Is Commission Free Trading Now the New Normal?

Investment brokers are typically solicited when clients need to buy or sell stocks, bonds, exchange traded funds (ETFs), mutual funds and the like. Brokers are licensed agents from investment companies. The primary purpose of a broker is to invest funds on behalf of the client, including the buying and selling of financial instruments. A broker, or a brokerage firm, generates revenue through the services provided to clients. These include trading fees, commissions, account rebalancing charges, monthly maintenance fees, inactivity fees, and the like. These fees are automatically debited from the trader’s account.

For the most part, a broker will require the trader or investor to make a minimum deposit, or maintain a minimum account balance. This money is used to place trades, make investments, and pay the necessary account fees. Some brokerages require minimum deposit amounts of $500, while others require minimums of $10,000 +. It's important for potential traders and investors to understand the required minimums before registering with a broker. Based on the traditional trading model, a commission is charged on every trade. This amount will vary from one broker to the next. Recall that there are full service brokers offering a wide range of trading options, investment options, and account types and discount brokerages which offer their services at cut-rate prices.

One of the problems with typical discount brokerages is that they merely execute trades for clients. They are not involved in portfolio building, selecting financial instruments, rebalancing your account portfolio, meeting with clients and so forth. However, there are notable exceptions to the blanket definition of a discount broker, such as Wealthsimple Trade. For the most part however, a full-service broker justifies its high fees, charges, and commissions through the services provided by its financial planners. A considerable number of charges exist with bricks and mortar brokerages, including the following:

• 401(k) fees
• Expense ratio fees on funds
• Online charges for stocks ETFs trading
• Representative-assisted charges per trade
• Brokerage fees based on the transaction amount
• Advisory fees for Robo-advisors or financial advisors

The listing of fees, charges and commissions is extensive, and includes things like inactivity fees, data subscription fees, trading platform fees, paper statement fees, account transfer fees, account closing fees and many others. At the end of the day, these fees will make a serious dent in your overall yield. Assuming 0% annual investment fees, one can safely project that all growth, sans taxes and inflation, results in clean profit or loss. However, once you start adding even a fractional percentage of investment fees, the account value over time gets significantly degraded, given the compounding effect of fees on revenue streams.

Cutting Trading Costs is Possible with Discount Brokers

No commission trading is a rarity nowadays, however a leading Canadian brokerage, Wealthsimple Trade is offering $0 commission stock trading via its Android and iOS app. A Wealthsimple review reveals interesting insights about the company which is redefining the way trading and investing takes place online. Canadian traders can easily download and install this broker’s trading app, and enjoy access to a formidable selection of US and Canadian exchange traded funds (ETF's) and stocks.

Part of the problem with brokers is the complexity of conducting transactions. Most traders and investors don't have the requisite information they need to make informed trading decisions. Putting together a financial portfolio is an important undertaking, and one which can have serious repercussions if done incorrectly. Fortunately, this discount broker has no account minimum requirement, and investors can begin with as little as $1. Given that there is no paperwork to complete, the entire registration process and trading activity can take place within minutes. Thanks to the mobile app, one-click trading is now a reality.

What's particularly exciting about this broker is the manner in which clients can choose their financial instruments. If you are risk averse, your portfolio would encompass a broad selection of bonds and a minimal variety of stocks. By contrast, a risk-seeking investor would opt for a stock-heavy portfolio with a minimal amount of bonds. The low fee portfolio model is winning favor with investors across Canada. The company's founder, Mike Katchen alluded to the crippling effect of high fees and commissions on the value of investment portfolios over time. To this end, Wealthsimple Trade offers a full suite of feature-rich elements, including rapid order execution, zero account minimums, commission-free trades, market orders, limit orders, and watchlists.

Widespread Adoption of Novel Trading System

Prior to the launch of the app in August 2018, some 130,000 people registered for the service, and feedback was provided by over 7,000 clients. Now that this app is readily available at the App Store and the Google Play Store, it is helping to change the narrative on how brokers should structure their fees, commissions and charges for clients. This company which has operations in Canada, the US and the United Kingdom has modelled its business on efficient FinTech technology, and it now offers low-cost services, rapid order executions, powerful trading platforms, multiple account types, and automatic rebalancing of financial portfolios.

The following account options are available: TFSA, RRSP, personal taxable accounts, RESP, RRIF, LIRA, corporate accounts, and joint accounts. This financial services company is backed by Power Financial Corporation (TSX: PWF) with broad holdings in Europe, the US and Canada.

The personalized portfolio services provided through this brokerage allow for maximum customization. It appears that leading financial authorities and tech aficionados are already backing this broker, with multiple awards and commendations since 2016. The services provided by Wealthsimple include the automatic robo-advisor style service and a human advisor too. The company offers value-added services in the form of a complimentary portfolio review which encompasses savings, retirement, debt and the like. In an era where many brokers are piling on the fees at every opportunity, clients find it refreshing to find a broker which is moving in the opposite direction by reducing fees, trading complexity, financial gobbledygook, and creating a user-friendly interface for easy investments.