Investorial

Ever since I mourned the loss of Ameritrade Canada to the buy-out from TD Waterhouse Canada, I’ve been hot on their tail about lowering brokerage commission rates. I was remiss to have not blogged about TD Waterhouse’s new Active Investor commission rates policy, but it’s not too late to correct that oversight!

I’ll scrutinize the fine points of that policy to illustrate that TD Waterhouse has merely put forth a shell to fool customers. The only people able to take advantage of this policy are the really high net-worth account holders.

How Did ETrade Canada Do It?
It always helps to have a point of comparison. I could use a less mainstream service such as Interactive Brokers, but that might not be fair to the average investor for comparing apples to apples. I’m picking ETrade Canada because they were the first brokerage account I opened, and I’ve experienced their previous Active Investor commission rates policy.

First of all, ETrade’s reduced commission works on a quarterly basis and lasts for a quarter. Despite TD Waterhouse’s advertising, their implementation leaves much to be desired. In the past, when I executed the required number of trades to qualify as an active investor with ETrade, I’d start receiving commission rebates for all the future qualifying trades I executed that same calendar quarter. In other words, ETrade’s policy seemed to be retroactive.

Secondly, after qualifying for the reduced rate. The status change stays in effect for the next calendar quarter - 3 months. If I don’t requalify by the end of the next quarter. I will lose the active investor status. I think this process is fair since ETrade used the word “quarterly” in their marketing of this policy.

[Editor's Note: Caveat! ETrade's policy may have changed since my last encounter with them]

What Does TD Waterhouse Consider As “Quarterly”?
If you glanced at TD Waterhouse Canada’s active investor policy. You might have been enticed by the following marketing message (quote accurate as of December 27, 2006):

Investors who trade equities or options at least 30 times per quarter, using any of our Electronic Brokerage Services, will pay as little as $9.99 per trade.

What does “per quarter” mean to you? You will find that TD Waterhouse has a totally different definition for that! First, the new policy was instituted effective October 30, 2006. It’s strange to have the policy in effect for an off-calendar-quarter date. I suspected that TD Waterhouse was not playing by the rules that ETrade had established. Wary that they were trying to sneak one in on customers, I went straight to the fine prints. Here’s what I found, and I’ve italicized key points.

Your household’s quarterly trading activity and asset level are reviewed on a monthly basis. Active Investor Commission Rates are automatically effective on the 4th business day of each month using your eligible trading activity from the previous three calendar months and your household asset level as at the end of the previous month. You may qualify for these rates if you fulfill either our trading activity or asset level requirements. An eligible trade is defined as a commissionable filled equity or option order. You must re-qualify on a monthly basis for Active Investor Commission Rates to stay in effect.

There you have it! TD Waterhouse uses a rolling 3 month trading history, forcing investors to re-qualify on a monthly basis. This subtle interpretation of “quarterly” makes a big difference. I would like to know if TD Waterhouse Canada and ETrade Canada would be willing to publish statistics on the percentage of their account holders that can qualify for reduced rates and make a comparison of which policy is more effective for the investor versus the brokerage. ETrade’s policy serves the investor more, while TD Waterhouse’s policy is self-serving. The only population that can take advantage of TD Waterhouse’s active investor policies are really the accounts over $500,000. ETrade’s asset-based qualification is only $50,000. One digit/zero makes a very big difference!

TD Waterhouse Canada vs. ETrade Canada (Summary)
I thought I’d summarize my findings here for you. I left ETrade Canada previously because of Ameritrade. Now that I’ve experienced how TD Waterhouse has time and again, not cater to investors (but traders). It’s time to move on! ETrade Canada is the clear winner in this comparison I still have an open ETrade Canada account, so I’ll be strategically liquidating my holdings at TD Waterhouse (I’m ramping up my cash allocation for the short-term), and transferring whatever I wanted to keep.

What are your thoughts? Are you a current E*Trade Canada or TD Waterhouse Canada investor? Do you like your own brokerage’s active investor policy? Feel free to drop us a note!

Related Posts:

• TD Waterhouse To Complete Ameritrade Canada Merger
• TD Waterhouse Canada WebBroker Climbs Out Of The Dark Ages!?!
• TD Ameritrade Canada extends $9.99 comission offer
• Ameritrade Canada, say hello to your TDWH account!