Commission-Free ETFs Arrive in Canada

It seems like every week we hear high-profile announcements about new ETFs, very few of which promise anything genuinely new. Then along comes something unique in Canada and I haven’t seen so much as a press release about it. Yesterday I logged on to my Scotia iTrade account and discovered that the brokerage now offers dozens of commission-free ETFs.

This is a big deal. While ETFs in Canada are dramatically cheaper than index mutual funds (with a few exceptions), one hurdle remains: buying and selling ETFs incurs commissions. In small accounts with the big banks’ discount brokerages, you can pay as much as $29 per trade. Of course, $10 trades are now commonplace, but even that fee makes small monthly contributions and dollar-cost averaging prohibitively expensive.

Last year, several U.S. discount brokerages—including Fidelity, Schwab and Vanguard—began offering commission-free ETF trades. I wrote a post in February 2010 wondering aloud if any Canadian brokerage would follow suit, and suggested that BMO was the obvious candidate, since they are the only firm to have both a discount brokerage and a family of ETFs. Now it turns out they’ve been beaten to the punch.

iTrade teams up with Claymore

The Scotia iTrade deal is a partnership with Claymore, and most of the commission-free ETFs are from that provider: in fact, Claymore’s whole family is on the list of eligible ETFs. This isn’t surprising, as Claymore has been the leader in the effort to close the gap between mutual funds and ETFs: they were the first to launch a dividend reinvestment plan (DRIP), Pre-Authorized Cash Contributions (PACC) and Systematic Withdrawal Plans (SWP).

Eight iShares and seven Horizons ETFs also eligible for commission-free trades. The iShares products on the list are mostly sector ETFs, plus a couple of specialized Canadian and emerging markets funds. The flagship iShares products are all absent, probably because Claymore has core ETFs that compete with them.

The menu of Horizons ETFs includes non-leveraged commodity funds (copper, silver, oil and gas, though not gold) as well as  Horizons S&P/TSX 60 (HXT) and the Horizons S&P 500 (HXS). These are the swap-based ETFs I wrote about back in June. They provide exposure to the large-cap Canadian and U.S. equity markets using derivatives and may be a good choice for taxable accounts. HXT is the cheapest ETF in Canada at just 0.08%—combine that tiny fee with zero trading commissions and it becomes a very tempting alternative to the granddaddy of ETFs, the iShares S&P/TSX 60 (XIU).

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