Why I Opened A TD Direct Investing Account

the old TD

A few months ago I transferred 18 shares of Pepsi from my traditional DRIP held with Computershare to my Questrade margin account and then into my RRSP account with Questrade. What I thought was a fairly standard transfer almost turned out to be an expensive lesson. When I transferred the shares into Questrade, I was charged $200 by Questrade. I made a bit of a stink about it and Questrade eventually returned the $200. Ultimately it made me realize that I needed another broker so that I could complete these types of transfers without fees in the future.

Related article: What Is A Dividend Reinvestment Plan (DRIP/DRP)?

My original intention was to consolidate the DRIP Pepsi shares with the shares already in my RRSP. Computershare (Pepsi’s transfer agent) will not charge you to transfer shares out of a DRIP, unlike a discount broker which will usually charge you a fee. Because I wasn’t actually selling any shares just transferring I didn’t think there would be any fees. A few years ago when I was more active with my DRIP investments I did these transfers numerous times without fees. Apparently, Questrade changed their fee policy for electronic transfers (DRS transfers) in 2012 which is why I was charged $200.

Questrade will also charge you an arm and a leg to deposit a share certificate ($200). This means that there is no longer any cheap method of transferring shares from a DRIP held with a transfer agent into Questrade. For DRIP investors with shares held with a transfer agent, this presents a problem. A common practice among DRIP investors is to buy partial shares with no commission through the share purchase plan of the DRIP. When the investor has enough in dividend payments to cover the purchase of at least one whole share per dividend payment they will move the shares to their broker and DRIP the shares through the broker’s synthetic DRIP. They typically do this because you have more control over your investments if they are held with a broker versus with a transfer agent in a DRIP. For DRIP investors Questrade probably isn’t the best choice because they charge you so much to move DRIP shares into the account.

Related article: Pros & Cons of a Traditional Dividend Reinvestment Plan (DRIP/DRP) with a Share Purchase Plan (SPP)

I try and keep total transaction costs below 1%, so naturally I had to start looking for a broker that would allow me to transfer shares electronically or deposit share certificates without a fee. Not surprising, in my opinion, most brokers will not charge you a fee when depositing a certificate or transferring shares in from a transfer agent. This left me with a variety of brokers to pick from. I knew from the start that I wanted a big six (the big Canadian banks) broker. Having an existing relationship with one of the big banks can help with other finance and investments decisions down the line (mortgages, loans, financial planning, etc.). I also like having the ability to walk down the road and into an actual brick and mortar branch.

A lot of the big six discount brokers used to have high trading commissions ($20-$30 per trade), but one of them (I think it was RBC) recently lowered the price to $10 per trade and most of the others followed shortly after. Now most offer $10 trades. With commissions at much more reasonable rates it became less about price and more about other factors. I ended up picking TD Waterhouse for a number of reasons.

Before I get into specifics it is important to understand that I plan to use this new account in conjunction with Questrade. If you are just starting out and looking for one broker, I wouldn’t necessarily recommend TD Waterhouse right away because they don’t have a dual currency TFSA, and a few other reasons. If you don’t have traditional DRIPs and don’t plan on going that route, then I will usually recommend Questrade as it provides the best value in my mind for someone looking to open multiple accounts (cash, margin, TFSA or RRSP). In my case I was only looking to open a margin account which is why TD Waterhouse’s TD Direct Investing discount broker appealed to me.

