LBC reduces its HISA rate to 1.5% | Page 2 | LBC Digital | Discussion forum

Norman1 said

topgun said

That is a one time charge. You purchase a 2 to 5 year GIC at iTrade. iTrade charges the third party .9%. Invest $1,000 iTrade charges the issuer $9. iTrade sells GIC's for 2-5 years. It is not worth selling 1 year GIC since the fee to issuer would be too high.

The customary GIC brokerage commission is paid too one-time and up front. If one buys a 5-year GIC, the deposit broker receives a payment of 1¼% and not a ¼% per year trailer for the next five years.

I guess you had purchased multiple GIC's ranging from 2 to 5 years. The overall 0.9% that iTRADE received may be the combined commissions of ½% to 1¼% on each GIC, depending on its term.  

You are correct.

I purchased 2 to 5 year GIC's. I did not know iTrade charged an up front issuer fee based on maturity at the time.
On my annual performance and fee report. I saw the $135 issuer fee. The total amount was $15,000. $135 /$15,000 = .9%. The fee did not appear on my monthly statement when I purchased them.
I did the calculations based on each term * .25% * principle. Total $135. It appeared on my annual performance and fee report.
.9% on a 2 year GIC yielding 2.88% is hefty.

I think what AltaRed means is that the fee is already deducted by a reduction in the quoted rate on the GIC.

That 2-year 2.88% GIC you mentioned would have been 3.13% had no issuer fee been charged. The issuer had reduced the GIC's rate from 3.13% to 3.13% - ¼% = 2.88% for you and paid the difference to iTRADE.

Norman1 said
I think what AltaRed means is that the fee is already deducted by a reduction in the quoted rate on the GIC.

That 2-year 2.88% GIC you mentioned would have been 3.13% had no issuer fee been charged. The issuer had reduced the GIC's rate from 3.13% to 3.13% - ¼% = 2.88% for you and paid the difference to iTRADE.  

What I am actually saying is that it is the issuers, e.g. Home Trust, who set the interest rates they pay to the investor via the brokerage platform. The brokerage is not the issuer and has nothing to do with the setting of the actual interest rate, i.e. they could care less since they are simply order takers. They flow through the GIC rate and interest to the investor from the issuer.

It is the issuer, e.g. Home Trust, itself that sets a lower interest rate to the investor because the issuer itself must pay the brokerage a commission for the privilege of selling GICs to retail investors through the brokerage platform.

topgun said

I checked some 5 year rates offered by iTrade with the actual issuer. They are essentially the same. If iTrade sells them, iTrade charges an issuer fee.  

Deposit brokers and brokerages charge the issuer a fee to be the order taker for the issuer. Thus the issuer often (but does not have to) reduce the rate it will pay investors when their products are sold through the broker channels...to offset that cost. That is entirely up to the issuer whether they want to 'absorb' the broker charge, or reduce the interest rate to the investor.

That is why a Home Trust GIC at any brokerage has a lower published interest rate than an equivalent Oaken GIC through the retail channel. Home Trust sets the interest rate, not the brokerage, e.g. Scotia iTrade.

Norman1 said

topgun said

I checked some 5 year rates offered by iTrade with the actual issuer. They are essentially the same. If iTrade sells them, iTrade charges an issuer fee.

It is not a simple as that. The issuer may write Scotia iTRADE the commission cheque. But, it is the GIC buyer who ends up paying with a lower rate.

Some of the rates you may have looked at are for GIC's that are only available through brokers. Home Trust branded GIC's are like that.

Home Trust branded GIC's cannot be purchased without a broker. The yields shown on Home Trust's website are already net of the customary ¼%-per-year brokerage commission. The website shows five-year Home Trust branded GIC's yielding 1.48% per annum to the buyer. That rate is net of the 5 x ¼% = 1¼% commission to a broker.

As AltaRed mentioned, Home Trust also offers Oaken branded GIC's directly to consumers, without a broker in the middle. A five-year Oaken GIC currently yields a higher 2% per annum.

That 2% - 1.48% = 0.52% difference is what the broker channel costs. 0.25% commission to the broker and 0.27% for the infrastructure to handle the purchases from the brokers.

As one can see, it is the GIC buyer who ends up paying as the result of the issuer setting a lower GIC rate.

The same applies for GIC's from Scotia iTRADE from issuers like Royal Bank. The Royal Bank GIC rates from Scotia iTRADE reflects the commissions paid to iTRADE. The Royal Bank GIC rates on Royal Bank's own web site reflects the payment to the RBC Royal Bank branch that one purchases the GIC through.  

There are many algorithms to determine yield for investor. I never knew how they determined yield with hidden fees. I looked at yield, I bought the one with the highest value. I have a friend that claims I do things backward. I get the same result. I have settled for one FI. It will take 3 years to consolidate GIC's there.

Norman1 said
It also means knowing that the broker is being paid. If the hidden commission is significant, then one should start looking at what the broker is providing in return for the commissions. The customary ¼%-per-year commission on a five-year $100,000 GIC would be $1,250! That's very generous if it was just for filling out a GIC purchase form and taking a cheque to the bank for deposit.  

Until a few years ago when CRM2 disclosures became mandatory, no one knew what issuers of assets, e.g. mutual fund and GIC providers, were paying brokers to carry their product. Now we do and that is good, if only to highlight how brokerages make some of their money and to put pressure on brokerages (and issuers) to reduce fees. Recognize that brokers do nothing more than take orders and pass them along to the issuers of the products.

We have all had certain choices on where we buy our product. If we don't like the interest rate of Home Trust GICs sold through brokers, we can buy Oaken GICs through the retail channel. Knowing what the intermediate commission is for that Home Trust GIC doesn't really factor into that decision. It really is that simple.

Too much is made of these commissions. They will come down over time if investors don't buy the product offered through the broker channel.

topgun said

1/4% is hefty. I NEVER purchased a big 5 banks GIC. The rates where lower than many trust companies. You must deal with many FI. I am happy to use the MB CU my Dad found in 2000. I have one friend that buys GIC's. He does not want a 5 year GIC or ladder investment strategy. He has a large 6 month GIC that pays 1.2%. The way he does things is certainly different than my way. He is doing well.  

Big bank GICs purchased via a bank branch are a different animal. They have pathetic rates for the walk-in branch customer.

What we have been discussing in this thread is the interest rate differential between GICs bought via the broker channel vs GICs purchased directly from a retail offering like Oaken (or or any others from the institutions on https://www.highinterestsavings.ca/gic-rates/

The easiest interest rate comparisons to make for our discussion here are:
- Home Trust (broker) vs Oaken Financial (retail)
- Equitable Bank (broker) vs EQ Bank (retail)

topgun said

When I started GIC's a couple years ago I purchased 2-5 year GIC's from Equitable Bank via iTrade. The rates must have been competitive or I would not have purchased. Today Equitable Bank via iTrade is not competitive. I will move funds to a competitive MB CU at maturity.

I have no comment on Home Trust/Oaken Financial.  

Okay, but those Equitable Bank GICs sold via iTrade were not 'big bank GICs'. The big bank GICs are issued by big banks, i.e. RBC, BMO, National et al, sold either in branches, or through brokers.

As of today at Scotia iTrade , 5 year GICs..
Equitable Bank - 1.49%
Big Bank - 0.95% or less