Online brokers can be total phonies when it comes to welcoming novice investors who are starting with just a small account.
Most of the brokers covered in my annual ranking have no minimum account size, which sends a generally inaccurate message that newbies are going to be nurtured. But unless you dig deep into the fine print, you can easily miss the fees applied to accounts with assets less than $10,000 to $25,000, depending on the firm and account type.
These fees go by various names – inactivity or maintenance fees or, in the case of registered retirement savings plans or registered retirement income funds, annual administration fees. Inactivity or maintenance fees usually come in at $25 or $30 per quarter, while admin fees are generally billed in one go at $100.
There are a couple of mitigating factors relating to these funds – some brokers don’t apply them to tax-free savings accounts and most firms offer a few ways to get around them. For example, some allow you to reach the minimum asset level for getting your fees waived by grouping accounts from the same household or family. Setting up a pre-authorized contribution plan for your account may exempt you from fees, and so might a few stock or ETF trades in your account every month or quarter.
If you don’t qualify for these breaks, the impact of fees on your investments can be serious. If you start up an online investing account with $5,000, $100 per year in fees amounts to 2 per cent of your capital. This 2 per cent buys you nothing – it’s basically there to scratch some revenue from people who don’t have much in the way of assets yet. To avoid these fees, check with whatever brokers you’re considering to see how much money you need in your account to be free from account maintenance and inactivity fees, as well as admin fees.
Questrade and Virtual Brokers go easiest on newbies by waiving fees on accounts with $5,000 or more. RBC Direct Investing and TD Direct Investing have adopted a very clear fee schedule that says registered and non-registered account fees are waived when you get to $15,000 in assets. Both offer a few options for avoiding the fees if you have less than $15,000 in your account.
Other firms may differentiate between registered and non-registered accounts. For example, fees for non-registered accounts may be waived when you get to $10,000 in assets, while registered account admin fees drop away when your account reaches $15,000 to $25,000.