While the cost of living continues to rise, costs for do-it-yourself investors are falling. Rising competition in the online brokerage space has led to a downward trickle in trading commissions.
And although independent online brokers have led the way in lowering fees, the big Canadian banks are becoming increasingly competitive on this front. This is great news for all fee-conscious DIY investors, but especially young investors, who stand to benefit the most.
Young investors are just starting to build their savings, so they need to get the money invested as soon as they add it to their account, making low- or zero-commission trading important. They also tend to have lower account balances, which means they are more likely to get dinged with account maintenance charges.
Today’s young adults are embracing online investing. As a financial planner, my younger clients – those in their 20s – are choosing to invest online rather than go to their bank or look for a financial adviser like their parents did.
Wealthsimple partners with Canada Post to accept physical cash deposits
This generation is comfortable with the technology, and comfortable using online resources to learn about investing. And because they are savvy consumers who want low fees, they’re flocking to independent brokers like Wealthsimple and Questrade, which have long offered commission-free trading.
As a result, they may be using two or three financial institutions: An online bank for their no-fee chequing account, a traditional bank for their cash-back credit card, and an online brokerage for investing.
Now that more banks offer commission-free trading – TD and RBC recently jumped on the bandwagon – these bank-owned online brokers are more attractive options, giving investors the opportunity to streamline their financial lives by reducing the number of institutions they deal with. Wealthsimple users can do this too, as that company now offers banking products such as chequing accounts and credit cards.
The online brokers tied to the big banks have traditionally been quite pricey. Trading commissions of $10 per trade are still common, and that fee really bites into investment returns for small trades.
To be more competitive, most banks now have a list of ETFs that investors can buy and sell for free through their online brokerage. While there are a limited number on offer, there are enough options that do-it-yourself investors can build a diversified, low-cost portfolio of indexed-based ETFs.
To cut costs even more, TD and RBC have a mobile-only offering that has no account maintenance fees, and more commission-free trades. CIBC offers free stock and ETF trades for investors under 25.
Investing costs are falling in other ways too. Fans of all-in-one ETFs might have noticed that the already low management expense ratios (MERs) on these products are coming down. Vanguard recently reduced fees on their asset allocation ETFs to 0.17 per cent, down from 0.22 per cent. While BMO and Blackrock still have their MERs at 0.20 per cent, TD’s all-in-one ETFs have been sitting a 0.17 per cent for a while.
The costs associated with switching online brokers could also soon decline. The 2025 federal budget proposed eliminating the fee that investment companies charge to move accounts between firms. This will make it easier to switch brokers, although most online brokers will already reimburse you those fees if you transfer a minimum amount of money.
There are, however, still some fees that investors should watch out for. Most of the bank-owned online brokers charge account maintenance fees of $100 a year if you don’t have enough money in those accounts – the minimum is often $15,000.
If you want to invest in U.S. dollars, you’ll pay a percentage fee to convert between currencies. Wealthsimple charges $10 a month to hold U.S.-dollar accounts unless you have at least $100,000 invested with them.
And some brokers charge you to buy and sell mutual funds. It is important to read the fee-disclosure schedule to make sure you understand all of the fees.
Bottom line? It’s never been a better time to be a self-directed investor – brokers are hungry for your business so make sure you shop around.
Anita Bruinsma is a Toronto-based certified financial planner at Clarity Personal Finance.