Reasons I picked TD Waterhouse:

  1. Research:  They have the best research tools of any of the brokers in Canada. They have a large library of industry and stock reports. Most notably I’ll be able to access S&P stock reports. With Questrade I have access to Morningstar reports and data which is good, but it is nice to have a bit more. I like to research stocks so the more information I have available the better. Ideally I’d like free online access to Valueline, which I consider the best source of information for stocks. No brokers that I know of offer this however. Valueline provides 3-5 year dividend growth estimates for each stock they track. I’m always looking for information on future dividend growth as it is so central to my investing plan. This is why I like Valueline so much. I don’t think free online access exists for Valueline, so I’ll have to settle for S&P in the meantime. I will point out that you can read Valueline’s weekly reports for free at most public libraries, but you can’t take it out of the library and I would rather online access for ease of use.
  2. Price & Fees: I already mentioned that most brokers are offering trades around the $10 mark, so cost wasn’t a big factor here, but it did play a part in the decision. A few months ago trading costs were closer to $30 at TD. If this was still the case I would have picked a different broker. A lot of brokers have an annual or quarterly fee they will charge for inactivity or if your account is below a threshold. To avoid the inactivity fee (I don’t trade very often, and don’t plan to much in this account) I have to have a portfolio value of greater than $15,000. I was planning on moving a few of my Canadian DRIPs over and consolidating my Bank of Nova Scotia position in this account. When this is complete it will be over the $15,000 threshold, so no issues here.
  3. Dual currency: I’m always trying to keep transaction costs and fees to a minimum. You can lose quite a bit in currency conversions, so I wanted a Canadian and US dual currency option. This way if I have a US company, the dividend will remain in USD and I won’t lose some of it to conversion fees. (FYI: TD offers a dual currency account for its margin account, but it doesn’t currently for TFSA, not sure about the RRSP.)
  4. DRIP discount: If the DRIP offers a discount TD will match it. This is a nice bonus, as I plan on having this account mostly enrolled in synthetic DRIPs.

The main reason I picked TD was their high quality of research tools available. As I don’t plan on trading a lot in this account, trading costs didn’t factor as much into the decision. When I picked Questrade, their $4.95 trading commission was a key reason why I picked them. Because I’m blogging the additional research resources are always useful too. The rest was icing on the cake.

What do you think of my broker decision?

 

Photo credit: Grant MacDonald / Foter / Creative Commons Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0)

17 comments to Why I Opened A TD Direct Investing Account

  • RICARDO

    I have been using CIBC since I went to self administered RRSP’s (RRSP & LIRA). When I started the fees were, as you mentioned, rather high at approx $29 per transaction, both buy and sell, so that was a fairly heafty amount of money for a relatively “small” amount of money at the time. CIBC now charges $6.95 per trade which is the lowest I have seen so far. Needless to say this has significantly reduced the percentage “lost” in transactions. You don’t get to recoup any of the fees within registered accounts. At least on non-registered accounts the fees are an expense which can be declared against any capital gains. Having your trading account within your banking institution can be advantageous at times. They are much more likely to accept and rectify any small inconveniences that can occur like charging too much for a transaction. Also they want to grow your business with them through loans, etc. so agian they can see what you are worth to them at present and may offer a better rate.
    Having said all that it still behoves you to keep an eye on the competition for better pricing and if necessary ask for better rates from your bank. I have got my HELOC down to three percent by listening to the radio and bringing my bank’s charge out rate to their attention (as though they did not know). Just like the telephone companies, they don’t always offer you the best rate, you have to ask for it. Just one of my stock’s dividends now pays for my HELOC interest. The other dividends from the other companies goes towards the principal. The more I pay down the HELOC the more I can borrow and diversify and the more the bank likes me. As long as my investments can pay off the interest charges as well as some of the principle I am quite happy. My net worth keeps building free of charge so to say. If things reverse and interest rates go up then it will be time to revisit the HELOC. In the mean time I am riding on the banks “low” rates and low transaction fees to increase my net worth.
    As usual, better be careful with borrowed money. It can benefit you but it can also turn around and bite you

  • If you are in the GTA you can get free online access to Valueline. I use it all the time and it is fantastic that the TO Library offers it online through the library’s website. They throw in a whole bunch of other value lines services as well. I mostly just use their financial safety rank and ratings to sift out risky stocks but I also use the tear sheets and screens they run to get ideas.

