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Big progress was made this week in fixing a stubborn drawback of investing in exchange-traded funds, particularly for young investors.

Brokerage commissions of as much as $9.99 per buy or sell trade can add up to hundreds of dollars a year for people who make regular contributions to their investments and periodically rebalance.

We now have some real momentum in getting rid of ETF trading commissions. On Tuesday, BMO InvestorLine introduced a well-curated list of 85 funds its clients can buy and sell at no cost. There are now at least eight online brokers and trading apps that have at least partly eliminated the cost of buying and selling ETFs.

BMO’s move into free ETF trading is a milestone because it sets a standard for the other bank-owned brokers that dominate the DIY investing world. Scotia iTrade offers 49 commission-free ETFs, but in a half-hearted, why-bother way. National Bank Direct Brokerage has zero commissions for all Canadian and U.S.-listed ETFs, but you need to trade 100 or more shares. That shuts out the small investor.

Qtrade Direct Investing has a list of 100 ETFs you can trade at no cost, but there’s a $1,000 minimum. Questrade and Virtual Brokers offer no-cost ETF purchases, but you pay their regular commissions to sell. Two other options are the free stock-trading app Wealthsimple Trade and TD Goal Assist, which offers no-cost trading of ETFs from TD Asset Management.

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Rightfully, a lot of attention has been focused on the low fees that investors pay to own ETFs on an ongoing basis. Brokerage commissions have to be considered as well because they can add up quickly. If you bought three funds once a month and made half a dozen additional trades to rebalance your holdings, your costs could run as high as almost $420 a year.

The cost of biweekly purchases of a balanced ETF, a diversified portfolio in a single fund, could cost as much as almost $260. That’s 0.26 per cent of a $100,000 account and 0.87 per cent of a $30,000 account. Now you see why young investors just starting a life’s portfolio-building are particularly affected by ETF trading commissions.

BMO’s 85 commission-free funds were drawn from the BMO ETFs collection, plus BlackRock’s iShares lineup and Vanguard. The available fund categories are equity, fixed income, multiasset (balanced funds, in other words), thematic and ESG, which means socially responsible investments chosen on the basis of environmental, social and corporate governance factors. And there’s no minimum purchase.

“All the major portfolio construction elements are there, but we also added some additional asset classes in response to where we’re seeing emerging demand and interest,” said David McGann, head of strategy at BMO InvestorLine.

One bit of fine print: The offer doesn’t apply to ETFs you buy and sell on the same day. No day trading, in other words.

InvestorLine normally charges $9.95 per stock or ETF trade. It’s forgoing that revenue on ETFs with an eye on attracting new customers, particularly young investors who aren’t already BMO customers.

Account sign-ups at InvestorLine are running at levels 2.5 times the prepandemic level, with half of that growth coming from investors under age 35. ETFs account for about 20 per cent of the trades made by these under-35s, and the same percentage of assets in their accounts. InvestorLine figures that ETFs will become more prominent for these investors once the current speculative stock-trading trend fades.

Overall, ETF assets make up 10 per cent of account assets at InvestorLine and have grown by 10 per cent on an average annual basis over the past five years, the fastest rate of any asset class. More investors are using ETFs for great reasons – the cost of owning them is low, it’s a cinch to build well-diversified portfolios with them and they’re transparent in what they own and do with investor money.

But commissions are a sticking point. Let’s look at which brokers and apps are best for avoiding them:

  • If you want to trade often and want access to everything: Wealthsimple Trade’s zero-commission deal for stocks and ETFs speaks loudly, but don’t expect much in the way of support for picking funds and monitoring how your portfolio is doing.
  • If you’re mainly buying ETFs rather than selling and want the amenities of an online broker: Questrade and Virtual Brokers charge nothing to buy and, when you want to sell, they have among the cheapest stock-trading costs (Questrade says electronic communications network fees may also apply). Both score well in the latest Globe and Mail Online Brokerage Ranking.
  • If you’re a high-net-worth investor: National Bank Direct Brokerage’s offer stands out because its wide North American ETF universe is open to no-cost trading.

QTrade has a varied selection of Canadian and U.S.-listed ETFs available for no-cost trading, but many of them are non-essential funds. The Scotia iTrade menu of commission-free ETFs is buried to the extent that clients could easily not know it exists. I found it by launching the ETF screening tool and selecting “Commission-Free Trading Eligibility” as a search term. The iTrade selection has enough to build a sensible portfolio, but there’s a preponderance of sector funds that are decidedly non-core investments.

Overall, BMO InvestorLine’s zero-commission ETF deal might be the best for investors who want access to core funds, a full range of brokerage resources and have sufficient assets to avoid small-account admin fees totalling $100 a year – at least $15,000 for non-registered accounts and $25,000 for registered retirement accounts and tax-free savings accounts.

While some might see the list of 85 funds to be limited, you could also call it a virtue for investors trying to sort through the 1,000-plus ETFs listed on the Toronto Stock Exchange. InvestorLine says the 85 funds account for half of the ETF assets that its clients currently hold.

With stock markets up by rich double-digit amounts in the past year, brokerage commissions might not be top of mind right now. But over the long term, lowering your fees is a sure way to add to your returns.

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