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.
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:
- 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.
- 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.
- 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.)
- 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?