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Email this7:51 am
September 15, 2017
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"bit uncomfortable (esp when I write the check to the broker instead of to the issuer direct)."
savemoresaveoften - Your cheque should not be payable to the broker. It should be payable to the FI or to yourself.
7:56 am
November 7, 2014
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I 100% agree! Never write a cheque to the broker. If you already have done so, get immediate direct confirmation of the GIC from the FI that you invested with.
7:58 am
October 21, 2013
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In my dealings with deposit brokers I have never written a cheque to the broker, nor have I ever been asked to. As GR indicated, my cheques have always been written to myself or the issuer.
8:16 am
March 30, 2017
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Loonie said
In my dealings with deposit brokers I have never written a cheque to the broker, nor have I ever been asked to. As GR indicated, my cheques have always been written to myself or the issuer.
ok, good to know and I will keep that in mind. So far I have only bot 3 GICs but same issuer, and the broker mentioned write the check with the issuer's name on it. Maybe I was mistaken/misheard but the broker mentioned the name on the check depends on their agreement with the issuer, and some issuers have clearance agreement with them and I write the check to the broker instead (or it actually means write the check with my own name on it ?) Yeah I wont feel comfortable at all writing a check to the broker. Most brokers are just a handful of people (if that) and certainly a sense of unease no matter how long they have been around.
8:34 am
April 6, 2013
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Customary deposit brokerage commission is ¼% per year of the GIC's term. So, selling GIC's is not a highly lucrative business.
A deposit broker placing $40 million of GIC's a year is only going to gross around $100,000 a year. The broker is not going to be able have a staff of 50 plus the office space for $100,000 a year.
9:38 am
October 21, 2013
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Norman1 said
Customary deposit brokerage commission is ¼% per year of the GIC's term. So, selling GIC's is not a highly lucrative business.A deposit broker placing $40 million of GIC's a year is only going to gross around $100,000 a year. The broker is not going to be able have a staff of 50 plus the office space for $100,000 a year.
You did not include in your clculation the income form subsequent years of the GICs.
In addition, all the deposit brokers I've dealt with run additional businesses from their premises, such as life insurance. Monarch Wealth has quite a fleet of enterprises, investment options.
I don't think we have any idea how many dollars worth of GICs they sell. They do have large corporate clients.
I don't think they are suffering financially!
11:32 am
April 14, 2021
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You are right that many brokers are doing it as a side-line option for their wealth management clientele.
7:35 pm
April 6, 2013
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I didn't forget about the commissions in subsequent years as there is no commissions for the rest of the GIC term.
For placing a five-year GIC, the deposit broker will receive 5 x ¼% = 1¼% up front and nothing for the rest of the five years. It is effectively ¼% for each year the broker is able to keep the funds placed.
If a broker were to place $1 billion in GIC's, then it would be $2.5 million per year gross and lucrative. However, it is not a small challenge for a broker to find the clients with a total of $1 billion of investable funds.
As HermanH describes, GIC brokerage is usually a side business to something more lucrative.
9:43 pm
October 21, 2013
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You posited that the broker would sell $40 million GICs in a year, and that he would earn .25% per year of the term. Then you said he would earn only $100,000. The only way this could happen is if you were only counting the first year of the term or if he only sold one year terms.
However, if he gets 1.25% on that 40 million, his income is $500,000.
Presumably he doesn't stop there, so, the next year he sells another 40million, and so on.
The way I read it, his income could be $500,000 annually and is never unlikely to be only $100,000.
Yes, I did mention that they have other businesses from which they draw income in addition to the deposit brokerage. They're doing fine.
I have quite a bit of respect for deposit brokers. In my experience, they do exactly what they say they are going to do, and none of them has ever tried to sell me another one of their products.
11:13 pm
April 6, 2013
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Loonie said
…
However, if he gets 1.25% on that 40 million, his income is $500,000.Presumably he doesn't stop there, so, the next year he sells another 40million, and so on.
The way I read it, his income could be $500,000 annually and is never unlikely to be only $100,000.…
The $40 million of five-year GIC's that generates $500,000 this year won't generate anything until they mature and rollover five years from now. The broker needs to place $40 million of 5-year GIC's each year for the next four years before the ones placed this year mature and rollover to generate another $500,000 in commissions.
To earn a sustained $500,000 annually selling five-year GIC's, the broker will have to develop a GIC book of 5 x $40 million = $200 million.
It is not a small feat to find a group of clients with $200 million of investable funds.
8:05 am
October 21, 2013
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I don't see much point in continuing to discuss this as you keep introducing new assumptions and parameters.
10:57 am
April 6, 2013
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There's no new assumptions.
If the commission is ¼% per year, then one needs to have a $200 million book of placed GIC's to average $500,000/year of commissions over the years.
That the broker is lucky and sometimes gets to collect 5 x ¼% = 1¼% in a single year, instead of being spread over five, when clients commit to a five year GIC doesn't change that $200 million number.
12:55 am
October 21, 2013
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A careful reading of your several posts will illustrate my point.
I just can't be bothered arguing about this any more as it's really a very trivial question.
7:32 am
September 15, 2017
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GIC rates with brokers/agents for Home Trust/Home Bank are now higher than direct purchases with Oaken for 2 to 5 years. This is unusual, especially:
2 yrs. 2.71% v.s. 2.60%
3 yrs. 3.02% v.s. 2.90%
This is another indication that Oaken's GIC rates should be moving up.
(source: Fiscal Agents chart March 18; min. $5k.)
10:56 am
October 21, 2013
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I agree that Oaken rates should be going up, and probably will be, as EQ or Peoples Group are now outpacing them.
However, some (all?) agreements between FIs and deposit brokers have non-compete clauses whereby the FI agrees not to make (the same or?) better offer direct to customer while the broker offer is in effect.. I was told this by a broker.
I wonder if we are seeing a shift in the industry. For the last several months, brokers have fairly consistently had better offers than we could get elsewhere. In the past it has been more sporadic. Perhaps FIs are finding it easier or more convenient to rely more on brokers, especially with pandemic-related labour shortages and offices closed or people not wanting to go to them. It may be easier or cheaper to farm out the sales function for a while. I recall that WealthOne closed down at least one of its retail outlets, and they are now customers of the brokers. This may be temporary but it may also have longer term implications.
11:12 am
March 30, 2017
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Loonie said
However, some (all?) agreements between FIs and deposit brokers have non-compete clauses whereby the FI agrees not to make (the same or?) better offer direct to customer while the broker offer is in effect.. I was told this by a broker.
That makes total sense. Otherwise why bother with a broker.
However, down the road, FIs may find it equally good just to source their own GIC investors and save at least 25bps. This is similar to how a few big banks get rid of mortgage brokers few years ago.
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