It was almost two years ago that National Bank Direct Brokerage became the first Canadian online broker to eliminate commissions for trading stocks and ETFs.
NBDB was quickly followed by Desjardins Online Brokerage, a key competitor in the Quebec market. After that, silence. Not a single other traditional online broker has felt the need to eliminate commissions to stay competitive. That’s all you need to know about the level of fee competition in the Canadian online investing market right now.
It’s not that Canadian online investors don’t care about fees. In its latest brokerage customer satisfaction ranking, J.D. Power found that high costs and fees are the top reason cited by investors for switching brokers. High fees accounted for 30 per cent of switches, while 17 per cent were tied to products, tools and services and 13 per cent were a result of poor service.
Another sign that investors are paying attention to fees is that 23 per cent of investors surveyed by J.D. Power for its ranking said their fees are higher than other companies.
For all this awareness of fees among Canadian investors, they’re not switching to zero-commission brokers in sufficient numbers to upset the pricing status quo. Beyond NBDB and Desjardins, free trades can only be found in trading apps like Wealthsimple (which introduced commission-free trading to Canada in 2019), MogoTrade and TD Easy Trade (50 free stock trades per year). In all, zero commission trading is just a niche.
This means that most investors pay as much as $9.99 to buy or sell a stock. ETFs trades are similarly priced, although some brokers offer no-cost purchases (the usual commission applies when you sell) and some have a limited list of ETFs that can be bought or sold at no cost.
Might investors be happier at a broker that charges no commissions? J.D. Power’s customer satisfaction rankings put Desjardins Online Brokerage on top with a rating of 692 out of 1,000, with NBDB next at 645. In third place is Questrade, an independent broker with a minimum commission of $4.95.
The two top-ranked companies in my latest ranking of digital brokers, TD Direct Investing and QTrade Direct Investing, both continue to charge trading commissions. But NBDB is a good alternative for conventional investors, and Wealthsimple Trade’s app-based approach is ideal for Gen Z and millennials. Questrade also received strong marks in the ranking.
In the U.S. market, zero commissions are pretty much standard among online brokers. Just now, it’s hard to see this ever happening in the Canadian market.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
ATS Corp. (ATS-T) Formerly known as Automation Tooling Systems, this Canadian industrials stock hit a record high on May 19. The previous day, the company reported earnings results that handily beat the Street’s expectations. Also this month, the stock began trading on the New York Stock Exchange. Analysts at U.S. firms may soon initiate coverage, increasing the visibility of the company. Jennifer Dowty takes a look at the investment case.
The Rundown
Debt deal could boost unloved corners of U.S. stock market, though risks loom
Global investors are gaming out how a tentative deal to raise the United States debt ceiling could ripple through markets, as lawmakers strive to pass the agreement through Congress before a June 5 deadline. Among the market sectors that stand to benefit from a deal are defence stocks, which have lagged during the negotiations, as well as cyclical sectors of the market and energy stocks. Reuters has more in this report.
Diversifying your portfolio – how much is too much?
Gordon Pape recently received a question from a reader who asked: “How many ETFs would you suggest in a buy and hold portfolio with a term of 7-10 years?” Another reader wrote to say his RRIF portfolio holds 160 stocks and 25 mutual funds. “I feel that this could be classified as diworsification as opposed to diversification,” he said. Investors are always being told to diversify. But what exactly does that mean? Gordon provides some insight.
Why this money manager favours the oil patch over Silicon Valley
Norman Rothery recently sat down with U.S. money manager James East, whose funds have averaged annual gains of 9.2 per cent from the end of 2007 through to the end of 2022. Mr. East sees an unusual opportunity in more cyclical names, including a few purchases in the Canadian oil patch. Norman tells us more about what he learned.
GIC investors, these bond ETFs should be on your radar
Bond ETFs are a great way to build a diversified portfolio of government and/or corporate bonds in a single, cost-effective package. The problem with bond ETFs is that, unlike the typical bond, they never mature and then return your upfront investment. The lack of a maturity date makes it harder to endure declines in bond and bond fund prices, as we saw in 2022 and again in mid-May. Investors can work around this bond ETF flaw in a variety of ways, including high-interest savings accounts, money market ETFs and guaranteed investment certificates. Another alternative is target maturity bond ETFs, which have been tweaked for the better recently by the company that offers them, RBC Global Asset Management. Rob Carrick tells us more about these products.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
Monday’s analyst upgrades and downgrades
Ask Globe Investor
Question: Can you provide me with a list of the top 100 Canadian companies with the highest dividend yields? In descending sequence from high to low would be ideal.
Answer: You can do this yourself on Globeinvestor.com.
Near the top of the main page, you’ll see data boxes for major stock indexes and commodities. Click on “TSX,” and then “Components,” to bring up a list of stocks in the S&P/TSX Composite Index.
Next, click on the drop-down menu that says “Main View,” and switch to “Fundamental.” Use the scroll bar at the bottom of the table to move to the right until you see a column labelled “Dividend Yield.” Now, click on the column heading, and the list will be sorted in descending order from highest yield to lowest yield.
Remember that a high yield alone is not a reason to buy a stock. In some cases, a high yield may be a sign of a troubled company that is about to cut its dividend. So do your due diligence before investing.
--John Heinzl (E-mail your questions to jheinzl@globeandmail.com)
What’s up in the days ahead
The Contra Guys tell us why they may soon cave in and sell an insurance and asset management company.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff
Rob Carrick