draw the reader’s attention to the fact that TD Direct says it provides “24/7” service phone support, but not yet 24/7 chat
- Qtrade Investor – 8 pts
- RBC Direct investing – 7 pts
- Questrade – 6 pts