TD Waterhouse used to be a leader at offering innovative features at least among bank-owned brokerages. They were the first to offer wash trading as a way around avoiding forced currency conversion charges in RRSP accounts. They were also the first to lower trading commissions to $9.99 for clients with accounts above a certain threshold. But recently, TD Waterhouse has gotten complacent. While RBC Direct and BMO InvestorLine have introduced the ability to separate US Dollar holdings in RRSP accounts, TD Waterhouse has not follow suit. As a result, TD Waterhouse has now slipped to the bottom half of the pack in the Globe and Mail’s Annual Discount Broker Rankings put together by Rob Carrick.
One could argue that separate US Dollar RRSP accounts are less of an issue at TD Waterhouse because a client can take advantage of automatic wash trading these days and completely avoid currency conversion from US dollars to Canadian dollars and back when selling and buying US dollar denominated securities. However, there still remains the issue of forced conversion of US dollar dividends received in RRSP accounts. For instance, an investor owning a US stock that pays a 4% dividend is losing 8 basis points or so (assuming currency conversion costs 2%). If the investor turns around and buys another US stock and converts currency at the retail rate, it will cost her another 8 basis points for a total of 16 basis points. The same investor could have avoided the currency conversions entirely if she had transferred her account to a competitor offering US Dollar RRSP accounts.
It is possible that TD Waterhouse is saddled with legacy systems that make it difficult to offer completely segregated US Dollar RRSP accounts. But they should try and offer clients a way to avoid forced conversions of US dollar dividends into Canadian dollars. They can do so by either waiving the retail markup on foreign exchange conversions for US dollar dividends or allowing clients to wash US dollar dividends into the TD US Money Market Account (TDB166). Otherwise, current TD Waterhouse clients might be tempted to take their business to more nimble competitors.
