# Questrade VS Bank Brokerages, confidence as a company



## joncnca (Jul 12, 2009)

I have a Questrade account and TD e-series account. I've never had any issues with Questrade, nothing resembling some of the few 'horror stories' that are out there. But is there any reason to be less confident in the survival of a discount brokerage like Questrade as compared with a major bank? 

Eventually, once my portfolio is big enough, I'll probably move my money from Questrade back to a bank because (1) commission fees will become more reasonable and (2) with more money, I 'feel' more confident holding it at a bank. Hopefully TD will hold USD in RRSP accounts by then. Is this logical thinking? Is anyone concerned that Questrade is not a 'bank'? Is there a feeling that Questrade is for starting out, but you'd feel safer holding large sums of money at a bank?

I'm wondering this because I'm in the process of potentially moving my wife's RRSP and TFSA from Scotiabank's ican Invest Program, where all her money is in one of the Scotia Selected portfolios paying 2% in management fees, and losing all that US withholding tax.

Moving to Scotia iTrade will be costly, as she won't qualify for the lower cost trades, which is still high compared with ...free ETF buys at Questrade. But iTrade is the smallest movement. Perhaps I can see if she can get the index funds at Scotiabank without iTrade, but the management fees would still be much higher than some well-selected ETFs at Questrade.

Any thoughts? Thanks.


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## Spudd (Oct 11, 2011)

I think Scotia iTrade allows free purchases of selected ETFs. That might make your decision easier.

http://www.scotiabank.com/itrade/en/0,,4200,00.html


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## joncnca (Jul 12, 2009)

Thanks, Spudd.

I had looked into these. iTrade doesn't hold USD and the RRSP has some admin fees that are about as high as a trade. I could leave the TFSA in iTrade, which does not have admin fees, but I'd want to only keep Canadian ETFs. maybe XMD and CRQ?


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## Four Pillars (Apr 5, 2009)

joncnca said:


> Eventually, once my portfolio is big enough, I'll probably move my money from Questrade back to a bank because (1) commission fees will become more reasonable and (2) with more money, I 'feel' more confident holding it at a bank. Hopefully TD will hold USD in RRSP accounts by then. Is this logical thinking? Is anyone concerned that Questrade is not a 'bank'? Is there a feeling that Questrade is for starting out, but you'd feel safer holding large sums of money at a bank?


The CIPF covers all member institutions equally regardless of whether they are a small brokerage or a large bank. See http://www.cipf.ca/public/FAQ/Coverage/CoverageLimits.aspx

Questrade is a member.

If you get to a point where you have money at an institution that isn't covered by the cipf, then I would consider diversifiying for safety. However, don't make the mistake of thinking that this only applies to a non-big bank. Yes, it's unlikely that the gov't will let a big bank will fail, but that doesn't mean there couldn't be some losses or at least a few sleepless months of worry about what's going to happen if your institution runs into problems and it takes a while to get resolved.

If you feel more confident with a big bank then I would move your money there as soon as possible. No point in stressing just to save a few dollars in trading fees. If you get to a point where the cipf limits start applying, then diversify to another big bank.

If you aren't an active trader, then trading fees are small potatoes - they should really be a minor consideration in your choice of brokerage.


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## joncnca (Jul 12, 2009)

Thanks, Mike. Those are some good points to think about.

Admittedly, my feeling of confidence in the bigger banks is not really based on anything other than general perception. I've had my own money over at Questrade for years now, and I've never been worried about it. But in reviewing this for my wife, I started second guessing myself and wanting to be more certain, since it's her money.

I don't anticipate hitting the 1M coverage limit anytime soon. My other beef with Scotia iTrade is that it doesn't hold USD in the RRSP, I guess not the end of the world, but irksome. I guess RBC and BMO (we have our mortgage here) can hold USD in the RRSP, but then if I'm going to open up a new account somewhere other than Scotia (where my wife banks), why wouldn't I go to Questrade, which is also less expensive? I don't anticipate more than the periodic rebalancing, but I would think that still adds up. I guess DRIP would reduce some of the cost.


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## CanadianCapitalist (Mar 31, 2009)

If a broker goes bankrupt, in theory, all segregated client securities should be fine because fully-paid up securities are supposed to be kept separate from the bank's books. Cash balances in client accounts and margined securities are not segregated, so in the event of bankruptcy, there might be a shortfall. At this point, CIPF will kick in. The concern, of course, is that CIPF may not be able to cover a shortfall because CIPF has a tiny fund compared to the more than trillion dollars in assets it covers.

