Gouged by unnecessary FOREX charges in self-directed RRSP Account

[wasteislander]

Hi,

Does anyone know of a broker where for a self directed RRSP (or RESP for that matter), you can keep your USD stocks (and cash) seperate from your CAD holdings.

I now have an Action Direct account with RBC for my RRSP, my wife's and an RESP, and I'm totally frustrated that I get dinged on the foreign exchange spread at every single USD transaction.

I used to have an unregistered trading account at TD, where the USD holdings were seperate. I would get a USD cash credit on a sale of USD stocks and their dividends, and USD debits for stock purchases. In my registered accounts, the way they do it is every buy, sell or divendend gets converted to CAD or from CAD from or to USD, with a 4% spread.

I complained over a year ago but I feel RBC is dragging their feet on this (they said it was due to a system limitation).

Note that since 2005, there is no longer any foreign content limit to RRSP and foreign currencies may be held (except those held at "collectible" value - whatever that means - collectible rare coins or bills maybe...), so there is no regulatory requirement to convert everything to CAD.

Finally, I wonder if there isn't some sort of collusion within the industry to stall the rollout of seperate USD and CAD and keep gouging consumers...

Your thoughts? Should we write our MP's?

[brunes]

Hi,

Does anyone know of a broker where for a self directed RRSP (or RESP for that matter), you can keep your USD stocks (and cash) seperate from your CAD holdings.

I now have an Action Direct account with RBC for my RRSP, my wife's and an RESP, and I'm totally frustrated that I get dinged on the foreign exchange spread at every single USD transaction.

I used to have an unregistered trading account at TD, where the USD holdings were seperate. I would get a USD cash credit on a sale of USD stocks and their dividends, and USD debits for stock purchases. In my registered accounts, the way they do it is every buy, sell or divendend gets converted to CAD or from CAD from or to USD, with a 4% spread.

I complained over a year ago but I feel RBC is dragging their feet on this (they said it was due to a system limitation).

Note that since 2005, there is no longer any foreign content limit to RRSP and foreign currencies may be held (except those held at "collectible" value - whatever that means - collectible rare coins or bills maybe...), so there is no regulatory requirement to convert everything to CAD.

Finally, I wonder if there isn't some sort of collusion within the industry to stall the rollout of seperate USD and CAD and keep gouging consumers...

Your thoughts? Should we write our MP's?

Questrade does the same thing.

[AllWheelDrift]

Here's some info about how to do a "wash" trade with TD: http://www.canadiancapitalist.com/2007/08/07/how-to-wash-your-trade

Basically, you can call them after your order is filled but before your settlement date to place the proceeds (or debit if you are buying) their USD Money Market fund. From the sound of it, they are the only brokerage that does this at this time. On the other hand, I did read somewhere that some brokerage was planning on introducing US holdings much like you are suggesting, but there was no information on which brokerage this was.

[max88]

Hi,

I complained over a year ago but I feel RBC is dragging their feet on this (they said it was due to a system limitation).

That's BS. There is no system limitation nor legislative limitation. It's limitation by design to force a forex on everyone transaction to benefit the broker.


Finally, I wonder if there isn't some sort of collusion within the industry to stall the rollout of seperate USD and CAD and keep gouging consumers...

Your thoughts? Should we write our MP's?

Exactly, except no actual collusion (but who knows?). When one broker starts offering separate accounts for USD and CAD, others will have to follow suit. No one in the industry could get more customers but all would have lost forex revenue.

[harlequin]

This issue comes up periodically in Canadian personal finance forums - from what I have read, all the financial institutions which have registered accounts do this automatic conversion. They say it is necessary due to either 1) system limitations or 2) accounting convenience (since all registered accounts must be reported in CAD). But really it just one of the many ways that Canadian banks hose us. What are your options?

1. don't do USD (or other FX) transactions in your registered accounts. If you want to diversify into non-Canadian investments in your registered accounts, use mutual funds which reinvest distributions, or stocks which don't pay dividends (e.g. Berkshire Hathaway).

2. wait for the banks to stop doing this - at some point, either the government will put a gun to their greedy little heads and make them stop this crap, or one of the banks will do it on their own, and the others will be forced to follow along.

