The deadline for Canadians to make RRSP contributions for the 2024 tax year is March 3, which means these accounts are top of mind for many investors right now. That makes it easier for brokerages to market their offers and get attention.AnthonyRosenberg/iStockPhoto / Getty Images
A rare and rather lucrative battle for Canadians’ retirement savings accounts has erupted, with online brokerages paying lavish transfer bonuses to convince do-it-yourself investors to move their nest eggs.
Since January, a host of non-bank digital brokerages such as Questrade Financial Group, Qtrade and Wealthsimple have been offering sizable bonuses to new clients. These bounties tend to vary by the dollar amounts transferred, but the best bonuses fall between 3 per cent and 5 per cent of assets under $10,000, and between 1.5 per cent and 2 per cent of assets above that level.
The market has turned so competitive, so quickly, that some Big Six banks are even getting in on the action – something they traditionally loathe. Bank of Nova Scotia’s iTrade platform is now paying 1-per-cent bonuses, as is Toronto-Dominion Bank’s Direct Investing portal.
Transfer bonuses for banking and investment accounts have been around for years, and they’ve been paid in cash and in products such as new iPads or iPhones. This year, though, the bounties on offer are particularly enticing, often maxing out at $10,000 a transfer. In the case of Wealthsimple, they run as high as $100,000.
“We’re definitely observing higher levels of competition,” Rob Galaski, Questrade’s chief journey officer, said in an interview.
The current market is also unique because the best bonuses are being offered on registered retirement savings plans, or RRSPs, which haven’t gotten as much love in recent years.
Some of the focus on RRSPs stems from the time of year. The deadline for Canadians to make RRSP contributions for the 2024 tax year is March 3, which means these accounts are top of mind for many investors right now. That makes it easier for brokerages to market their offers and get attention.
But RRSPs are also particularly lucrative for the brokerages. Canadians have saved around $2-trillion in these accounts, and as much as the non-bank players like to wrap themselves in the disruptor flag, they’re also out to make money – and RRSP accounts are particularly good for that.
Within the industry, the money invested in RRSPs is considered “sticky,” which means it tends to stay in the accounts for decades. That gives the brokerages time to earn back the transfer bonuses – and also to profit.
Over the years, industry insiders have pointed to high foreign-exchange fees as one area where non-bank players operate just like the Big Six, often charging around 1.5 per cent to purchase a U.S. stock, and then 1.5 per cent again whenever the client sells. The Globe and Mail recently published its annual digital brokerage ranking, and in the FX category, Wealthsimple charged the highest fee on a hypothetical trade.
Digital brokerages can also make money from per-trade stock commissions; from selling their order flow to large hedge funds, which means they route their trades through market-makers such as Citadel Securities in return for a cut of the profits; and from per-trade commissions on cryptocurrency trading. The latter can be particularly lucrative.
The transfer bonuses at least hand some of this money back to clients. But the risk for the trading platforms is that customers get addicted to them, similar to how cable TV and internet users learned to call Bell, Rogers or Telus every two years to negotiate a new deal after their contracts had expired.
To limit this, the digital brokerages pay the bonuses over an extended time frame. Non-bank brokerages usually pay out over two years, while the banks pay theirs over one year. If a client moves some of their money before this period is up, the total amount earned drops (because the bonus is calculated as a percentage of the amount kept in the account).
Despite the potential for clients to game the system, Wealthsimple says its own payments have been worth it – and it has ample experience, considering it’s offered rolling bonuses for years, often for tax-free savings accounts. “When clients come to us, they stay,” chief commercial officer Paul Teshima said in an interview. Wealthsimple has found that Canadians who sign up through an incentive tend to deposit three times more funds once they’re a client than those who do not.
But it’s still tough to strike the right balance because these bonuses can upset existing clients – one reason Questrade has rarely participated in these campaigns.
This year, though, the company was willing to play ball because its new discounts dovetail with a big marketing campaign. The company’s been around for 25 years but recently has ceded some ground to rivals. “We’re trying to signal to the market this highly energetic version of Questrade,” Mr. Galaski said, adding that new perks for clients include free trading on stocks and exchange-traded funds.
Ultimately, he added, the battle is good for investors. “In the end, Canadians need more competition in financial services,” he said.