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 prices 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 Me – A Dividend Investor

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 $50,000 or $100,000 you have fees of $9.99. 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 ScotiaITrade were $9.99 and with RBC Direct Investing they will be $9.95.

A draw: both ScotiaITrade and RBC Direct Investing are similar for my account size.

RRSP & TFSA Dual Currency

A very important requirement for my portfolio. If you think about it, Canada represents a small percentage in the world economy so it’s important to diversify. 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 those massive 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.

RBC Direct Investing Wins. ScotiaITrade offers this feature for a quarterly fee whereas RBC offers it as a standard option.

Synthetic DRIP

DRIPing is a major part of my strategy so it’s an important factor to consider. ScotiaITrade 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.

A draw: both ScotiaITrade and RBC Direct Investing offer synthetic DRIP.

DRIP Discount

The discount on the DRIP plan is a very nice added bonus. 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.

A draw: both ScotiaITrade and RBC Direct Investing offer DRIP discount.

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 ScotiaITrade, 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.

RBC Direct Investing Wins. ScotiaITrade assess the fees based on the trader and not the account.

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.

A draw: both ScotiaITrade and RBC Direct Investing offer research. I was happy with the ScotiaMcLeod research so I’ll have to spend some time looking at the research RBC offers. 

Portfolio Tools

One important aspect I believe in investing is to measure your performance. 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 time and it is a bonus that I am quite happy with. Especially when it comes to comparing the performance with an index. Who knows, I may just do what Andrew Hallam did and sell all my stocks one day and buy index funds

RBC Direct Investing Wins. ScotiaITrade has no such tools.

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 as advertised on their site but I am comparing my experience through my email communication.

A draw: both ScotiaITrade and RBC Direct Investing offer good customer service. All my emails are answered within 24 hours.

Results

As you can see, I favor RBC Direct investing at the moment. It doesn’t mean that down the line feature improvements aren’t going to make me go somewhere else based on my needs at the time. RBC Direct Investing is my fourth discount broker. I started with InvestNat in my early 20′s, then I used ScotiaMcLeod and then I moved to ScotiaITrade (e*trade) until now.

Before you ask, I eliminated the following for the reasons outlined.

• BMO InvestorLine only provides a limited list of companies for DRIP – I want all of them
• TD Waterhouse doesn’t provide a US account within an RRSP or TFSA account
• ScotiaITrade provides a US account within an RRSP or TFSA account with a quarterly fee – I pay enough fees
• Questrade doesn’t offer DRIP discounts and it lacks in the tools and research area – I admit that it was on my short list. A great discount broker for anyone starting with investing.
• Others are eliminated for not providing research from a wealth management firm

Readers: Who are you with? and what do you like about your discount broker?

In short, my Money Tips Newsletter will have one or more of the following:

• Monthly topic
• An update on my dividend portfolio
• Links to popular articles and resources
• Reader’s Question & Answer

Worthy Readings

For all investors, if you are looking for pre screened lists of dividend stocks take a look at the DSO top dividend stocks premium membership.

• Bank Nerd with ‘Should You Contribute to Your RRSP or TFSA?‘
• Beating The Index with ‘Investing in Canadian Well Completion & Drilling Companies‘
• Canadian Finance Blog with ‘If I Had A Million Dollars‘
• Dividend Guy Blog with ‘Heinz HNZ Dividend Stock Analysis‘
• Dividend Ninja with ‘Five Reasons Why I Love REITS‘
• Dividend Monk with ‘Newsletter Launch‘
• Dividend Growth Investor with ‘Abbott Laboratories (ABT): An attractively valued dividend aristocrat‘
• Finance Fox with ‘Enabling vs Helping – The Difference‘
• Invest It Wisely with ‘How I Quit My Job, and What I Plan to Do Next‘
• My Own Advisor with ’Why we optimize, do not maximize our RRSPs‘
• Million Dollar Journey with ‘Top 5 Asset Allocation Strategies‘
• Retire Happy Blog with ‘Is retirement a honeymoon?‘
• Sustainable Personal Finance with ‘The Importance Of Having A Will‘

Also Featured In

I am hoping to see this list grow over time. For now, I am starting with a couple.

• A couple of weeks ago, my Smith Manoeuvre post was featured in a daily personal finance email from Rob Carrick from the Globe & Mail.
• Canadian Finance Carnival #74

Have a nice weekend!