3. if you can't beat them, join them - Canadian banks are making obscene profits, so buy their stock and get yourself a piece of the action.

[dragan69]

I can verify the Waterhouse will do a wash trade for you in your registered accounts. Your initial trade can be done online, but the request for the was must be done over the phone with a live trader. There is no comission/load to buy/sell moneymarket.

[brunes]

This issue comes up periodically in Canadian personal finance forums - from what I have read, all the financial institutions which have registered accounts do this automatic conversion. They say it is necessary due to either 1) system limitations or 2) accounting convenience (since all registered accounts must be reported in CAD). But really it just one of the many ways that Canadian banks hose us. What are your options?

1. don't do USD (or other FX) transactions in your registered accounts. If you want to diversify into non-Canadian investments in your registered accounts, use mutual funds which reinvest distributions, or stocks which don't pay dividends (e.g. Berkshire Hathaway).
The problem is since US stocks dividends are not taxed at a preferred rate most people prefer to buy their dividend paying US stocks in their RRSP.

[sil]

I can verify the Waterhouse will do a wash trade for you in your registered accounts. Your initial trade can be done online, but the request for the was must be done over the phone with a live trader. There is no comission/load to buy/sell moneymarket.

i've confirmed with their customer service that they can indeed wash trades into their US money market fund, but don't hold any US funds in my rrsp yet... i've also called into ETrade and they did mention that they can wash trades, not sure how they hold the US cash if there are any commissions/load/buy/sell if you hold it in the same TD US money market fund, didn't clarify with them

[Arnblas]

Questrade recently sent me a monthly statement, and encouraged me to provide them feedback on possible new features and services they could offer to their customers. The URI for providing feedback is http://www.questrade.com/why_questrade/feedback_your_turn.aspx, and I would recommend that all Questrade clients who are reading this thread visit that link and explain why allowing USD cash in RRSP accounts would be greatly appreciated.

[Nav]

That's BS. There is no system limitation nor legislative limitation. It's limitation by design to force a forex on everyone transaction to benefit the broker.



Exactly, except no actual collusion (but who knows?). When one broker starts offering separate accounts for USD and CAD, others will have to follow suit. No one in the industry could get more customers but all would have lost forex revenue.

You seem pretty certain that it is BS and there is no system limitation. I have worked with a bank owned brokerage recently, on the IT side (left as of a month ago) and can tell you that it is in fact a "system limitation". Most brokerages use third party firms for many systems.

Previously, only CAD currency was allowed to be held in an Registered account, although that has been changed recently.

The "system/s" that most brokerages use were designed before the changes came into effect, and it isn't as simple as people think to "just change it". I'm not trying to defend the brokerages at all, I think they should get with the times and make the changes.

Yes, brokerages make money on forex transactions. I doubt there is collusion, unless the intent to make money is collusion.

This issue comes up periodically in Canadian personal finance forums - from what I have read, all the financial institutions which have registered accounts do this automatic conversion. They say it is necessary due to either 1) system limitations or 2) accounting convenience (since all registered accounts must be reported in CAD). But really it just one of the many ways that Canadian banks hose us. What are your options?

1. don't do USD (or other FX) transactions in your registered accounts. If you want to diversify into non-Canadian investments in your registered accounts, use mutual funds which reinvest distributions, or stocks which don't pay dividends (e.g. Berkshire Hathaway).

2. wait for the banks to stop doing this - at some point, either the government will put a gun to their greedy little heads and make them stop this crap, or one of the banks will do it on their own, and the others will be forced to follow along.

3. if you can't beat them, join them - Canadian banks are making obscene profits, so buy their stock and get yourself a piece of the action.

[harlequin]

The "system/s" that most brokerages use were designed before the changes came into effect, and it isn't as simple as people think to "just change it". I'm not trying to defend the brokerages at all, I think they should get with the times and make the changes.

Yes, brokerages make money on forex transactions. I doubt there is collusion, unless the intent to make money is collusion.

I agree with you, probably is not as simple as some people think. But nevertheless, if the financial institutions were losing a couple of points on every involuntary FX transaction (rather than making it), I'll bet that, difficult or not, the change would be made pretty damn quick.