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CIBC’s Revenge


Lessons learned. Don’t poke fun at the Banks, especially CIBC (on, not one, not two, but three previous occasions).

When the Day Traders of 1999 and Do-It-Yourselfers of the mid 2000’s blew up along side the markets, the Banks, all Banks, had these wonderfully trading platforms that, all of a sudden, saw their trading revenue go missing-in-action. CIBC, (along with all the other Big 5 Banks, one presumes, by their record revenues about to be released), had to replace trading revenue. How?

CIBC’s Investors Edge did it with fees.

Sometime in the mid 2000’s, self-directed investment customers became more scarce. Usually, costs are slashed and prices are cut to attract new customers (or retain existing customers). CIBC Investors Edge? Nope. CIBC Investors Edge had the audacity to INCREASE their PER TRADE FEE from $25 to $28.95. Canadian or U.S. securities.

How about adding a SWAP FEE? Seasoned investors have done swaps between their RRSP and Non-RRSP accounts for free since the early 1980’s (at least).

Sometimes Individual Investors end up with bonds (or a bond fund or bond ETF) in their Non-RRSP account and some sort of dividend security (or fund or ETF) in their registered account. Call it bad planning. It makes sense to swap the two.

Swap the bonds into the registered account and, in exchange, swap the dividend security out of the registered account to the non-registered account. One-for-one.

This shelters the interest income from the bonds (they are now in the RRSP). And the investor can enjoy the tax-advantaged dividend income treatment by holding the dividend securities outside the registered account in their Non-RRSP account.

CIBC Investors Edge has instituted a SWAP FEE of $35. Not a $35 fee per swap but a $35 fee PER SECURITY. So a swap now costs $70 (unless cash is one side of the swap).

Wait there’s more.

To ensure ‘competitiveness’ with other Individual Investor trading platforms (like TD, who charges $9.99 per trade for an ‘umbrella’ of accounts totalling $100,000 minimum), CIBC Investors Edge introduced their CIBC Advantage program. For $395 per calendar year, the Individual Investor can have up to 50 trades. PER ACCOUNT. That’s right, $395 per account. So, normally, Individual Investors have an RRSP and a Non-RRSP (Cash) account but may also have a Locked-in account (LIRA) and more recently a Tax Free Savings Account (TFSA). (So pay $395 per account or pay $395 on one account and regular trading fees of $28.95 per transaction in any non-Advantaged accounts).

Yup, ‘you got Bankers’.

One option would be to simply move ones Banking.

CIBC has about 6 million customers. If it loses one to TD, another from BMO simply crosses the street to CIBC.

It’s called an oligopoly.

Another option would be to buy CIBC stock.

OMG!

For an advocate of Exchange Traded Funds (ETFs), this is heresy. ETFs help to ensure diversification while avoiding individual security risk. But multiply CIBC’s fees (from this small sample) by 6 million customers and one can foresee continued record Bank earnings (to be announced shortly) which eventually mean dividends for Investors.

Consider it an offering to Bank Karma, but CIBC stock in a non-RRSP portfolio could complement an ETF Core RRSP portfolio.

If you can’t beat ’em, buy ’em.

Touché, CIBC.

Next time?

Quick fix syndrome.

Doug Cronk CFA is Manager, Investments for a Canadian Pension fund

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