Foreign Exchange Scenarios

Currency For Trip

Be it a family vacation, a personal or a business trip, going to a foreign country usually requires funds in the countrie’s currency for your day-to-day spending. In some cases, your VISA or Master Card can cover many of the expenses but having cash on hands is beneficial too. In those cases, the cost of exchanging your money doesn’t add up to a large amount. Some will use the banks but when available near you, a currency exchange office will tend to beat the bank’s exchange fees. However, I would avoid the airport’s currency exchange as they tend to know you are desesparate

Foreign Investments

This is a common one for Canadian when we want to add some U.S. stocks to our portfolio. Something I do in my RRSP account. In the case of foreign investments, the amount of money that one will convert from one currency to another can be relatively large leading to higher cost in fees. This is where you start to really think about the savings you can have by finding better rates. A really small percentage can really add up

Moving To Another Country

Aside form the major life style transition, you need to think about possibly move large amount of money into another currency. I have many co-workers that have moved from Europe to Vancouver for work and many have actually used a forex platform.

My Foreign Exchange Needs

As it turns out, I work for a U.S. corporation and aside from my pay being in Canadian dollars, any stocks I get are in U.S. I know many others are in this situation too and it basically requires us to move money around in either currencies. I already tried the Norbert’s Gambit and I can’t say that I will use it regularly with my current discount broker.

My Foreign Exchange Process

Here is what I currently do:

1. Wire transfer the proceed from my company stock account to my U.S account at my bank
2. Get a bank draft form the bank (free of charge)
3. Exchange my bank draft at a local currency exchange office offering the best deal I can get
4. Deposit the cheque at my back (no hold on the cheque)

Forex Platforms

There are many forex platforms out there and it’s not always clear what you should look at to be honest. We see many reviews about discount brokers but not much about forex platforms. I know that Interactive Brokers does forex, if you use it as a discount broker, but they have monthly fees for having an account. I also found XE.com based in Canada but the lack of reviews and the requirements for a U.S. account in the U.S. are demanding.

This is an area where I lack experience and I am definitely not here to highlight what platform is best but I have a need for it to save a buck So readers, do you have any experience with a forex platform that you would like to share?

Image: cooldesign / FreeDigitalPhotos.net

Dividend Income

My dividend income for February 2012 is $474.04. I am quite happy to see I am nearing the $500 per month. The only contribution I have done recently is $300 towards Telus and BMO in my Computershare account. If you did not know, CIBC Mellon no longer operate as a Transfer Agent and has sold their operations to CST (Canadian Stock Transfer). I have attempted to purchase $600 worth of Enbridge (through CST) and I am waiting for my cheque to go through and see how efficient they are. I am quite far being with my holdings with CST compared with Computershare.

Dividend Paying Holdings

• Bank of Nova Scotia (BNS)
• Bank of Montreal (BMO)
• Canadian Imperial Bank of Commerce (CM)
• Sun Life (SLF)
• Telus (T.A)
• Bell Canada (BCE)
• RioCan (REI.UN)
• Transcanada Pipeline (TRP)
• TransAlta (TA)
• Fortis (FTS)
• Emera (EMA)
• Enbrdige (ENB)

Image: Simon Howden / FreeDigitalPhotos.net

Norbert’s Gambit

The concept is pretty simple as it simply requires you to buy an inter-listed stock on one stock exchange and sell it on the other stock exchange. Many Canadian corporations are listed on both the Toronto Stock Exchange (TSE) and the New York Stock Exchance (NYSE) (and other US exchange where applicable) providing you with a large variety of companies to execute the process with. While the process can be described in one sentence, the execution requires a number of steps that you should be aware of.

Steps-by-Steps

1. Buy a stock that is inter-listed. For example, you can use Royal Bank (RY), or many of the major financial and resource corporation on the TSE.
2. Wait until it settles. That’s a few days at least depending on your broker.
3. Journal your stock from the exchange you purchase it to the other. You can go both ways here. The journaling process should be supported by your broker but you should find out before you do so. Journaling may require you to call your discount broker to execute as well.
4. Sell your stock on the exchange and voila, you have your funds in the new currency.

Pro’s

• Obviously, you get to keep more money to yourself and that’s what matters. Your foreign exchange cost amounts to your 2 transactions.

Con’s

• The execution can take some time. Since you are dealing with business days, the process will take over a week just waiting for the 2 transactions to settle. If you need to transfer the money to your bank account, you can add more time depending on the process with your discount broker. It took almost 2 weeks for me to get through the full process when I did it. Note that different discount brokers can offer different timing of execution. Make sure you contact them.
• Since you are buying a stock, there is always a risk that the price will go down. It doesn’t take long for cents to cost you more than the foreign exchange cost the banks or your discount broker have.

Thoughts

I tried the Norbert’s Gambit last year and it took some time to get through the process. I wasn’t in a rush but the possible swing in stock prices were less than desirable since I wanted to cash out the money. If you plan on keeping your funds invested, it can certainly be an option, otherwise there are other alternatives to foreign exchange. Note that the banks are by far the worse in terms of exchange fees.

I read a recent article on Money Sense by Dan Bortolotti sharing what is possibly an easier way to execute the Norbert’s Gambit with ETFs.

Readers: Have you tried the Norbert’s Gambit?

Image: cooldesign / FreeDigitalPhotos.net