QTrade (a reader shares his experience with the broker here), which consistently earns top honours in Globe and Mail’s annual discount broker rankings, is now offering US-dollar self-directed RRSP accounts. These accounts would allow investors holding US-dollar assets in their RRSP accounts to avoid currency conversion fees when buying and selling (for brokers that don’t allow “wash trading”) and to keep the dividend received from US-listed holdings in US dollars. Regular reader Gene sent the following note on why he is considering switching to QTrade and I’m publishing it with permission below as it might of interest to many of you.
I just contacted Qtrade about their new US$ RSP account. The Customer Service Representative wrote back that it operates much like a US$ investment account — all dividends are paid in US$ and you can hold and trade in US dollars in the RRSP account. The main drawback is that it costs $50US annually, which I understand is charged every February for the following year. If you open the account in mid-year, they prorate the fee based on the the portion of the year the account will be open. So, presumably, if you open an account in June, you will be charged about US$25 in July.
Transferring US stocks to the USD RSP account is a two-step process. First, stocks are transferred to a C$ RSP, then the client contacts Qtrade and asks for the US stocks to be “journaled” (broker jargon for moved) to the US$ RSP. Once a US stock is held in the US$ RSP, dividend payments from the stock will be placed in the same account in US dollars, saving you the currency exchange fee.
I’m considering switching from TD Waterhouse to take advantage of 1) US trades settling in US dollars, 2) keep dividends in US$, 3) Qtrade’s good reputation, and as a bonus 4) Transfer fees are reimbursed for accounts transferred to Qtrade before March 31st (up to $125 plus taxes if the account transferred has a balance of at least $10,000).
My take: Given that you are transferring out of TD Waterhouse and QTrade charges a $50 US annual admin fee, you’ll see cost savings only when your USD holdings exceed a certain threshold. Assuming a 2.5% one-way conversion fee (anyone notice how discount brokers seem to have bumped up foreign exchange conversion charges), a 2% dividend yield and assuming all dividends are reinvested in the same securities, you’ll see savings only if your USD holdings exceed $50,000. However, investors transferring out of a broker that doesn’t offer wash trading could potentially see substantial savings because they avoid the foreign exchange hit that comes from buying and selling US-listed securities in a self-directed RRSP account. Thank you for your note, Gene.