BMO Offers Free ETF Trades For New Clients

In a post I wrote back in February, I issued a challenge to BMO, whose line of ETFs was just eight months old at the time. In the US, Fidelity and Charles Schwab had just started allowing clients to buy and sell ETFs without trading commissions. (Vanguard later followed suit.) I suggested that the new guy in the Canadian ETF space consider something similar: “If BMO is going to make its ETF venture succeed,” I wrote, “it should offer something Canadian investors can’t get anywhere else. By allowing clients to trade ETFs without commissions, BMO would attract a wave of new customers and grab at least some of the market share from iShares and Claymore.”

Well, the good people at BMO must be avid followers of Canadian Couch Potato, because they have taken my advice — sort of. BMO is running a promotion that will give new InvestorLine clients 20 free ETF trades over a 60-day period when they open an account with at least $50,000. The promotion runs until October 29.

Here are some details from the fine print:

  • The ETFs do not have to be from BMO’s family. You can use the promotion to build a portfolio of iShares and Claymore ETFs if you prefer.
  • If you open more than one account — for example, an RRSP and a taxable account — you get a total of 20 ETF trades, not 20 in each account.
  • “You must also maintain a minimum balance of $50,000 CDN (based on the calculation of all withdrawals and deposits) in your qualifying account within 6 months of opening and funding this account. If the account balance falls below $50,000 CDN at the end of the six month period, you will be charged back the cost of the  ETF trades.” I take this to mean that if you deposit $50,000 and your investments lose value over the next six months, that’s OK, so long as you don’t make many withdrawals. But I would double check that before signing up.

This promotion isn’t exactly what I had in mind in February. I think BMO’s best shot at building market share is to allow InvestorLine clients to trade its family of ETFs for free all the time. That would attract Couch Potato investors from other brokerages and help BMO’s ETFs build their asset base. The bank has issued a couple of compelling new products this year — notably their Real Return Bond Index ETF and their Equal Weight REITs Index ETF — but these are pretty narrow asset classes. It’s still hard to imagine why investors would choose BMO’s broad market equity and bond ETFs over iShares products that track similar indexes and have a long record of excellent management and low tracking errors. Undercutting iShares by a couple of basis points on the MER isn’t enough, but free unlimited trades might be.

However, for investors who have been procrastinating about ditching their mutual funds and getting started with ETFs, this promotion offers an incentive. It helps that BMO InvestorLine has a good reputation: it was ranked third overall (and tops among bank-owned brokerages) in the most recent Globe and Mail online brokerage survey.

But do the calculations to figure out whether a few free trades are really a great deal — yes, you can get up to 20, but no index investor will need that many trades in 60 days. InvestorLine’s regular trading commission is $29, but once you have over $100,000 invested it drops to $9.95. If you’re opening an account with $100,000 and building a portfolio of eight ETFs, you’ll save just $80 in commissions. And if you’re transferring that money from another financial institution, you’ll likely pay a $125 fee to do so. That means it’s only worthwhile if BMO agrees to pick up the transfer fee: call and ask, as this is common in the industry.

Oh, and while you have them on the phone, ask them when they’re going smarten up and make all their ETF trades free.

5 Responses to BMO Offers Free ETF Trades For New Clients

  1. Craig July 21, 2010 at 4:16 pm #

    I guess they didn’t see Ally’s commercial – they treat new friends better than old friends:-(

  2. larry macdonald July 23, 2010 at 9:45 am #

    Interesting development. Wouldn’t be surprised if we do see more promotional efforts from BMO as it plays catch-up in the ETF space. And one of those promotions could be zero commissions for good, especially if they get enough assets under administration to generate securities-lending fees sufficient to defray a good portion of their brokerage operating costs. A more substantial 0% MER policy could also be part of that package.

  3. Financial Cents July 23, 2010 at 3:15 pm #

    Good one Craig. Yes Dan, agreed, a few points +/- on the management fees or MERs would not lure people, at least I wouldn’t think so.

    Free trades, especially for folks holding > $100K in their brokerage account, when tradiing ETFs, would certainly be nice.

  4. Money Smarts Blog July 26, 2010 at 10:16 pm #

    Free trades would be a great selling point, but I can’t see “unlimited trades” on the horizon anytime soon. I think 10 freebies per year would be a more realistic offer.

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