So, it is important IMO, to worry about the financial health of a brokerage. A big bank broker has the bank's massive equity offering client additional protection. For a small, privately-held broker, CIPF may be all a client can rely on.


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## Four Pillars (Apr 5, 2009)

CanadianCapitalist said:


> So, it is important IMO, to worry about the financial health of a brokerage. A big bank broker has the bank's massive equity offering client additional protection. For a small, privately-held broker, CIPF may be all a client can rely on.


I agree you should worry about the financial health of the brokerage, but I don't agree that a bank's equity makes them more safe. What if there is no equity?

If there are problems at a bank's brokerage, they will probably start with the bank itself.

IMHO, the reason banks are a better bet is because I think the government will back them up.


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## joncnca (Jul 12, 2009)

Both good points. And that's interesting about segregate client securities. If they're kept separate from the brokerage's books, as they're technically supposed to belong to the investor/purchased from the issuing company, then they should be intact even if the brokerage company goes bankrupt (although realistically, the records are probably in trouble if the brokerage is bankrupt). How would an investor "recover" or "access" the securities, if the brokerage failed (i.e. side-step the middle man)?

Mike, I think you've written quite favourably of Questrade in the past and I think you have accounts there. As your portfolio has grown, have you felt compelled to move to a bank?


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## Four Pillars (Apr 5, 2009)

joncnca said:


> Both good points. And that's interesting about segregate client securities. If they're kept separate from the brokerage's books, as they're technically supposed to belong to the investor/purchased from the issuing company, then they should be intact even if the brokerage company goes bankrupt (although realistically, the records are probably in trouble if the brokerage is bankrupt). How would an investor "recover" or "access" the securities, if the brokerage failed (i.e. side-step the middle man)?


I don't know the exact procedure, but I believe in the past the accounts are taken over by another company or perhaps the bankrupt company still keeps operating? The records will be fine.

As long as there isn't any fraud, then I don't believe there should be many problems.



joncnca said:


> Mike, I think you've written quite favourably of Questrade in the past and I think you have accounts there. As your portfolio has grown, have you felt compelled to move to a bank?


I've always been a big fan of Questrade, but the gaps between them and the competition which made me like them have narrowed significantly over the years to the point where it's really only the lower trading fees that gives them any advantage. And as I said previously, that doesn't mean much unless you are an active trader (I'm not).

That said, I still like using them and recommend them.

I have thought about the issue you brought up with bankruptcy/fraud etc and I do believe that a bank in theory might be a bit safer, but I think that difference might be very small and possibly very theoretical. I think they are both very safe.

I can't see very hitting the cipf limits, so I don't know if I'll ever have to worry about that.


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## joncnca (Jul 12, 2009)

Four Pillars said:


> I can't see very hitting the cipf limits, so I don't know if I'll ever have to worry about that.


I'm sure hitting the CIPF limit is a problem many people wouldn't mind having. Thanks, Mike.


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## arc (May 19, 2012)

Hi all, I am looking for some advice. I have 40k to invest mostly in TSX stocks and I am trying to pick between Questrade, Cibc, and scotia itrade for my TFSA. The main thing I am trying to do is minimize fees, I don't trade regularly and do invest in a lot of ETFs. Any advice? Thanks


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## Butters (Apr 20, 2012)

questrade is cheapest
But does not offer synthetic drip discount


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## Eclectic12 (Oct 20, 2010)

Four Pillars said:


> I agree you should worry about the financial health of the brokerage, but I don't agree that a bank's equity makes them more safe. What if there is no equity?
> 
> If there are problems at a bank's brokerage, they will probably start with the bank itself.


Both good points ... the other question is whether a small player has the possibility of other sources of equity at all?
If their only business is the brokerage which is known to be in trouble - where could they go?


Then too, as soon as an institution is depending on outside groups ... a lot more variables will come into play. 

When Confederation Life was looking for help, the players who had the money/voting power preferred to let it fail and then pick up it's assets at attractive prices. The official explanation was that if it failed despite the help ... coming up with a second set of cash to buy the assets was "too much of a risk". There was no mention or public comment on what buying quality assets cheaply did to their bottom line. 


Cheers


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