Canada's cheapest online broker is changing its image – and its pricing.
Virtual Brokers now charges $9.99 flat for online stock orders. Gone, for new clients, is the fabulously cheap commission of a penny a share when buying stocks. Existing clients can continue using that commission structure "as long as I'm CEO," VB chief Bardya Ziaian says.
His explanation of the changes is that he wants VB to be more than a bargain-priced brokerage firm. "I want to go beyond the notion that Virtual Brokers is a cheap way of trading," he said. "We want to add value."
You'll see how this change in strategy plays out when I complete my next annual review of online brokerage firms this fall. (Read the latest ranking here.) Certainly, VB's top ranking is based very much on low costs and is, thus, at risk. Meantime, let's use the changes at VB as a prompt to take a fresh look at the state of commissions for DIY investors who trade stocks online.
Canada's low-cost leader for the mainstream investor who trades periodically is now Questrade, which declares on its website that it has "Canada's lowest commissions. Period." Questrade charges 1 cent per share with a minimum of $4.95 and a maximum of $9.95. Electronic communications network fees may add a small additional charge for some trades.
Next in line for low commissions is CIBC Investor's Edge at $6.95. VB and almost all other firms now charge a flat rate in the rough range of $9 to $10. Gone, for the most part, are the days when commissions such as these were reserved for active traders or clients with sizeable portfolios.
One firm that has not followed this pricing trend is Scotia iTrade, which offers $9.99 flat commissions to active traders and people with $50,000 or more in assets with Bank of Nova Scotia and iTrade combined. If you don't qualify, you pay a hefty minimum commission of $24.99.
Commissions are increasingly similar across the industry today, but don't let your guard down on costs by considering one firm as cheap as another. More and more, brokers are slapping maintenance fees of $25 or $30 per quarter on small accounts held by clients who trade infrequently. Those that don't may have annual administration fees on registered retirement accounts.
Again, Questrade is a low-cost leader with these maintenance fees. It charges $24.95 per quarter if you don't have $5,000 in your accounts at the firm and don't make at least one trade during the period. RBC Direct Investing has a $25 quarterly fee that kicks in when your assets with the firm fall below $15,000 and you don't make at least three trades or meet other qualifications, including having a preauthorized contribution plan set up.
Minimizing fees and commissions is crucial for young or rookie investors who have small accounts. At $5,000 in assets, $100 in annual fees is like a 2 per cent drag on returns. Questrade, which has been steadily climbing in my annual brokerage ranking, is worth a look for people starting small. An additional reason to consider this firm is that it charges no commissions when you buy exchange-traded funds, or ETFs. You pay regular commissions to sell, but free ETF buying is a huge asset for people who want to invest on a monthly basis.
VB has committed to keeping its offer of free ETF purchases, so at least one aspect of its low-fee heritage remains. Qtrade offers commission-free trading of 60 ETFs, while Scotia iTrade offers 50.
Beyond iTrade, bank-owned brokers have been curiously reluctant to offer commission-free ETFs. One partial exception is National Bank Direct Brokerage, which is running a promotion until June 30 under which new and existing clients pay zero in commissions when they trade at least 100 shares of a Canadian ETF online.
Canada's online brokers spent years trying to build their businesses by appealing to active traders, then tapped out that growth opportunity. Lately, they've put the emphasis on mainstream investors who are managing money for retirement and a post-secondary education for their kids more than trading stocks.
VB is bucking this trend by raising fees for regular clients while offering a pricing plan for active traders that could reduce their trading costs to zero if they subscribe to a data package and trading platform costing $150 (U.S.) per month. "If they're active traders, they'll save a bundle," VB's Mr. Ziaian said.
With costs for mainstream investors so similar, a big differentiator for brokers today is the usability of their websites. As much as fintech, or financial technology, has become a hot trend in investing these days, many online broker websites feel and look a lot like they did a decade or more ago. In other words, they're cluttered and clunky.
Don't make any judgments about a broker by its public website. Some firms have spiffed up their public face while delaying the tougher job of creating an up-to-date Web experience for clients who want to plan portfolios, research specific investments and trade stocks, ETFs, mutual funds, bonds and guaranteed investment certificates. Check out a firm's client website by looking for an online demo.
TD Direct Investing not too long ago updated what was a painfully outdated website, and the results are state of the art in the way they help connect users to the features they need. Check it out if you're new to online investing or appreciate a website that emphasizes plain language and clean navigation.
After modernizing their websites, the next frontier for online brokers is to improve the way they help clients build and maintain their portfolios to ensure they're on track. A growing number of brokers have these tools, but they're usually located many clicks away from the log-in page and thus unlikely to be used much.
How about a homepage for clients that concisely compares their actual portfolio to the ideal portfolio mix developed using their broker's online tools? With online trading commissions converging, it's innovation like this that will set brokers apart.