Younger investors, here’s how to get fee breaks and other little-known perks at online brokers and robo-advisers

One of the toughest jobs in investing is to start an account with little or no money and not get massacred by fees and commissions.

If you’re a millennial investor with just a couple of thousand dollars in your account at an online brokerage, paying $10 to trade a stock or an exchange-traded fund and $25 per quarter in account maintenance fees is prohibitive. Robo-advisers are rightly thought of as a good spot for young adult investors, but some are more welcoming than others to people starting with tiny amounts.

Advice for the young adult investor: Ask any investment firm you’re thinking of using if it offers fee breaks or other perks targeted at your demographic. Or, check out the round-up of deals contained in this edition of the Portfolio Strategy column.

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No one in the online brokerage world will say this, but you’re basically an annoyance to them as a client until you have $15,000 to $25,000 in your account, depending on the firm. That’s the level where account maintenance, inactivity and annual administration fees drop away.

What investment firms really want are wealthy clients with six- or seven-figure accounts. Starter accounts are tolerated, but rarely encouraged. Here are some exceptions:

-Online broker CIBC Investor’s Edge will introduce an offer this fall for postsecondary students where the fee for online stock and ETF trades falls to a very cheap $5.95 from the regular $6.95, and the $100 annual fee on small registered and non-registered accounts is waived.

-Desjardins Online Brokerage has a “Broker@ge 18-30” offer that includes five free trades (value is more or less $50) for clients of ages 18 to 30 and no inactivity fees; also, there are none of the usual annual administration fees for small registered accounts.

-Qtrade Investor targets the same age bracket with an offer that applies to clients who add $50 or more a month to their account through a preauthorized contribution plan; stock and ETF trades are discounted to $7.75 from the usual $8.75 and the usual quarterly admin fees don’t apply.

-Interactive Brokers, a firm for active traders with low commissions of 1 cent a share with $1 minimum, reduces its monthly “activity fee” for people 25 and under to US$3 from US$10 (for those 25 and under, the activity fee is equal to US$3 minus their actual commissions paid per month); IB also recently eliminated its $10,000 minimum account requirement.

One of the more detailed offerings for the young investor is the Kickstart Investment Program from Virtual Brokers, which is designed to promote long-term investing. Kickstart offers students and people who have graduated from a Canadian college or university in the past two years the opportunity to set up an automated purchase plan with no trading commissions.

To get Kickstart rolling, you’d arrange to have regular monthly amounts transferred to your VB account and then pick up to five Canadian or U.S. stocks or ETFs to invest in each month. Indicate a percentage of your monthly contribution for each stock or ETF and VB does the buying for you. You can only buy full shares, which means a portion of your monthly contribution may end up in cash in your account.

One more benefit at VB for young investors: The quarterly account maintenance fee on small accounts is waived if you’re under the age of 26.

Account maintenance fees are a menace to unwary young investors. Charged at $25 a quarter, they amount to a hefty 5 per cent of a brand new $2,000 account. You’d have to earn a 5-per-cent net return just to break even.

Robo-advisers are worth a look at any age, but millennials seem to be the most open-minded about this option for managing an investment portfolio. A recent report from J.D. Power found that 22 per cent of millennials surveyed had tried a robo-adviser, compared with 9 per cent of Gen Xers and 3 per cent of baby boomers.

Robos prospecting for new young adult clients sometimes offer online promo codes that you can use when a applying for a new account to qualify for fee breaks. You’ll find a few different promo codes listed in a guide to robos on the Young and Thrifty blog.

Some robo-advisers waive their management fees – that’s the cost of managing your portfolio – on new accounts with small balances. Examples: WealthBar will manage your first $5,000 for free, while ModernAdvisor charges no management fees on your first $10,000. Nest Wealth says it charges no management fees on assets of less than $10,000, although the deal isn’t advertised on its website.

As with all robo-adviser accounts, fees for the ETFs used in client accounts must be considered on top of fees for managing your money. ETF fees are deducted off gross returns by the companies that run them, so you don’t actually pay them out of pocket (returns are always reported on an after-fee basis).

