Estate Planning to avoid merging of registered funds to exceed CDIC $100,000 | Page 4 | Investing | Discussion forum

If the GIC rates at discount brokerages have historically been so terrific, why have they not received significant (or any?) attention before on this forum? I've been here 10 years and I can't recall them ever being mentioned.
If it were all so cut and dried, we wouldn't have much left to talk about.
Seems very odd that Bill would have missed such an opportunity to tout the big banks.
Accordingly, I am not prepared to believe Bill's claim on his say-so, and it would be nigh impossible to prove or disprove it now.

I have my own theory about why these rates may be temporarily high. Markets are sluggish; the brokerages are determined to hold on to your money with the expectation that you will reinvest later, so they negotiate these higher rates with issuers specifically for these accounts. Brokerages wouldn't be in business if they couldn't look forward to keeping your money for a riskier investment later; that's where they make their money.

Someone is going to say the rates are higher than at the branch because of costs. I don't find this credible. The primary reason branch service is 'costly' is because of inefficiency: the staff spend most of your time trying to sell you something you didn't ask for. They could make online GIC purchases just as desirable for regular customers as for brokerage ones but they choose not to for reason stated above.
It will be interesting to see what happens when your new GICs mature and markets pick up. If, at that time, you decide to move your money elsewhere due to poor service or crappy rates, well, good luck to you! Every matured registered GIC you transfer out will cost you minimum $150. Hopefully it will arrive in a couple of months.

One other caveat. You can't depend on today's fee schedule to tell you what fees will be in place in a few years or how much. Several years ago I posted a question on one of the big banks' own forums about a particular fee for a registered account. The response was that there was no fee for whatever it was. Within a year, however, this overlooked "fee opportunity" had been addressed and a fee was in place.

As well, any money that leaves a discount broker to be parked in a GIC temporarily elsewhere will come back in order to be invested in stocks. Hubert, Oaken, EQ Bank, for example, don't offer stock trading.

The deposit brokerage business is driven by the needs of the issuer and not of the broker. An issuer, such as MCAN, would not be interested in paying more to subsidize the business development of an online broker such as Scotia iTRADE.

If a deposit broker wishes to offer a better rate, the broker is free to assign some or all of the ¼%-per-GIC-year commission to the client. The issuer will then flow it through to the rate on the client's GIC.

AltaRed said
Those of us who buy our GICs via discount brokerages do so for the convenience of one stop shopping and range of GIC issuers. We abhor the hoops and complications of dealing with individual FIs and are willing to take, most of the time, a slight haircut on GIC yields for that convenience.  

I should have qualified this to say 'especially for registered accounts' where it is more difficult to move money to/from financial institutions. Many of us who have most of our investments in discount brokerages have non-registered funds with one or more of the FIs on the HISA/GIC charts here from time to time, and especially so when HISA and/or GIC rates are significantly better than through discount brokerages. There are threads on Financial Wisdom Forum and Canadian Money Forum specifically dedicated to HISA and GIC rates in the broader financial industry.

Off-tangent Note: This site has an extremely short 'edit' period allowed.

@Norman1:
A year or two ago, before rates started to rise, you posted a series of tables comparing Hubert to something else. I think it was GIC rates and that the others' were discount brokers or deposit brokers. I may have misremembered. Would you be able to find these again? It might be useful in the present discussion to revisit the past. I, at least, would find it interesitng, although it seems that the seekers on this thread may have made up their minds already.

You are entitled to make the decision that works for you, but I have to ask, why on earth are you going with Dominion Securities? I don't always agree with AltaRed, but he has quite rightly warned you not to do this, for good reason. Assuming you are capable of making your purchases online according to your wishes and that all you want to buy is GICs, there is NO advantage to using DS and it is going to cost you a lot of money.
Perhaps you remember the TV ads that a FI ran a while ago (can't remember which one), showing a couple realizing how much they were losing by using an inappropriate arrangement. This is going to be YOU i a year or so, when you realize how much it is costing you. Unless you have well over a million dollars that you are bringing to DS, you can knock at least a full percentage point off your GIC rates, maybe as much as 1.5.
And, as the TV ad pointed out this is an ANNUAL loss.
I'm sure they will want your business. It's a walk in the park for them. Advisor and DS, ka-ching. And when those GICs mature, you can be absolutely certain he will do his best to get you to invest in something riskier, because then he will make even more money off you but you will have no guarantee. That's the way it works.

You can do what you want, and it doesn't matter to me, but I felt compelled to speak up.

Loonie said
You are entitled to make the decision that works for you, but I have to ask, why on earth are you going with Dominion Securities? I don't always agree with AltaRed, but he has quite rightly warned you not to do this, for good reason. Assuming you are capable of making your purchases online according to your wishes and that all you want to buy is GICs, there is NO advantage to using DS and it is going to cost you a lot of money.
Perhaps you remember the TV ads that a FI ran a while ago (can't remember which one), showing a couple realizing how much they were losing by using an inappropriate arrangement. This is going to be YOU i a year or so, when you realize how much it is costing you. Unless you have well over a million dollars that you are bringing to DS, you can knock at least a full percentage point off your GIC rates, maybe as much as 1.5.
And, as the TV ad pointed out this is an ANNUAL loss.
I'm sure they will want your business. It's a walk in the park for them. Advisor and DS, ka-ching. And when those GICs mature, you can be absolutely certain he will do his best to get you to invest in something riskier, because then he will make even more money off you but you will have no guarantee. That's the way it works.

