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US$ RRSP


mranski
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Anyone know why major discount brokerages (bank) don't offer this?

 

 

 

IMO, it's because too few people know that they are getting royally screwed on exchange rates and there is no pressure on the banks to change.  It would cost the banks a chunk of money to add US$ RRSP capability as it would be a significant information systems challenge, and then the banks would also lose the margin that the get from converting every little dividend back to CDN$ and from dinging clients a couple percent on each trade.

 

Canadian clients focus far too much on the visible trading commissions (ie, we get totally pissed if broker X offers $9.95 commissions and broker Y has the audacity to charge $14.95).  For the few dozen trades that I make per year, the difference in trading commissions amounts to bugger-all.  Getting screwed once per year on a decent sized currency conversion totally overwhelms any differences in stock trading commissions amongst the big-5.  The worst is that the banks' disclosure on their FX spreads is generally pretty poor, so it is really tough to figure out who screws you the least, and who screws you the most (probably IB is the best).

 

SJ

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Anyone know why major discount brokerages (bank) don't offer this?

 

 

 

IMO, it's because too few people know that they are getting royally screwed on exchange rates and there is no pressure on the banks to change.  It would cost the banks a chunk of money to add US$ RRSP capability as it would be a significant information systems challenge, and then the banks would also lose the margin that the get from converting every little dividend back to CDN$ and from dinging clients a couple percent on each trade.

 

Canadian clients focus far too much on the visible trading commissions (ie, we get totally pissed if broker X offers $9.95 commissions and broker Y has the audacity to charge $14.95).  For the few dozen trades that I make per year, the difference in trading commissions amounts to bugger-all.  Getting screwed once per year on a decent sized currency conversion totally overwhelms any differences in stock trading commissions amongst the big-5.  The worst is that the banks' disclosure on their FX spreads is generally pretty poor, so it is really tough to figure out who screws you the least, and who screws you the most (probably IB is the best).

 

SJ

 

Agreed on all points.

 

There was actually a class-action lawsuit against BMO on this issue:

http://www.investorvoice.ca/Scandals/RRSP_FX/RRSP_FX_Index.htm

 

The banks say they can't hold USD in RRSPs due to "software system limitations," which is silly given the amount they spend on IT upgrades every year. Given that the government rules on foreign currency holdings were changed in 2001, that excuse is wearing pretty thin. The reality is that currency transactions are immensely profitable for them, and for 95% of their customers, they are invisible.

 

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I believe the Cdn Gov't (Canada Revenue Agency in particular) do not allow any other currencies other than the Cdn $ within an RRSP.  When a US$ investment is sold, it is therefore automatically converted to Cdn$.  If you want to purchase a US$ stock/investment, you need to take your Cdn $$ cash and convert to buy.  If I am not mistaken, US $$ denominated Mutual Funds are also not RRSP eligible.  Therefore, I do not believe it is a system or technical problem as to why RRSP providers can not offer US $ currency in an RRSP.

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99% true...the exception is that an equivalent US$ trade on the same day (called a wash trade by TD Waterhouse) can be done without incurring a currency conversion.  That is, sell US$-denominated shares and have an equivalent value buy of US$-denominated shares. 

 

-O

 

I believe the Cdn Gov't (Canada Revenue Agency in particular) do not allow any other currencies other than the Cdn $ within an RRSP.  When a US$ investment is sold, it is therefore automatically converted to Cdn$.  If you want to purchase a US$ stock/investment, you need to take your Cdn $$ cash and convert to buy.  If I am not mistaken, US $$ denominated Mutual Funds are also not RRSP eligible.  Therefore, I do not believe it is a system or technical problem as to why RRSP providers can not offer US $ currency in an RRSP.

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TD Waterhouse does support purchasing US securities in your Canadian Self Directed RSP.

 

The transaction costs can be high since they charge you USD/CDN exchange and I think a conversion charge too.

 

When you go and sell a US security, they will convert the security back to CDN. If you place the trade over the phone, they can hold the USD in some type of instrument(USD bond or something) until you find something else to buy.

 

Your best bet is to contact them and get them to confirm the process as I have not sold any USD stock that I have bought.

 

 

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TD told me 2 years ago they were working on it. They never said it was CRA rules. Last time they said it was complicated and maybe not feasible. But you are talking to front line representatives who may not know. I don't know the answer. I suspect it is the RRSP reporting to CRA issues for the brokerage that is the roadblock, but not the CRA themselves.

 

The foreign content limit abolishment, and the resulting usefulness from a tax viewpoint, of putting foreign dividend payers in an RRSP, make the automatic conversion of dividends to cdn dollars very punitive. Buying or selling a large initial position with currency exchange spreads is very expensive, and it is hard to pinpoint the real cost. From my calculations, it is huge. It dwarfs the trade fee issue.

 

You can wash trades , but it is inconvenient, a phone call, not the answer long term.

