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You get what you pay for

Online brokers with free trading have their limitations

In the world of online brokers, fees get a lot of attention. Online brokers were introduced in the 1980s with the lure of lower commissions on trading and easier access to the stock market. This was achieved. Most online brokers charge a commission to buy and sell ETFs and stocks ranging from $4.95 to $9.95. This is certainty an improvement over the commissions charged by old school brokers. More competitors entered the market, eager to gain customers - brokers like Qtrade and Wealthsimple – and took prices down even further. Both of these brokers offer free ETF trades, and Wealthsimple goes a step further and offers free trading in stocks. It’s tempting to go with the cheapest option – no-fee trading sounds great. And it is. But you have to be prepared to forego some of the benefits you get with a broker that charges more.

I opened an account with Wealthsimple to check it out for myself. I also have many clients who have started using the platform. Through these experiences I’ve learned a few things about Wealthsimple – especially its weak points. Before you jump in to the cheapest option, consider these limitations.

1. Wealthsimple is just that….simple. When I went to place my first trade I was underwhelmed by the experience. Having always traded with TD Direct Investing, the Wealthsimple platform looked a little Mickey Mouse. Now, for many people this is totally fine and in fact is a positive feature: simpler feels easier and less intimidating. There are no flashing lights, no fancy charts, no news feed – this all fine. But there’s also no research or portfolio analysis. For example, TD Direct Investing has a lot of cool features, like forecasting your dividend and interest income by month and breaking down your asset allocation by asset class and geography. For investors who have an interest in obsessing slightly (or simply learning more), Wealthsimple might not cut it.

2. Wealthsimple can be glitchy and has limitations. Its platform originated as a mobile app and later it introduced the desktop version. There are still limitations with what you can do on the desktop version, including something as basic as transferring money between your Wealthsimple accounts. What I like about using TD is how easy it is to move money from my branch-based accounts to my online broker accounts, although I will note it’s not that easy with all of the banks (I’m talking about you, RBC.) If you’re a desktop user, you might find Wealthsimple a little annoying. To add to the annoyance, one client mentioned that she couldn’t install the app on her phone because it was an older phone, which doubled her frustration trying to move money around.

3. Wealthsimple doesn’t offer all products. One significant disadvantage, in my view, is that Wealthsimple does allow you to invest in GICs. With rates tantalizingly high right now (more than 5%), this is a drag. You can buy a high-interest ETF which is a good alternative, except that unlike a GIC, the rates on these products are not guaranteed or locked in and can change over time. Wealthsimple also doesn’t offer mutual funds. For most people, Wealthsimple’s ETF and stock offering is enough – but be aware of these limitations.

Who is the ideal Wealthsimple client? Someone who wants a simple portfolio of ETFs and isn’t interested in fancy reports. You also need to be comfortable with using the app on your phone and can put up with a bit of a hassle when transferring money in and out of your account. If this is you, enjoy the cheap and cheerful Wealthsimple experience. Otherwise, consider looking at a more sophisticated platform like the bank brokers or Questrade.

Do you have experience using Wealthsimple? I’d love to hear your feedback. Leave your comments below.

2 commenti

31 ott 2023

I'm a university student right now and I've been pretty happy with wealthsimple so far. I currently have a student sized income, so zero commission fees was the main selling point for myself. I'm going with couch potato approach right now and am solely invested in veqt at the moment (and that likely won't change anytime soon). For that purpose, wealthsimple provides everything I really need. I do wonder what my relationship with wealtshimple will be like in the future. As I enter the workforce and earn a higher income, I wonder if wealthsimple will incorporate more features or if I will move to a more traditional, feature-rich broker.

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20 ott 2023

"Someone who wants a simple portfolio of ETFs and isn’t interested in fancy reports." This describes me to a T. I'm taking the Canadian Coach Potato approach, so I don't need any fancy charts or info and the free trades mean my bi-weekly contributions to those ETFs aren't expensive (they would otherwise be pretty pricy, right?).

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