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CIBC’s commission cut raises ETF market temperature

A man uses an ATM at a CIBC branch in Montreal.


Here's a strong comment on the level of competition among bank-owned discount brokerages, and the rising importance of exchange-traded funds among investors: Canadian Imperial Bank of Commerce is waiving commissions on ETFs bought and sold online through its CIBC Investor's Edge brokerage.

Sure, the deal only lasts until the end of March, making it a six-week marketing strategy for capturing incoming RRSP funds rather than a bold new direction for ETF trading in Canada.

However, it adds to the competitive furor in the discount brokerage industry as banks jostle for clients and attempt to sell them a bundle of services, ranging from chequing accounts, registered retirement savings plans, mortgages and beyond.

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For a brief period in 2014, Bank of Montreal's BMO InvestorLine offered 35 free stock trades for clients between the ages of 18 and 35. Royal Bank of Canada's RBC Direct Investing is currently offering 20 free trades for new accounts opened by March 2.

In the case of the CIBC offer, gaining new clients is a big part of the strategy, but holding onto existing clients is also a factor behind the freebie trades.

CIBC doesn't break out numbers showing the growth of its discount brokerage. But industry statistics from Investor Economics, shared by the Investment Industry Association of Canada, shows that the value of assets held in online discount brokerages has nearly tripled since 2004, a considerably faster pace of growth than seen among full-service brokerages. Over this period, the general fees charged for making trades has fallen from about $29 to less than $10.

At the same time, interest in ETFs – baskets of stocks that resemble index mutual funds but trade on exchanges throughout the day – has been exploding, thanks to their low fees and a growing interest in passive index investing among do-it-yourself investors. This interest explains why CIBC chose to offer free trades on 1,900 Canadian- and U.S.-listed ETFs rather than stocks or mutual funds.

"There is a tremendous growth in the ETF area," said Marybeth Jordan, managing director and head of CIBC Investor's Edge. "We know that ETFs are a great economical vehicle for clients."

Are online trading commissions going to fall further? Ms. Jordan says that fees are probably as low as they're going to go. "One of the things about self-directed brokerages is that we're really trying to put great tools and information in the hands of investors so that they can make up their minds about what they want to invest in," she said. "That's a very expensive proposition."

Nonetheless, if regular commissions have hit rock bottom, then short-term promotions could become an increasingly important strategy for appealing to clients. And they suggest that discount brokerages are one of the key battlegrounds, as banks fight for those bundles.

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