Three discount brokerages in Canada now offer a menu of commission-free ETFs. Scotia iTrade pioneered this feature in Canada last September, then Qtrade Investor announced a similar offering about a month later, followed soon after by Virtual Brokers.
While index investors welcomed this development, the lineup of ETFs eligible for commission-free trades at all three brokerages is less than ideal. Narrowly focused funds dominate all three lists, which is fine if you want to invest in copper futures, Indian large caps, or the Australian dollar. But if you’re a long-term Couch Potato investor, you have to look a little harder for appropriate ETFs.
To help with that task, I’ve compiled a checklist of commission-free ETFs available from each of the brokerages, limiting the selection to broadly diversified funds that cover core asset classes. Funds that use currency hedging are marked with an asterisk (*).
|iShares 1-5 Year Laddered Gov’t Bond||CLF||x||x||x|
|iShares 1-5 Year Laddered Corp Bond||CBO||x||x||x|
|BMO Mid Federal Bond Index||ZFM||x|
|BMO Long Federal Bond||ZFL||x|
|BMO Long Corporate Bond||ZLC||x|
|iShares Advantaged Canadian Bond||CAB||x||x||x|
|iShares DEX Real Return Bond||XRB||x|
|BMO Real Return Bond||ZRR||x|
|iShares Advantaged High Yield Bond *||CHB||x||x||x|
|Horizons S&P/TSX 60||HXT||x||x||x|
|iShares S&P/TSX Completion||XMD||x||x||x|
|iShares S&P/TSX SmallCap||XCS||x|
|iShares Dow Jones Canada Select Value||XCV||x|
|iShares Canadian Fundamental||CRQ||x||x|
|iShares S&P/TSX Cdn Dividend Aristocrats||CDZ||x||x|
|iShares S&P/TSX Cdn Preferred Share||CPD||x||x|
|Horizons S&P 500||HXS||x||x|
|BMO US Equity *||ZUE||x|
|iShares US Fundamental Index *||CLU||x||x|
|iShares US Fundamental Index||CLU.C||x||x|
|iShares S&P US Dividend Growers *||CUD||x|
|International and global equity|
|iShares International Fundamental||CIE||x||x||x|
|BMO International Equity *||ZDM||x|
|Vanguard MSCI EAFE *||VEF||x|
|iShares Global Monthly Adv Dividend||CYH||x||x|
|iShares Global Real Estate||CGR||x||x||x|
|Emerging markets equity|
|iShares MSCI Emerging Markets||XEM||x|
|iShares Broad Emerging Markets||CWO||x||x|
|BMO Emerging Markets Equity||ZEM||x|
A breakdown of each asset class
Fixed income. If you’re looking for a broad-based ETF that includes both government and corporate bonds of all maturities, there simply isn’t one. (CAB appears to fit this description, but it is a non-traditional fund that is appropriate only for taxable accounts.) All three brokerages offer CLF and CBO, which are excellent short-term bond ladders, but only Virtual Brokers includes ETFs with longer maturities. Two of the three brokerages offer a real-return bond fund.
Canadian equity. You’re pretty well covered here. While none of the brokerages include the iShares S&P/TSX Capped Composite (XIC), they all offer HXT and XMD, which work well in combination. HXT includes the 60 largest companies in the S&P/TSX Composite Index, while XMD includes the remaining 190 or so. You can hold about 75% in HXT and 25% in XMD to mimic the Composite index, or split them 50-50 to give yourself a small-cap tilt.
US equity. The US equity offerings are limited from all three brokerages. They all have a large-cap option that includes currency hedging, plus Scotia iTrade and Virtual Brokers also offer the iShares US Fundamental Index (CLU.C), which does not use hedging. Note that there are a few US-listed options that I have not included in the table above: Virtual Brokers offers the Vanguard S&P Small Cap 600 ETF (VIOO), while Qtrade has included several Vanguard, iShares and SPDR sector funds.
