Experts believed it would only be a matter of time before free commissions on buying and selling stocks would become the norm in Canada, but Canada’s big banks haven’t followed suit, despite competition from other brokerage platforms that offer “zero dollar” commissions.
In Canada, Wealthsimple, of which Power Corporation is the largest shareholder, has not charged fees on stock and exchange-traded mutual fund (ETF) transactions since 2018. When National Bank and Desjardins followed suit in 2021, many experts anticipated that the decision of the two Quebec institutions would have a domino effect on the five major Canadian banks (RBC, TD, Scotia, BMO and CIBC), which has not yet happened.
The fees of online brokerage platforms affiliated with major Canadian banks vary between $5 and $10 per transaction. Some have targeted promotional offers: for example, free for a limited time after opening a new account, a number of free transactions on the mobile application, free transactions for ETFs only or free for investors under the age of 25.
Free stock transactions have been a convincing selling point, according to a study by the firm ISS Market Intelligence, unveiled at the end of December. Together, Desjardins, National and Wealthsimple captured almost half of new brokerage accounts opened in the 12 months to the end of June 2022.
The appeal is particularly strong among younger do-it-yourself investors, says ISS Market Intelligence Associate Director Vince Linsley. He points out that 44% of accounts held by someone under the age of 35 are with a broker that does not charge commission fees on the shares. This proportion drops to 15% for those over 35 years old. “I was curious and I discussed it with younger members of my team and the commission fees, it’s really something very important to them,” he says.
The strategy has “worked very well” for National Bank, according to its president and CEO, Laurent Ferreira. “For all the accounts we have opened outside Quebec, more than half of the customers have also opened a bank account with us,” he said during a presentation at an event on the banking industry. last week. As a gateway to the National Bank, it was a marvelous tool. »
In one year, the National has succeeded in compensating for the absence of commission income by other sources of income related to the acquisition of new customers. “It took longer because the brokerage market slowed down in 2022,” after the euphoria of the pandemic where people saved more and had more time at home to learn about self-directed investing.
At Desjardins, we declined to comment, believing that the results of its strategy are confidential and strategic information.
The big banks are waiting
Although some of the brokers associated with the big five Canadian banks (RBC, TD, Scotia, BMO and CIBC) reacted to the National Bank and Desjardins offensive with targeted promotional offers, none of them followed suit. not with the widespread free transactions on stocks and ETFs.
Despite eroding market share for account openings, major Canadian banks and fee-based platforms like QTrade and Questrade continue to host the overwhelming majority of do-it-yourself investors’ assets under management, 93.4%, according to the report. ISS Market Intelligence study. “The big banks have such a big market share that they’re probably hesitant to give it up as the first to jump in because they’d lose a lot of commission revenue,” Linsley said.
When Desjardins and National announced in 2021 that they were scrapping stock transaction fees, the founder and CEO of personal finance app Hardbacon, Julien Brault, expected the big Canadian banks to do the same. “Perhaps National Bank and Desjardins have not gained enough market share in the rest of Canada, where they are less well known, to encourage the big banks to move,” he supposes.
Mr. Ferreira also acknowledged that the National Bank had tempered its promotional efforts, despite its new pricing, because its brokerage platform did not yet have a mobile application. [un service jugé important par de nombreux jeunes investisseurs]. “Our app was released in December. »
The big banks have such a large market share that they are probably hesitant to give it up by being the first to jump, because they would lose significant commission income.
At Scotia and RBC, they claim to continually review the fee schedule and believe they offer quality and competitive service. The other three banks did not respond to our questions before publication. Pricing isn’t the only consideration when choosing a broker, RBC Bank spokeswoman Jessica Assaf said in an email. She gives the example of research, the tools offered on the platform and the fact of having a functional mobile application.
Mr. Brault invites independent investors to analyze all brokerage platform fees before choosing their broker. He gives examples of fees for clients whose value of their assets does not reach a minimum threshold, fees related to currency conversion or fees related to holding an account denominated in US dollars. Depending on your situation, a broker offering free trades may not necessarily be the cheapest option, he explains.