My beef with Canadian brokerages

As a financial consultant, I work with clients using a variety of discount brokerage services. And if I can be so brash—they’re awful. Simpy awful.

Discount brokerage accounts fail the average investor because they don’t answer the simplest of questions:

1. What have I deposited into this account?

2. How much money have I made or lost?

3. What’s my percentage of return relative to some kind of benchmark?

What on earth am I missing here? What’s so hard about this?

I’ve used the following brokerages in Canada: CIBC Investors Edge, RBC’s Action Direct, TD Waterhouse and Q-Trade.

The first three are brutal. Investors using them are completely in the dark with respect to how they’re performing unless they can track their performances with alternative software, but who wants to do that?

It’s a pain in the rear to make a purchase through a discount brokerage, wait until the next day to see what price you paid, see the confirmation of the purchase on that following day, and then enter your trade into software that will track your performance.

The most impressive brokerage by far is Qtrade

They answer all of the above questions—and so they should.

For Americans, Vanguard is fabulous, (I definitely enjoy using it) but I think Canada’s Q-Trade even has Vanguard’s brokerage beat. QTrade will reveal your monthly performance, quarterly performance, and annual performance—while comparing each of these to a major benchmark.

As for the other big Canadian brokerages, they fail investors.

The closest they get to showing performance is with their comparative “book value” and “market value” information. You might think that an investment’s book value represents an amount that was deposited into the account, and that the market value is what the current value is.

Unfortunately, this is a terrible measurement of performance. Dividends or bond index interest, for example, get added to “Book value” so an investor can actually have a strong gain over a ten year period, but the brokerage might not show a difference between their book value and market value.

Why do the investors who use RBC’s Action Direct, CIBC’s Investor’s Edge and TD Waterhouse put up with this?

Can we pressure the big Canadian banks to show investors’ performances?

Investors deserve that.

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Millionaire Expat: How To Build Wealth Living Overseas. My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions.

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1 Response

  1. I couldn't agree with you more, Andrew.

    I use RBC Direct Investing (formerly Action Direct) mainly because I have been an RBC client since birth, and have been using the discount arm for about 10 years. I also find it useful to see all accounts on one page. But they do fall short.

    The book value:market value "gain" annoys me beyond belief, so I plug everything into a Globeinvestor portfolio and call it my "real return portfolio." I manually enter each reinvested dividend and give it purchace price of $0.00001 (it won't allow a price of $0.00). It makes a huge difference on longer term holdings. Because I have 3.5 years of reinvested dividends, the real return on one holding is about 45%, yet RBC tells me I am only up 13%.

    They have been making a lot of changes recently, though. They now show return over time in graph form and allow you to compare that to an index. They have an announcement up now that says tools to rebalance etc will be coming soon. They don't go far enough, though… I don't know why, but they only have this graphing option going back to January 2009.

    Hopefully they will soon address the other problem you mentioned, which is having to wait to see how much you paid for a security.

    Though I know the shortfalls, I guess I suffer the same psycholgical problem as many people: a preference to the known.

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