International equity. Some decent choices here. All three brokerages offer the iShares International Fundamental (CIE) which does not use currency hedging and would be a good choice as a core holding. Scotia iTrade and Virtual Brokers include traditional cap-weighted options from Vanguard and BMO, respectively, both of which are hedged to the Canadian dollar.
Emerging markets equity. All the brokerages offer good choices in emerging markets: Virtual Brokers even offers two options, one fundamental and the other cap-weighted. All Canadian-listed ETFs in this asset class are quite costly, but there is no good mutual fund alternative, so these are as good as you can get without using US-listed ETFs.
i am hoping RBC or TD would atleast match these brokers in the coming months. what are the chances?
though i have seen opinions that no commission means higher ETF fee in the end (hence a wash).
my employer banks with RBC and i with TD. i do not want to open any new accounts!
@Raj: I’m not sure how anxious the banks are to get into this business, but I would not hold my breath. I have always felt the obvious candidate here is BMO, since they have a discount brokerage arm and a large family of ETFs. I am sure they could win a lot of new customers to the brokerage by offering commission free trades on their own ETFs. That would also give them an opportunity to take some market share away from iShares.
If you bank with TD, you have access to the TD e-Series funds, which are actually a better choice than most of the commission free ETFs in the list above, at least for the core asset classes. Their MERs are generally lower, and you can also set up preauthorized contributions.
i believe RBC and TD brokerages count on captive customer i.e. one with multiple accounts who would not leave to gain only a bit. not great for customer but seems to be working for these banks.
my RESP is exclusively made up of TD e-series. but for non-registred account I would go with ETFs as they cover more asset classes, more styles (fundamental etc) and can be traded if need be. e-series redemption within 90 days results in a 2% fee.
for long term investor commission is not a big deal anyway. ETF fee is.
though commission can matter if one wants to add an amount say monthly.
i guess i would jump to Scotia or BMO if they gave me an added incentive (like 1-2% cash back) apart from free account transfer!
Two more commission-free ETF that might be worth to mention are Ishare balanced ETF-wraps : CDN and CBN.
“Emerging markets equity. All the brokerages offer good choices in emerging markets: Virtual Brokers even offers two options, one fundamental and the other cap-weighted. All Canadian-listed ETFs in this asset class are quite costly, but there is no good mutual fund alternative, so these are as good as you can get without using US-listed ETFs.”
Vanguard Canada’s emerging markets ETF has a management fee of 0.49%. That’s more than the US listed Vanguard emerging markets ETF MER of 0.20%, but there will be additional currency conversions costs with US listed ETFs. iShares US listed emerging markets ETF has an MER of 0.67%; it has assets of $32 billion.
I was hoping you could suggest a portfolio of free ETF stocks for say a 30 year old? I’d like to keep about 30-35% in bonds and the rest in equities with plans on rebalancing semi or annually.
@Jas: Yes, those CorePortfolios can be useful also. You can even use them to hold small amounts that would otherwise be sitting idly in cash. Because they trade for free and have no minimum holding period, they’re quite flexible. But do watch out for their large bid-ask spreads.
@Park: You’re right that Vanguard’s VEE is actually cheaper than EEM. Overall, if you are willing to pay the commissions and trade in US dollars, Vanguard’s VWO is by far the best choice at just 0.20%.
@Scott: Do you currently have an account with a discount brokerage, or is that part of your decision making process? And approximately how large is the portfolio, and how often will you contribute new money?
I recently set up a Scotia I Trade account to take advantage of these free ETFs. I have about $8k I plan to transfer in and think I will contribute $500 per month /$1,500 quarterly/$3,000 semi – whichever makes the most sense.
@Scott: If you want to stick with the commission-free ETFs only, you could use HXT and XMD for Canadian equity, HXS or CLU.C for US equities, VEF or CIE for international equity, and CLF and CBO for bonds.
If all of your portfolio is commission-free ETFs, then monthly contributions are probably best, but you may find yourself adding tiny amounts to each fund. Remember that ETFs have bid-ask spreads, so there is a cost to trading them even if there’s no commission.
