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Zero-commission trading was already available from Wealthsimple Trade prior to National Bank Direct Brokerage eliminating commissions for trading stocks and ETFs.

Jesse Johnston/The Canadian Press

Rival Canadian online brokerage executives must have cringed when National Bank Direct Brokerage eliminated commissions for trading stocks and ETFs this week.

In contrast to the U.S. market, Canadian brokers are loath to compete aggressively on price. The lack of response to NBDB’s move by competitors so far is telling.

Zero-commission trading was already available from Wealthsimple Trade, an app designed for mobile devices but also available in a web version. NBDB is the first traditional online broker to eliminate trading costs that range from $1.99 to $9.99 per buy or sell transaction at other mainstream brokers.

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Canadians have been primed for zero commissions since major players in the U.S. online brokerage industry made the move two years ago. In the interim, investors flocked to online brokers after stocks bounced back from the pandemic crash in the winter of 2020. We have never had more online investors, which means pricing of brokerage trades is an issue of some importance. One of the basic rules of investing is your returns increase when you reduce fees and commissions.

Here are some questions to guide the thinking of mainstream investors, rather than traders, about whether to change brokers to benefit from zero commissions.

How does NBDB compare with other brokers?

NBDB scored a B in the latest Globe and Mail online brokerage ranking, which noted a recent upgrade in the quality of its website for clients. Rating firm Surviscor gave NBDB a 68-per-cent score, while J.D. Power ranked it first in its 2021 Canada self-directed investor satisfaction study, just ahead of Questrade.

What’s NBDB’s game plan?

The goal is to expand the client base and generate revenue through various account fees, lending clients money to buy stocks (margin loans), exchanging client money to and from U.S. dollars, and interest generated on client cash balances. A marginal amount of revenue comes from routing trades of a small number of U.S. stocks to various market players.

“We are not creating any new revenue streams,” NBDB president Claude-Frédéric Robert said in an interview this week. “We are only reducing one.”

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Will your current broker match NBDB’s move?

Online brokers are in a holding pattern, waiting to see who else eliminates commissions. Several brokerages were contacted this week to ask for their response to the NBDB move. The response from TD Direct Investing, the largest online broker in Canada, was typical. “We regularly review pricing and monitor the industry to verify that we remain competitive,” an e-mail forwarded by a media relations person said. “We are aware of recent no-fee trade commissions announcements. TD Direct Investing has nothing to announce at this time.”

How do you trade?

NBDB currently has no app for mobile devices, although its website adapts to mobile devices with all the usual functions. The company says a mobile app will be piloted in early 2022 and a full launch will happen later in the year. Almost all other brokers have trading apps.

How much do you trade?

As the accompanying chart shows, the amount you save is most influenced by the size of your account and the amount of trading you do. Frequent trading bites deeply into returns, even when you have a six-figure account. For example, 50 trades a year at $100,000 in assets and a $10 commission cuts returns by 0.5 per cent. The hassle of moving an account may well offset the savings for infrequent trades.

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How much do brokerage commissions matter?

The answer depends on the amount of trading you do. This chart looks at commission costs as a percentage of assets held at one of the big bank-owned brokerages charging about $10 per trade.

Trades/yearAnnual
cost at
$10/trade
If your
portfolio
is worth
$10,000 ...
If your
portfolio
is worth
$50,000 ...
If your
portfolio
is worth
$100,000 ...
If your
portfolio
is worth
$500,000 ...
…Commissions will reduce your returns by this much per year (%)
12 $120 1.200.240.120.02
24 $240 2.400.480.240.05
50 $500 510.500.10
100 $1,000 10210.20

Source: Rob Carrick

What do you trade?

If you focus on exchange-traded funds, then you have a wide range of offers for free trading. Questrade and Virtual Brokers charge nothing to buy ETFs and regular commissions to sell. BMO InvestorLine, Qtrade Direct Investing and Scotia iTrade have a limited list of ETFs that can be both bought and sold at no cost.

Does your broker offset its commission costs with features that provide value for you?

One reason why NBDB is not in the front rank of brokers in the Globe ranking is that it’s light on tools to help clients build diversified portfolios, monitor diversification and returns, keep track of investment income and more. Some investors will find value in these services that offsets having to pay trading commissions.

Do you have a small account?

Like most brokers, NBDB applies an administration fee to small accounts. You pay $100 annually, unless you have at least $20,000 in assets; make at least five stock, ETF or option trades in a year; are age 30 or younger; or use an in-house portfolio-building service called InvestCube.

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NBDB looks at your account size as of May 31 when applying the admin fee each year. If stocks correct ahead of that date and your balance falls below $20,000, expect to have the fee charged to your account.

Will you need to call your broker on the phone periodically?

The long phone waits to speak to staff at brokerage firms earlier this year show that even online investors need to talk to a live representative now and then. The investment industry consulting firm Dalbar in May ranked NBDB as having the third-lowest average call wait time, at three minutes, behind Questrade at two minutes.

Other bank-owned brokers ranged from a low of four minutes at BMO InvestorLine to 25 minutes for Scotia iTrade.

Is dividend reinvestment an issue for you?

Zero commissions are a big help for people who reinvest their dividends and don’t use dividend reinvestment plans (DRIPs).

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What’s the cost of switching brokers?

Expect transfer-out fees to apply when you move an account to another broker – $150 is a typical amount per account. Brokers receiving a transferred account may cover this fee, but you often have to ask.

Finally, a suggestion for investors attracted to NBDB’s offer: Open an account there, add some money and see whether the company meets your needs. If so, you can then transfer your assets away from your current broker.

Stay informed about your money. We have a newsletter from personal finance columnist Rob Carrick. Sign up today.

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