TD Bank’s July increase in transfer costs is part of a series of fee changes that will increase the monthly cost of some account packages by $1.Andrew Lahodynskyj/The Canadian Press
The going rate to transfer investment accounts from one bank or broker to another is roughly $150.
Toronto-Dominion Bank TD-T has long been under this threshold, but not for much longer. Starting July 1, the fee for TD Canada Trust clients who move a tax-free savings account, a registered retirement savings plan or a first home savings account to another financial company will rise from $75 to $150.
Account transfer fees are a mostly hidden but potent example of financial industry arrogance. After failing to earn your continuing loyalty, these companies charge you to make your escape. Open banking rules that will boost competition cannot come soon enough.
TD took a business-as-usual approach when asked for details on the fee hike. “We regularly evaluate our product offering to align with customer’s needs,” the bank said in an e-mail response to questions. “The change to the registered plan transfer fees was made based on various factors, including the costs involved in processing and moving assets to another institution, market conditions, and to align with the value we provide our customers.”
TD’s fee hike was highlighted in a recent LinkedIn post by Paul Teshima, Wealthsimple’s chief commercial officer. Wealthsimple has built the most credible diversified banking, borrowing and investing alternative to the big banks and, guess what, it doesn’t have account transfer fees.
Wealthsimple has its own customer-service vulnerabilities. The interest rate on its chequing account has dropped to the lower tier among alternative banks in recent months, and its foreign exchange fees looked comparatively pricey in the latest Globe and Mail digital brokerage ranking. Lower forex costs are available if you subscribe to a $10-per-month U.S.-dollar account package.
Still, Wealthsimple has a point in drawing attention to TD and other banks that charge clients to take their accounts elsewhere. In total, millions of dollars are charged to a segment of the investing public that can least afford them. Bank branches are a natural destination for people who want help investing amounts too small to interest an investment adviser.
A $150 fee on a $15,000 account is a one-per-cent hit, which is significant when you consider that a return of five to six per cent is what you should expect over the long term from a diversified portfolio.
That one-per-cent fee comes in addition to money already made on that $15,000 account if invested in mutual funds. Bank mutual funds have fees – measured through the management expense ratio shown in disclosure documents and fund profiles – that are typically in the 1.5-to-two-per-cent range in the balanced and equity categories.
Whether you make or lose money in mutual funds, your fees are scooped off the top. Those published returns you see for funds of all types are shown on a net basis, which means fund companies have taken their cut.
The money you invest in bank products enriches banks even if you hold guaranteed investment certificates. Money taken in through GIC investments is lent out at a higher rate through mortgages.
All banks and brokers have long lists of account fees they charge, some reasonable and some a cash grab made acceptable by the fact that everyone in the industry does it. More competition in banking and investing would help.
New investing apps from international players such as Moomoo and Webull have entered the Canadian market recently. On the banking side, the wait continues for a rulebook that will allow bank clients to securely share financial data with upstart alternative financial companies.
This form of data-sharing is called open banking and it’s seen as a way to kickstart competition, leading to lower fees and more personalized apps and services. Open banking seems a natural part of the federal government’s efforts to improve economic productivity. Less money paid to transfer investment accounts means more money left to be invested and spent later on.
As for TD, the coming increase in transfer costs is part of a series of fee changes that will increase the monthly cost of some account packages by $1. A rare exception to the higher fee trend: The cost of cancelling an e-transfer send money payment falls from $5 to zero. More of that, please.
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