@Dan: If you are a long term investor, how important is it to be careful with the bid-ask spread? CBN has a very low daily volume, is it an absolute “turnoff ” for a couch potato investor?
Thanks for the great article.
It might be worth mentioning that the commission-free offers may have attached conditions. In the case of Qtrade, you have be signed up for their electronic document system, and the minimum trade is $1000, for example.
@Jas: For a long-term investors making very few trades, the bid-ask spreads are not necessarily a big deal. But of you are making frequent transactions, they can certainly erode your returns if they are large. It’s important to note that trading volume may or may not be an important factor: some ETFs with low volume still have pretty tight spreads. The more important factor is the liquidity of the underlying holdings.
In my experience, CBD and CBN have unusually large spreads. I’m not sure why that’s the case.
This a great idea to help you to get started investing. Why not get you in the door free. Then take the small yearly fee and have happy customer. In the U.S. Schwab has been doing this for a while. It’s a good business model that the company can make up any initial loss with a long term perspective.
@CCP: just to understand the benefits of these deals vs other options — these 3 discount brokers are offering to give up their buying and selling commissions, which would be about $10 or less per transaction, in return for, what?
do the discount get a portion of the annual MER percentage of the ETFs?
You asked Scott:
“@Scott: Do you currently have an account with a discount brokerage, or is that part of your decision making process? And approximately how large is the portfolio, and how often will you contribute new money?”
Where would you have recommended if he had not yet chosen a discount brokerage – regardless of free ETFs? For a portfolio of 250K to 500K with minimal new money to contribute but rather with the plan to start drawing from it in the near future – say 5 to 10 years?
@Oldie: I expect that the brokerages are making this offer to attract new customers, and once those new customers arrive they will probably trade other stocks and ETFs and generate commissions. Remember that the list of eligible ETFs is pretty small, so few people will build complete portfolios using only these funds.
@Darby: I honestly don’t see many significant differences among the brokerages. These days they all offer low commissions and usually have no account fees for larget portfolios like yours. I would start by considering the one associated with your bank: it is certainly more convenient to work with single institution. If you are not planning to do a lot of trading, then choosing an independent with lower commissions does not necessarily offer you a big advantage.
You might want to consider using a brokerage that allows you to hold US dollars in registered accounts: currently only RBC Direct Investing, BMO InvestorLine, Questrade, Qtrade and Virtual Brokers allow this. If you are buying US-listed ETFs, this can save you a fair bit of money in currency conversion costs.
I recently signed up with iShares at their downtown T.O. location. I’ve been a long term mutual fund investor but not too pleased with the returns and MERs.
Is it not possible to set up regular monthly contributions to an ETF (DEX)? I told the rep I wanted to do this and he never said it wasn’t possible. Logging in to the site (‘TRADE’ tab) under Equities I see …
– Price Type: Market, Limit, Stop, Stop Limit, Trailing Stop $, Trailing Stop %
But I also see it under Options
– Option Type: Select, Call, Put
– Order Type: Buy to Open, Sell to Close, etc …
I called to ask how I could make regular contributions and was told I wasn’t able to do that. I would have to “manually” go in each month to make the buy.
That said, all these other settings and terms have me befuddled. I’ve been going through the iShares site but haven’t found any tutorials about this. Perhaps I’m just looking in the wrong place. I’m sure I need to some more broad based research.
I think I was expecting that this would be as easy as contributing to a mutual fund.
Any recos on how I should be approaching this?
Thanks in advance.
@Randy: I’m a bit confused. You cannot open an account with iShares, which is simply an ETF provider and not a brokerage. Do you mean iTrade?
If so, then the customer service person was correct. You cannot set up automatic purchases of ETFs like you can with mutual funds. Each order has to be entered individually, just as if you were buying an individual stock. There is a commission payable on each trade, except in the cases of the ETFs listed above.
