Commission-free ETFs come to Canada

Until now, the growing popularity of exchange traded funds has largely only been a threat to advisors in the MFDA channel, who have limited access to the low-cost alternatives to mutual funds. But a new agreement could threaten IIROC advisors as well, by providing an additional incentive to do-it-yourself investors.

This week, Scotia iTrade announced it was waiving its trading commission on 46 ETFs, including 31 from Claymore, eight from iShares and seven from Horizons Exchange-Traded Funds.

This is a pretty significant development in the investing world. ETFs are already cheap to hold—management expense ratios are often 100 to 200 basis points lower than mutual fund MERs—but pesky commission fees from online brokerages have made them less cost efficient than they should be.

Most Canadian discount brokerages charge either $29, or $10 per transaction, depending on how many trades an investors makes in a month. While that may not seem like a lot if you trade once a year, for do-it-yourself investors who regularity rebalance, want to try out a new ETF, or practice dollar cost averaging, those fees add up.

Right now it’s only Scotia that’s waiving these fees on some ETFs, but you can bet other brokers will soon follow suit. Several U.S. brokerages have already gone this route.

So what can investors buy? Claymore’s entire suite of ETFs is available. iShares offers mostly sector and country ETFs, such as the S&P/TSX capped info technology fund and the S&P CNX Nifty India Index, while some of Horizons’ commodity ETFs have received the commission-free treatment. (View the entire list of iTrade’s offerings.)

Earn CE credits on ETFs

• Institutional Asset Allocation Using ETFs
• Fundamental vs. Traditional Index Investing
• Investment Strategies for the China Century
• The Place of ETFs in Portfolio Allocation and Diversification
• Benefits of Combining Active and Index-based Investing Strategies
• Pension Investing with ETFs

It may seem strange that investors have access to so many more Claymore ETFs, but an article in The Globe and Mail explains that the company is paying for part of this commission-free program’s marketing. It’s also giving iTrade educational content for its investors.

This arrangement means that some competing ETFs are left out because Claymore gets priority over what’s offered. The Globe points out that the iShares S&P/TSX Capped Energy Index Fund is more diversified and more traded than the Claymore Oil Sand Sector ETF, which iTrade offers.

Still, ETF aficionados are thrilled that they won’t have to pay commissions on some of their favourite buys. Dan Bortolotti, an editor with MoneySense and author of the Canadian Couch Potato blog writes in a post that this is a significant step forward for investors.

“Kudos to Scotia iTrade and Claymore for introducing something genuinely new and useful into the chaotic ETF landscape,” he writes. “Here’s hoping they’ll spur other brokerages and ETF providers to offer something similar.”

This article originally appeared on CanadianBusiness.com.