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All of the Cdn banks have been in receipt of class action on this matter most have settled for peanuts and improved their disclosure .... they now send you a statement full of legalese telling you how they are going to screw you on forex before they just screwed ya. The rules actually allow you to hold foreign currencies in your RRSP but no bank or broker in Canada allows it. Yes only sophisticated investors look beyond the 9.99 comish to what the true cost is. A Banker /broker has many many ways to earn a fee

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mranski,

 

I was not clear enough in my post near the beginning of this thread... Questrade is a Canadian broker that does allow you to hold US cash in the RRSP.   I maintain a small account there for this purpose. They credit US dividends to my RRSP account without any withholdings or FX fees. You can convert CAD cash to US cash, or vice versa, in your account at will. I have not run into any real functional limitations of this system.

 

The only qualm I have is with the manner in which they do the bookkeeping for your cash entries.  Say your cash in the account is $500 USD (from dividends).  The USD$500 is listed as an account holding as "US dollars (RSP trustee)" and it is treated like other securities in your account.  It seems like a clumsy and somewhat inelegant solution.

 

Obviously, it would be nice if the big banks would get this working at their discount brokerages, but they have no motivation while they continue to earn juicy F/X spreads on each $US transaction.

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Questrade added this capability almost 2 years ago. Their press release included a FAQ. Here is the last question from that:

Why do banks and brokerages do forced currency conversions when trading U.S. securities in registered accounts?

The legal ability to hold currencies other than the Canadian dollar in registered accounts came into effect on April 1st, 2006. But that was only one hurdle. The other is the technology available to maintain books and records (clearing capability), which is used by the majority of North American financial institutions, including Questrade, to clear trades. The software was not designed to hold multiple currencies in registered accounts.  As a result, there is simply no way for the software to encode U.S. currency, therefore preventing anything but Canadian dollars from being entered as cash in the account. That said, there has been little to no corporate will to solve this problem.  It would be a switch‐over on a massive scale and it would eliminate a major revenue stream for brokerages and banks.

I want to be clear... I am not recommending Questrade here. I would much rather consolidate everything and deal exclusively with one of the big bank brokerages.  Questrade's customer service does not compare favourably to the bank owned brokerages.  My personal experience with them has been okay.  They have very low commissions and low account opening limits, which attracts a lot of clueless newbies that open an account with $1000 and trade on margin without understanding how anything works.  I'm guessing that calls from people like this overwhelm their customer service reps.  I have seen a lot of complaints about Questrade on the net from people that are obviously brain-dead morons. But I have seen some valid customer complaints on the net as well.  I think Questrade's business would do better if they raised their minimum account size. IMO, people with only $1000 to invest should have it in a bank for a rainy day or in a mutual fund but not directly in individual stocks. I don't think they belong on the phone to customer service arguing about margin rules they can't understand.  

 

/nodnub

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Questrade does handle the US and CDN issue quite well in my opinion.  It's not seamless, but it is as far from punitive as I can find for the purpose of contributing Canadian Funds and purchasing US denominated instruments in an RRSP.  I have also used TD Self Directed in the past.  As far as getting answers or solving issues, I find the Live Chat feature on Questrade works great.  I probably spend the same amount of time waiting for a response but the Live Chat method makes it seem realy quick compared to waiting on the phone.

 

They're certainly not full service but they get the job done cheap.  Especially wrt exchange rate gouges.

 

I rarely execute more than 5 trades a month.

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I switched everything to Questrade this summer after my old broker charged me 2x30$ for a transaction that was done in two days. This represented more then 2% of the total transaction which is totally unacceptable. Questrade had a promotion that paid back the transfer fees from other institutions so I took advantage of it.

 

My personal experience with Questrade customer service has been pretty bad. When I asked to get reimbursed about the transfer fees they were all mixed up about the minimum amount. Some were saying that it had to be the minimum amount of cash transferred... which make no sense. Finally after 5 calls they agreed to pay me back but they said they had to wait 3 months after end of the promotion before they would transfer the money. The promotion finished august 31st... so in a few days I should have my money but I believe I will have to remind them!

 

Their system is horribly presented, my RRSP and TFSA trading uses two different logins. Plus another login to manage the account and another login at a third party website to know the history of my accounts transactions. That is 4 different user/pass to remember!

 

The trading support is not good, for example if I want to trade FFH, I would have enter FFH.to into the ticker symbol. For Richelieu it is RCH.VN. I'm not sure if you guys know but it's very annoying that the first time you try to place a trade that you just can't find how to place it. Especially if the customer service is closed.

 

On a positive not I'm a cheap bastard, the annoyances stated above are well worth the 25$ per transactions savings. I do about one transaction per month but for me friction costs is critical. I fully intend to use the USD/CND currency capabilities of Questrade... this is great as I can use 30 years to let a falling currency get back to where I bought it.

 

BeerBaron

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