To learn how to buy ETFs, this post may help: http://www.moneysmartsblog.com/how-to-buy-an-etf-or-stock-using-a-canadian-discount-brokerage/
You may also find my book helpful. It will walk you through the whole process:
Doh! Yes … iTrade …
That link is very helpful, thanks. And I’ll check out your book.
For fairly short term savings (2-3 years) in my RRSP with the intention of eventually using the Homebuyers Credit. Would it be more advantageous to go the route of short term bonds such as either CLF or CBO (or maybe CAB, but the maturity doesn’t necessarily fit my goals), even with the prospect of interest rates rising?
I would be looking at $1000 contribution a month using a PACC plan with iShares. I already have an account through Questrade so that’s why the commission-free ETF is more appealing then TD e-series.
@Brad: First off, CAB is definitely inappropriate. It’s designed only for taxable accounts. So scratch that off the list.
If I were saving for a home with a 2-3 year horizon, I would use a high-interest savings account. The current rate (usually 1.25% or 1.35%) is the same as the yield to maturity on CLF (after fees), and you don’t have to worry about any loss of principal. Indeed, if rates rise, you’ll do even better. With CBO the yield-to-maturity after fees is about 2%, but you won’t get that if rates rise.
I would encourage you not to take risk with bonds in the the hopes of scratching out a slightly higher return. Remember, you’re saving, not investing here. With the amounts we’re talking about, over only three years, small differences in your rate of return will translate to extremely small dollar amounts. Based on $1,000 a month for three years, compounded monthly, I ran a few numbers through this calculator:
Here’s the final amount you would have based on various rates of return:
Is it worth it to take risks with the hope of getting 2% if all that would mean is extra $400 over three years?
I am just at the point of starting to invest. I have been reading everything I can get my hands on and have picked a few funds that fit my couch potato portfolio I would be comfortable with. But I am starting with only about $15,000 – well below the $50,000 you need to qualify for the reduced ETF trading cost. So my question is : Do I continue to save and accept the low saving account interest rates until I have the required $50,000 to qualify for low cost trades? Should I bite the bullet and invest in the no commission options until I reach $50,000, even though they are not the funds I had decided to purchase? Or would putting the money into TD index mutual funds be the best bet? I currently am leaning towards the mutual funds but I don’t know what to do. I don’t have any brokerage account set up yet. Given my rate of savings it would take me about 2 1/2 years to reach the $50,000 level.
This is repetitive of a post I made to another one of your excellent blogs, but this seems like the appropriate place to post: what do you think of the commission-free ETFs offered by Questrade? Unlike Scotia iTrade, Qtrade, and Virtual Broker, Questrade appears to offer an unlimited selection of ETFs listed on any North American exchange for purchase with no commission, with only a regular commission charged to sell. This seems like a good alternative to the TD e-series funds (if only due to the lower MERs associated with ETFs). I’m wondering, however, what the catch is, if any?
@Victor: There’s no catch: the commission-free ETFs at Questrade and Virtual Brokers do indeed have a lot of appeal. But if you compare them to e-Series funds, the latter have a number of advantages for some investors:
For a novice which is better CIE or vfn? CIE has higher mer but it is unhedged. Thoughts?
CCP – regarding your comment:
“…so few people will build complete portfolios using only these funds.”
It looks like a complete, balanced portfolio can be built with just 4 or 5 iShares ETFs. Indeed, I have one: Canadian Index Equity/Bonds (CRQ/CAB – now XQB)), US Index Equity (CLU), Emerging Markets Indexes (CWO) and International Indexes (CIE).
Most every piece of balanced portfolio advice out there says keep it small and simple, especially when it comes to ETFs. Is there anything I’m missing from this portfolio?
@Adam: In my comment to Oldie above, my point was simply that brokerages probably won’t suffer too much from commission-free ETF offerings because most investors will not confine their purchases to funds on that limited menu. If you have done so, you’re probably in the minority (that’s a good thing!). You are correct that simple is usually best, but most investors ignore that advice.
I found CIBC investor’s edge also offers ETF free trade, about 200 eligible ETFs
And Questrade offers all US+Canada ETFs free to buy.