Elsewhere in the robo-adviser world, RBC InvestEase is waiving its management fee until March 31, 2019, for people who sign up before the end of October. Wealthsimple has a promo code that qualifies you to have management fees waived on your first $10,000 for a year.

One other robo-adviser, BMO SmartFolio, has reached out to young investors by lowering the minimum balance to start an account to $1,000 from $5,000.

Both robo-advisers and online brokers have tried to appeal to young investors in other ways beyond lower fees, commissions and minimum account sizes. For example, the BMO SmartFolio website has a library of educational articles on topics such as how ETFs work and the benefits of tax-free savings accounts and registered retirement savings plans.

Online broker RBC Direct Investing offers a feature called Our Community that allows clients to exchange thoughts and ideas with each other. RBC reports that this feature is popular with younger investors.

RBC is one of a few brokers that offers another feature that younger investors may find useful – practice accounts. Get over any nervousness about online trading of stocks or ETFs by managing a virtual portfolio. Everything looks real, including gains and losses, except you’re not using real money so your risk (and return) is zero. Other brokers with practice accounts or free trials include Interactive Brokers, Questrade, Scotia iTrade and VB.

Beware of Fees

Young adults starting out as online investors are

often subject to a range of fees and commis-

sions that don’t apply to investors with larger

accounts. Here’s an example of how these costs

would act as a big drag on returns from a portfo

lio of exchange-traded funds. These numbers

highlight the importance of new investors seek

ing out firms that offer a fee break to people just

starting out.

Starting value of your account

$2,500

$25

per quarter

Account maintenance fee

Commission to buy or sell a stock/ETF

$10

Total cost over a year

(maintenance costs plus six trades)

$160

Fees as a percentage of the starting

value of your account

6.4%

0.25%

Additional fees for a portfolio of ETFs*

6.65%

Total cost

20-year annualized total return for the

S&P/TSX total return index**

7%

*Fees charged to investors who hold exchange-traded funds or mutual funds are taken off gross returns; investors are shown net returns, after fees.

**To July 31: total return means changes in share price plus dividends.

THE GLOBE AND MAIL, SOURCE: rob carrick

Beware of Fees

Young adults starting out as online investors are often

subject to a range of fees and commissions that don’t

apply to investors with larger accounts. Here’s an example

of how these costs would act as a big drag on returns

from a portfolio of exchange-traded funds. These num-

bers highlight the importance of new investors seeking

out firms that offer a fee break to people just starting out.

$2,500

Starting value of your account

$25

per quarter

Account maintenance fee

$10

Commission to buy or sell a stock/ETF

Total cost over a year

(maintenance costs plus six trades)

$160

Fees as a percentage of the starting

value of your account

6.4%

0.25%

Additional fees for a portfolio of ETFs*

6.65%

Total cost

20-year annualized total return for the

S&P/TSX total return index**

7%

*Fees charged to investors who hold exchange-traded funds or mutual funds are taken off gross returns; investors are shown net returns, after fees.

**To July 31: total return means changes in share price plus dividends.

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: rob carrick

Beware of Fees

Young adults starting out as online investors are often subject to a range of fees and

commissions that don’t apply to investors with larger accounts. Here’s an example of

how these costs would act as a big drag on returns from a portfolio of exchange-traded

funds. These numbers highlight the importance of new investors seeking out firms that

offer a fee break to people just starting out.

Starting value of your account

$2,500

$25

per quarter

Account maintenance fee

Commission to buy or sell a stock/ETF

$10

Total cost over a year (maintenance costs plus six trades)

$160

Fees as a percentage of the starting value of your account

6.4%

0.25%

Additional fees for a portfolio of ETFs*

6.65%

Total cost

20-year annualized total return for the

S&P/TSX total return index**

7%

*Fees charged to investors who hold exchange-traded funds or mutual funds are taken off gross returns; investors are shown net returns, after fees.

**To July 31: total return means changes in share price plus dividends.

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: rob carrick