  • Also I noticed you mentioned dual currencies. Are you using Norbert’s Gambit to get the best deal on USD? Questrade charges a ~2% fee to officially change CAD to USD but they’ll do Norberts Gambit for the cost of an ETF trading commission. Not sure about the situation at TD but I imagine they also have stupidly high fee’s and terrible spreads on the currency exchange but I could be wrong.

  • Paul N

    I have always used TD.

    When you have a certain amount of overall assets banking and trading you save a lot of transaction / account charges. Make sure they look at all your banking as a whole. These days it seems banks really hit people with little annoying fees everywhere. I pay zero fees. Except my trade fee.

    When you phone into “fundsmart” I have always been treated really well by their staff. I remember making my first trades I was really worried of making a mistake. I’m sure the call was boring for them but they were very patient with me several times. You can ask any novice question and they answer it. From time to time they have free seminars on how to utilize their tools, I haven’t been able to go to one yet but I would really like too one day.

    My only complaint is there should be a separate sign in for the “tools + research” portion of the waterhouse screen with a password that does not link to your banking side. That way you can walk away from your computer and not have a possible security issue if you are multitasking (maybe at work) and do some research between work or lunchtime.

  • henry

    I’ve been with ShareOwners since 2008 and though they only allow one to buy stocks from a list of companies which meet their growth criteria, I like the service they provide. I’m retired and am 100% in dividend growth stocks (no bonds or preferred’s). All the stocks I’m interested in are offered by ShareOwners. Their trading fees are a bit higher than most, ($19.95 immediate and $9.95 group), but they do re-invest all dividends (any amount) and purchases partial shares. As I don’t trade very often and only invest larger amounts I can live with the costs. They also handle RRIF accounts which I like.

  • Louis

    Re: TD

    Good choice with the research. The annoying thing is TD *still* has a synthetic USD RRSP account. Meaning that if you DRIP US securities in your TD USD RRSP account, you actually lose a bit each time because the dividend will get converted to CAD, then back to USD for the reinvestment. As many investors are starting to have large portions of their RRSP in USD and DRIP, this is something that has been requested of TD many times for years but they still claim they are working on it. I believe RBC and maybe BMO now offer true USD RRSP brokerage accounts.

    I am not sure about the treatment of USD in their TFSA accounts, but don’t really see the point of holding USD securities in a TFSA vs. RRSP because of the differing tax treatment.

    Re: Ricardo on CIBC Investor’s Edge

    The $6.95 per trade is “loyalty pricing” that is available if you have over $100K in household assets. It’s pretty easy to qualify for this since you can include mortgages, LOCs, and all types of accounts at CIBC. But important to note that it’s not available to everyone, normally $9.95 per trade.

  • Louis

    Should add that Questrade also has a true USD RRSP account besides RBC and maybe BMO.

  • Richard

    Superb article, DGI&R! You’ve yet to disappoint! Can’t thank you enough for the “heads up” re Questrade transfer fees!

  • Paul N

    @Henry

    I just noticed your comment. It seems like you never stop learning when you are interested in investing related subjects. That’s a very interesting service you found there never heard of it before. $40 fee per month for accounts over $100K. Funny that is the first time I have heard about that even though I have seen the subject of fee’s discussed on many a blog. That looks to be pretty fair a price for true active management of your portfolio.

  • Bob

    I hadn’t previously heard of TD offering to match DRIP discounts. Do you know where I can find more information on this? I don’t see this mentioned on the TD website.

  • NHK

    I agree with you on your Questrade issues. I’ve also been whacked with surprise fees and have now stopped using Questrade. Another thing that annoyed me was having to do huge software updates (for their IQ Edge Platform) on a frequent basis, sometimes weekly or so.

  • Len Petry

    I agree wit choosing TD, ad like others wait impatiently for them to offer true USD trading in RRSPs.

    I disagree with choosing Questrade. TERRIBLE service!!!!! (repeat exclamation mark twenty times.)

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