A bank-owned Canadian online broker has finally matched commission-free deals long available to US investors, pressuring rivals to follow suit.
National Bank Direct Brokerage, a medium-sized company on the rise in my annual broker rankings, has eliminated commissions on online trades in Canadian and US stocks and ETFs. There are no fine print. In any type of CDBN account, registered or non-registered, you can buy and sell stocks and ETFs listed on North American exchanges with no fees and no minimums.
The old NBDB commission was $6.95, at the lower end of a price range that rises to just under $10 at major banks such as TD Direct Investing, RBC Direct Investing and CreditLine. BMO stock. Other players such as Questrade and Virtual Brokers charge less, but you will still pay at least $2-5 per trade.
NBDB joins the Wealthsimple Trade investing app to offer commission-free trading, but the two offer a very different investing experience. Wealthsimple Trade is primarily a stock trading platform on your smartphone, although there is also a web service. The appeal is primarily for investors who do everything on their phone and active traders who know what they want and need little data and in-depth market research.
CDBN works according to the usual rules of online brokerage, which means that there is no advice to clients. But it is much more of a full-service operation. You can buy bonds online, view analyst research from National Bank Financial and Morningstar, and monitor your portfolio’s diversification and performance.
No commissions came to the US market when the Robinhood trading app was founded in 2013. Online brokers such as Charles Schwab eliminated commissions in the fall of 2019, a development that was only met with cricket sounds in canada.
The obvious question raised by NBDB’s decision is whether its competitors will match it. CDBN President Claude-Frédéric Robert noted that it took years for US brokers to match Robinhood, but Schwab’s move immediately brought other brokers to heel. “Hopefully our [pricing advantage] will last more than a day,” he joked.
The move to zero commission at CDBN comes at a crucial time for an online brokerage firm that was overwhelmed in late 2020 and early this year with new clients eager to participate in the pandemic equity bull market. The stock frenzy has died down, posing a challenge for brokers to attract new customers and keep all of their existing customers interested, active and loyal. The lack of commission gives CDBN a strong competitive edge for cost-conscious investors.
Aggressive cost competition is a whole new look for Canadian brokers, who have historically charged more than US online brokers. The last time fees changed significantly at large, bank-owned companies was about seven years ago, when RBC Direct Investing introduced a flat fee of $9.95.
Trading commissions have traditionally provided a significant portion of the revenue generated by online brokers. Robert said CDBN will rely on revenue generated from various account fees, lending money to customers to buy stocks (margin loans), exchanging customer money to and from US dollars and interest generated on customers’ cash balances. A marginal amount of revenue comes from routing trades of a small number of US stocks to various market participants, he added.
Commission-free trading should appeal to ETF investors as well as investors who prefer stocks, although ETFs can already be purchased free of charge through several companies. Questrade and Virtual Brokers charge nothing to buy ETFs and regular commissions to sell. BMO InvestorLine, Qtrade Direct Investing and Scotia iTrade have a limited list of ETFs that can be bought and sold free of charge. Prior to Monday, CDBN offered commission-free ETF trading to clients purchasing at least 100 stocks.
If you are a client of a broker who charges commissions, you now need to answer a few questions: how much do you pay in total to trade stocks and ETFs, what is the impact of this cost on performance and is it Justifiable in light of the value you get from your broker with tools and resources to manage your portfolio?
CDBN is betting that many people will do this analysis and be open to change.
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