It is probably a good time to go over other brokerages and revise this article.
@P: Thanks for the comment. The CIBC offer was for a limited time and expired March 31, 2015.
Any chance of an update to this post? I am trying to get my nephew started on his investing path and would like him to look at starting this way…
@Peter: These days I would think your best bet is Questrade, which offers all ETFs commission-free for purchase (a $4.95 commission applies when selling).
Hi there. I know this post is old but not sure where else to post this. I have recently become aware that National Bank’s discount brokerage charges no (zero) commission to buy or sell any ETF (assuming order at least 100 units). My questions are:
(1). Am I missing something? Why has this seeming-breakthrough been so poorly publicized? There must be a catch with what Nat Bank is offering?
(2). Any thoughts on if/when other brokerages may follow suit? TD Waterhouse seems to be really missing the mark two-fold: 1. not following Nat Bank’s example for all ETFs 2. TD has launched their own ETFs but still charge buy/sell commission on those (seems like big miss on their part – they could at least make *their own* TD ETFs commission free (I’m putting aside topics of TD’s own ETFs “quality”, etc. etc.).
Love your site thanks!
@Beth: ETF trades at National Bank Direct Brokerage are only commission-free with purchases of at least 100 shares. The average ETF unit price in Canada is roughly $20 to $30, so you’re looking at $2,000 to $3,000 per trade before this kicks in. This is better than nothing, for sure, but it does not allow for small regular purchases of a few hundred dollars.
My colleague Justin Bender has done a video tutorial on buying ETFs at NBDB:
I have no direct experience with National Bank’s brokerage, but the reviews I have seen are generally not great. It’s certainly an option if you are already a customer of the bank, but it’s not likely to be a great choice if the only feature you want is commission-free ETFs, given that there are more attractive competitors.
I’m not too surprised other brokerages haven’t rushed to offer commission-free ETFs. The online brokerage business, as far as I can tell, has pretty small margins. Offering their services for free is a loss-leader at best.
Thanks for all the great articles and blog posts.
I was going to jump into ETFs and use the model portfolio that is listed on this site. I am debating between signing up with Questrade or Qtrade. But Qtrade doesn’t have any of the recommended ETFs in their list of no commission funds; I’m wondering which funds in the Qtrade no fee list would approximate the model ETF portfolio?
@Patrick: Thanks for the comment. Unfortunately, the Qtrade free ETF is filled with narrowly focused ETFs and there is no good way to approximate the model ETF portfolios using their choices. The one exception is that you can use XQB for bonds, as this is very similar to ZAG.
There is another option, however. XBAL and XGRO are both on the free list, and these are excellent one-fund options you could use in place of three-ETF model portfolios if your target is 60% stocks (XABL) or 80% stocks (XGRO).
Remember, too, that Qtrade has a $1,000 minimum for ETF trades to qualify for the zero commission.
I’m revisiting this article in the context of building/simulating an equity portfolio as per the models described in the book Reboot Your Portfolio, regarding a 1:1:1 Canadian equity, US Equity, and International Equity index funds split (for the equiity portion). I’ve configured my recurring deposits into my qtrade account for long term investments, but I’m revisiting the structure of the investments.
As an extra challenge/constraint, I’d like to keep to qtrade’s list of commission-free ETFs so that I don’t have to think about commission fees when I rebalance. That’s similar to the puzzle that others seem to have on this forum, notably that expressed by @Patrick.
On the “Model Portfolios” page, I learned about the Core equity funds (e.g. XEQT). They are luckily available on QTrade free of commission and provides a no-brainer coverage mix of Canadian, US, Int’l (including emerging markets) stock, but they seem heavily weighed in the US direction (around 45% US, 25% Canada, 30% intl).
If I wanted to try out a more-even balance 1:1:1 of Canadian, US, and Intl market funds (as is suggested in the book), would it better to supplement a core global fund portfolio with a bit more canadian-only equity fund on the side, or avoid the broad fund, and build up the portfolio from “non-overlapping-market” constituents ?
