How To Switch Discount Broker…

All discount brokers evolve at a different pace depending on how much they want to invest and acquire new customers. Don’t be fool by the marketing though, there is very little disruptive innovations, they just keep up with each other. It’s more of a slow evolution but an evolution nonetheless. With that said, switching is actually very easy.

I did the switch some years ago, and the most difficult part of it was waiting for it to execute. I moved all my investment accounts away from Scotia iTrade to RBC Direct Investing. Interestingly enough, I wasn’t with Scotia iTrade by choice since I previously was with e*trade Canada and I just stuck around after Scotia Bank purchased the unit from e*trade. It was working fine at the time but the discount broker world is very competitive and Scotia iTrade wasn’t matching my needs anymore.

Know What Matters To You

I read a number of reviews about discount brokers and what I found interesting is that most never compared what actually matters for a dividend investor which is the ability to DRIP and benefit from the discounts. Of course, they all talk about the cost of trading and other fees but I also think there are many other factors that are important. The reality is that transaction costs tend to be similar once you reach $50,000 in assets so build a plan based on how you will grow your assets.

I don’t believe you have to pick one and stay the course forever. Some discount brokers are better to start with and others to follow through later in life. It might even be worth it to have more than one discount broker when you can have more than $100K in each.

What Matters To A Dividend Investor

Before switching, you need to pick a new discount broker. Below are some criteria to help you out.

Low Fees

Fees do matter. It’s plain and simple. I am not going to do a review of all discount brokers about fees since the best in fees really is Questrade with $4.95 and everyone else (i.e. banks) compete with each other in terms of fees and once you have more than $25,000, $50,000 or $100,000 you have fees of $9.99 or less. If you really trade a lot or have more assets, they will reduce your fees to $6.99. For details, there are reviews of discount brokers out there. My fees with Scotia iTrade were $9.99 and with RBC Direct Investing they will be $9.95.

RRSP & TFSA Dual Currency

A very important requirement for my portfolio is true dual currency accounts. If you think about it, Canada represents a small percentage in the world economy so it’s important to diversify with the largest economy. Not only that but the U.S. has an economy based on similar principles as us, we heavily depend on them and they have massive world wide conglomerates. My diversification is focused on dividend growth blue chips conglomerates such as Coca-Cola and Johnson & Johnson to name a few. This is where managing currency is important because holding U.S. investments that pay dividends in a Canadian account will go through an automatic conversion. You basically do not control when and how much you pay not to mention that when you come to buy U.S. investments again, you go through another currency exchange. The banks win twice – it’s good if you own the banks.

Synthetic DRIP

DRIPing is a major part of my dividend growth investing strategy so it’s an important factor to consider. Scotia iTrade requires you to reach out to them to enroll your securities in the plan. You can easily email them. RBC Direct Investing does it per account. It’s an option when you open the account. Being able to DRIP shares automatically provides you with a form of compound growth that can accelerate your portfolio growth.

DRIP Discount

The discount on the DRIP plan is a very nice added bonus to your compound growth machine. I don’t think it would have been a deal breaker for me but when you can get a 3% or 5% discount on the weekly average price, you get a good start. If you are in for the long run, the DRIP discount can start to add up when you let the compounding growth machine work its magic. It’s the 8th wonder of the world according to Albert Einstein.

Related: How To Start Dividend Investing With Little Money

Spousal Account

This feature wasn’t all that important until recently. I am now ready to make effective use of my wife TFSA contribution. Since it has to be in her name, I wanted to make sure she could leverage my trading commission. It also makes it easier to manage everything at the same bank since I can use that as a negotiation option. Assets are what allows you to negotiate better terms. My fallback option was Questrade for my wife’s account. With Scotia iTrade, the spousal account doesn’t benefit from a family account. The benefits are only applied when I trade and it’s under my trading authority. It’s sounds like a cheap implementation in their trading platform.

Investment Research

I like to read analysts research on different investments. I don’t necessarily based my decision on the research but analysts can highlight something that I may have missed. For that reason, I like to have a discount broker that provides me with good research.

Portfolio Tools

One important aspect I believe in investing is to measure your performance with good portfolio tracking. If you don’t measure, how do you know what works and what doesn’t. How do you know you are actually making any money? RBC has some tools to assess your portfolio performance over timeand you can use it to compare the performance of your accounts with an index.

Customer Service

I don’t tend to need customer service much and you only miss it when you have a need for it. Rarely is it the crown jewel that makes you switch but nonetheless, it’s good to have. RBC has been ranked #1 in customer service in the past and it rotates between different discount brokers but my experience is through email communication.
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Steps to Switching Discount Broker

The process is simple. Once you have settled on the discount broker you want, you open an account with them and fill the transfer forms.

Step 1 – Discount Broker Selection

Time to make a decision and pick the discount broker that fits your need.

Step 2 – Fill Transfer Forms

The new discount broker always makes the request for transfer. You don’t have to ask your old discount broker. Use the forms from the new discount broker, fill it in, and put it in the mail. In general, you probably can use the in kind option for the transfer and it will all be transfered as is.

You will need to wait for the transfer to complete which can take some time.

Step 3 – Request Refund on Transfer Fees

Closing the account at your old discount broker and making the transfer can cost you some money and in some cases, the new discount broker will cover up to a certain amount.

Summary

As you can see, switching is easy but picking the right discount broker is what probably takes the most time. Take your time to find the right discount broker for your needs and don’t worry about switching if you need to. It only cost you a stamp and time to make the necessary adjustments.

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