The cost of investing has dropped dramatically since the advent of online discount brokerages, but there are a couple of transactions where Joe Retail stills get clobbered. One of these is currency exchange fees: charging clients 1.5% or more to convert Canadian dollars to US dollars—and the same to change them back—is a disgrace. Investors who use US-listed ETFs need to find ways to avoid foreign exchange fees or they risk giving back everything they save on the lower management fees.
As a client of Scotia iTrade, I had an opportunity to test-drive their US-Friendly RRSP program this month as I made some changes in my portfolio. I used to hold three separate ETFs for my international equities, but when the Vanguard Total International Stock (VXUS) was launched earlier this year, it made sense for me to merge them into a single fund when I next rebalanced. So I was in a position to sell three US-listed ETFs and buy another, and these four trades would have cost me hundreds of dollars in foreign exchange fees at the usual rate.
However, Scotia iTrade’s US-Friendly RRSP offered a solution. For a flat fee of $30 per quarter, the program allows you to buy and sell US securities without paying the usual retail spread on the currency conversion. To sign up, all I did was fill out a simple one-page form with my name, account number, and signature and fax it to iTrade. The next day, everything was in place.
I sold the ETFs on July 7 and July 11 and then bought VXUS on July 13. When the trades settled, the confirmation notices disclosed the exchange rate I got on each transaction. To see how these stacked up against the actual market rates, I went to the Bank of Canada, where you can look up the exchange rate for any day in the past. The site gives the high and low for the day, so I compared both of these and calculated the average of the two figures. Here are the results:
As you can see, the rate I got from iTrade was always better than the lowest rate of the day, but considerably worse than the daily high. Compared to the average value for the day, the spread actually worked in my favour once, and averaged 0.13% for the three days. Considering that iTrade’s normal retail spread is 1.65% (according to the MoneySmarts discount brokerage comparison), that seems like a good deal. It works out to $13 for every $10,000 exchanged, as opposed to $165 at the normal rate.
Of course, enrolling in the US-Friendly RRSP also cost me another $30, and the privilege runs out at the end of the third quarter. I’ll wait until September to cancel it, in case I decide to add more money to my US or international positions. Next year, when it comes time to rebalance again, I’ll sign up for another quarter, make the trades, and cancel again. Scotia iTrade’s program isn’t perfect, but sure beats what most brokerages offer.