You can do what you want, and it doesn't matter to me, but I felt compelled to speak up.  

Pewter claims DS would be providing an 'fee free' experience for a 'GIC only' account, free meaning other than the embedded commissions that already occurs at DIY discount brokerages such as their sister company RBC Direct Investing. I've never heard of that before but am willing to be proved wrong....that there is no other portfolio management fee.

In either case, the GIC list of issuers and yields are the same at both entities so if Pewter finds an unpleasant surprise at DS, there is minimal effort required to just shuffle over to RBC Direct Investing.

Pewter said

So far from what I have asked the broker has same rates and NO fees. But I hear ya. I am beginning to think to do it online my self.

  

The fee you will be charged is not for buying individual GICs or cashing them. It is an overall fee based on the size of your portfolio, a percentage of your total investments. The rate gets lower as the size of your portfolio increases, but, of course, the actual amount in dollars increases.
You are (supposedly) paying this fee for the broker's advice and for him to place the orders for you.

It's possible he has (deliberately?) misunderstood your question to apply only to transaction fees.
It's possible he chose to assume you knew about admin fees.
It's even possible he plans not to charge you for the first six months or a year as an introductory offer to get your business, I suppose.

Whatever it is, if you choose to go with him, I would ask for a statement in writing on RBC stationery, signed in ink by him and, preferably, his manager, to the effect that you will not be charged any fees, costs, expenses, deductions, reductions, debits, penalties (or any other euphemisms you can think of) for at least five years after opening the account. Then read all sign-up material carefully at your leisure before signing to ensure it doesn't say something else.

Obviously I don't think you will get this, but, if you should, I'm sure we would all be interested to see it.

I can't speak for Bill but for me, if DIY discount brokerage rates are within 15-25bp, and even 50bp, of direct to retail customers, I would say those rates are 'competitive' (all things considered basis) with direct to retail, and I would default to the one stop shopping of DIY discount brokerages. That linked chart shows one would have to 'institution hop' to get the best rates direct to retail, and that would be more challenging with registered accounts. This site is full of threads about people jumping through hoops to move between institutions.

When, and if, GIC rates are the same or better at DIY discount brokerages, and it happens occasionally, then that is the best of all worlds.

From another perspective, the linked chart is an interesting one given its date. It was clearly at/near the bottom of the interest rate cycle and it would be hard to imagine anyone buying term deposits at those rates...no matter where!

And yes, I agree with Loonie that jumping to a discount brokerage just for GICs may well find that person jumping back on direct to retail institution hopping within a year, if not a matter of months. None of us know who will be offering what on a forward basis.

I agree, AltaRed, it depends on what you mean by "competitive". For me that top Scotia iTrade rate on Norman1's chart (as you note, a snapshot at a time when rates were unusually low, no-one was buying) might be considered competitive if it matches the midpoint or so on a list of 25 issuers whereas rate chasers who are always looking for the top rate would likely not consider it competitive at all. Guess I'm lucky, for me whether I got $720 vs $1500 interest (Norman1's chart worse-case scenario) on every $100K GIC wasn't enough to go through the bother of opening an account at a new FI, do the transfer thing, etc, given my tax bracket, interest income needs, etc.

And I was speaking about a 20+ year period, my experience with 3 of the big bank discount brokerages (never used an iTrade account) was that when I checked, which might be a few times a year, I would have been happy to buy the best rate at my discount brokerages' offerings list vs those I found for example on this site. I can't vouch for every single day (which is what Norman1's chart indicates, a one day snapshot) so "regularly" is probably better to say than "always" re my experience in determining whether they were competitive or not. And it's not possible to draw any reasonable conclusions from a one-day snapshot, for example today's iTrade top 1-year GIC rate is 5.46% and it would incorrect to conclude from that that iTrade has been that close to top rates every day for the last 20+ years (Norman1's chart clearly shows that's not the case).

At the end of the day I'd be fine with using a big bank discount broker's offerings if I bought a lot of GICs, the convenience and saved time would be worth the cost, and I'm assuming I'm not the only one. And there would be others who prefer to take the time to chase higher rates, their GIC interest income might be more important to them. The big bank discount brokers are very competitive right now and as long as you have about $15K in family business with the FI (e.g. TD) there are no fees so you can leave the account open and empty for years if you want to buy your GICs elsewhere later. I have discount broker accounts I've never used, for years now. I do agree that full service brokers are not the place to be if you're just into GICs, and the broker doesn't want you either.

Option #2 is still around. Spouse's siblings have RBC DS accounts and are on that option. I was on that option with both Nesbitt Burns and Scotia Mcleod some 25 years ago or so. I've heard that the trend though has been to Option #1 due to ease of administration and probably higher fees.