Do you have some trading opportunities in mind after you switch to an online broker from an investment adviser?
What a coincidence – so does your new online brokerage firm. It’ll be looking for ways to trade the fees and commissions you paid your adviser for a whole new set of charges.
Using an online broker is all about paying less as an investor and therefore keeping more of your returns for yourself. But there are degrees of paying less and they can amount to hundreds of dollars per year or more.
To help make sure you’re paying as little as possible to manage your portfolio, let’s look at seven tips for cheaper do-it-yourself investing.
FIND A LOW-COST BROKERAGE
A few years ago, most online brokerage customers paid a minimum of somewhere around $29 to trade stocks and the only way around that was to be a frequent trader. Today, you can get as low as $4.95 per online trade, and $10 trades are quite accessible.
The $4.95 deal comes from a small independent firm called Questrade that doesn’t offer the range of tools and research of larger firms. If you want to see where Questrade ranks on an overall basis against the rest of the field, check out my most recent ranking of online brokers at tgam.ca/brokers. (Note: Expect a new ranking in early November.)
Many brokers now offer trades of just a shade below $10 to clients who have $100,000 in assets with the firm. An exception is Scotia iTrade, which charges $9.99 if you have $50,000 or more.
If you want a high-ranked firm and have a small account, consider Credential Direct, Qtrade Investor and Scotia iTrade, all of which charge $19-$20. As always, check the fine print. All three firms charge more for trades of 1,000 shares and up, and Qtrade charges an additional $4 for limit orders (more on that to come) of 1,000 shares or less.
A side benefit of qualifying for sub-$10 commissions is that you’ll virtually always pay a flat rate, no matter how many shares you trade.
AGGREGATE YOUR ACCOUNTS
Online brokers are in many cases quite flexible in allowing clients to qualify for the low commission rates available to large accounts. At TD Waterhouse, for example, you’ll pay $9.99 if your household assets with the firm add up to $100,000 or more.
The point of offers like this is to get clients to consolidate all their business with a single firm, and that makes sense for the customer, too. Record keeping is simplified, and you pay less to trade. Important note: you generally have to request that your broker consider your household assets to qualify for trading discounts. Don’t expect this to happen automatically.
LOOK FOR TRANSFER-IN DEALS
The down side of consolidating your accounts is that investment firms may charge as much as $135 in transfer out fees (look up “Other Fees” in the fees and commissions page on your firm’s website). Rather than taking the hit, ask your new brokerage firm to cover the fee.
Paying transfer fees for new clients is a common promotion at some online brokerage firms, which often make this offer at busy times like registered retirement savings plan season. If you have a sizeable account, don’t wait for a deal on transfer fees to be announced. Call up a broker you want to move to and ask if they will pay your transfer fee.
AVOID OPENING SMALL ACCOUNTS
A good rule is to wait until you’ve built up your RRSP account before transferring it to an online broker. Almost all firms charge annual RRSP administration fees of $50 to $100 for small accounts, which usually means balances below $15,000 to $25,000, depending on the firm.
Avoiding small accounts will also insulate you from account inactivity fees, which may be charged either quarterly or annually on accounts with balances below $5,000 to $10,000.