I think I could make a 1:1:1 split by building up from the following assets classes, but I’m not sure if I have any blind spots.
– For the canadian portion: A mix of HXT and XMD (as described here)
– For the US portion, would “XHS – Horizons S&P 500 Index ETF” provide exposure to most US categories (tech, finance, healthcare, etc)?
– For the international portion, there’s: “CIE – iShares International Fundamental Index ETF” , but it doesn’t look like there’s much emergent market representation. And 10% of it is from Canadian stock.
– For fixed income: Both QTrade and Scotia iTrade now offer commission-free access to XQB – iShares High Quality CanadianBd ETF Comm. So that seems like a no-brainer (to me).
@Stephen: Replying to an old comment: As for the minimum trade requirement in QTrade to benefit from commission-free, that seems to no longer be required as (at least as of Aug 2022)
@JS: My thinking on this has evolved since this post was written a decade ago, before asset allocation ETFs came on the scene. The 1:1:1 split of Canadian, US and international equities is a perfectly good starting point, but it’s fairly arbitrary. The mix in XEQT does give more weight to US stocks, but US stocks now make up about 60% of the global market, so this is justifiable. XEQT still overweights Canadian stocks significantly, and it’s an excellent choice for a globally balanced portfolio. Certainly it’s preferable to a patchwork of four or five individual ETFs that are chosen simply because they happen to trade commission-free at a specific brokerage.
This is especially true when you consider that HXT and HXS use a non-traditional structure (they hold swaps rather than holding the stocks directly) and CIE uses a “fundamental indexing” strategy that is quite different from traditionally indexing (see Reboot Your Portfolio, page 104). You are also correct that it includes no emerging markets.
You could combine XQB for bonds with XEQT for equities, especially if you are using an asset location strategy, e.g. holding only equities in your TFSA, but a mix of bonds and equities in your RRSP.
I’d suggest that you make your investing life simpler (and build a better portfolio) by simply using asset allocation ETFs wherever possible.
@CanadianCouchPotato Thank you, that is a clear answer!
I’m glad you pointed out the structural differences in HXT, HXS, and the use of fundamental indexing. I’d not imparted that into my equation.
As a newcomer to the world of funds catalogs, I will admit that my initial interpretation of the words “total”, “fundamental”, “core” (and to a lesser degree “capped”), was not that it influenced how stocks were ranked. Rather, it was to (incorrectly) assume that they were just branding terms.
A “patchwork of free-commission” funds (6 different funds) would allow the most freedom in asset location since it’s all broken apart, and would allow more frequent rebalancing without incurring trade fees (since… no-commission). But if it’s at the expense of complicated overlapping diversification between funds, differences in the way the fund compositions are tracked, or increased churn on the trading platform. Then you’re right… it’s not worth it. I eventually got to chapter 8 of the book (“Keep it in Balance), and that convinced me further.
Combining XEQT and XQB in any custom ratio is appealing indeed — and _is_ the approach you recommend in the “Model Portfolios” page when your target lands between two 20% brackets.
But, say one wanted to create a portfolio with a 70/30 equity to fixed-income mix:
Rather than going with a 70/30 split with XEQT/XQB and rebalance periodically, would it be also sensible to instead go for a 50/50 mix of XGRO and XBAL (which are the two closest asset allocation ETF neighbors around the 70/30 point) ? The two “funds of funds” track the exact same set of indexes, just in different proportions. So, in periods of volatility, it seems it would allow DIY investors to keep things balanced better than say all-bonds VS all-equity funds. (For someone who can only inject a small amount per month to their portfolio, the fact that the two funds are more likely to stay close together also means that “the needle” doesn’t need to move as much)
@JS: Glad this was useful. Yes, you can definitely combine asset allocation ETFs to get an asset allocation of 70% equities (or 50% equities). This would indeed be likely to be less volatile and probably easier to rebalance, since all yo would need to do is keep the two holdings at roughly the same value. Good luck!