Wealthsimple

Here’s an overview of all the fees you can expect to pay to Wealthsimple, ever.

Commission Fees

None. Wealthsimple has zero commission fees. This means that you can trade stocks back and forth all day, without paying a dime.

For comparison, Questrade’s direct investing platform charges a fee of $0.01/share… with a minimum charge of $4.95. So, you’re really paying $4.95/trade unless you’re trading more than 495 shares in a single transaction. There’s also an upper limit of $9.95. Questrade lets you buy ETFs for free but applies the same fees as above to selling ETFs. At RBC Direct Investing, you’ll pay $9.95/trade, or $6.95/trade when you make at least 150 trades/quarter (an average of 1.6 trades/day).

Foreign Exchange Fees

Whenever you convert CAD to USD, or USD to CAD, you’ll be charged a 1.5% conversion fee. For comparison, the typical foreign transaction fee on a credit card is 2.5%, though some don’t charge any foreign transaction fees at all.

USD Subscription Fees

If you’re a Wealthsimple Core client (meaning you hold less than $100,000 in assets with Wealthsimple), you’ll pay $10.00/month if you choose to open a USD account with them. This is completely optional. If you’re a Wealthsimple Premium or Generational client, the USD account is free.

Management Fees

Wealthsimple charges a management fee for their managed accounts - they do not apply to self-directed accounts. The fee is 0.5% if you hold less than $100,000 in assets with Wealthsimple, 0.4% if you have $100,000-500,000 in assets, and as low as 0.2% if you’ve got at least $10,000,000 in assets (hey, good for you). This management fee is on an annual basis, so if you had a managed portfolio of $10,000, you would pay Wealthsimple $50/year.

For comparison, Questrade has a management fee of 0.25% for accounts with less than $100,000, and 0.20% for accounts with more than that. RBC has a management fee of 0.5% for their managed portfolios, regardless of account balance.

Options Fees

Whenever you create an options contract, you pay $2 USD. For comparison, Questrade charges $1.00/contract, in addition to a $9.95 commission fee. RBC charges $1.25/contact, plus a $9.95 commission fee.

Instant Withdrawal Fees

Normally, Wealthsimple takes a few days to withdraw your money to an external account. If you choose to do an instant withdrawal, you’ll pay 2.5% on the amount you’re withdrawing.

Crypto Trading Fees

You’ll pay 1.5-2% fees whenever you trade crypto.

Bonus: Management Expense Ratios

These fees aren’t dictated by Wealthsimple, but I thought I’d add them for completeness. Individual stocks don’t have any fees associated with them, but when you purchase an ETF, there’ll be a management expense ratio (MER) attached to it. You’ll have to investigate the ETFs you intend to purchase to find out what this fee is. Like management fees, an MER is an annual fee.

Very broadly speaking, there are two basic approaches to investing: active and passive. So what’s the difference?

What it’s not

Some people might (incorrectly) suggest that an active investor is someone who makes frequent trades (up to multiple times a day), while a passive investor is someone who makes infrequent trades (once a month or less). But frequency of trades really isn’t the best way to understand active vs passive investing.

Others might (also incorrectly) suggest that an active investor is someone who handpicks their stocks based on market conditions every time they buy, while a passive investor is someone who buys the same securities repeatedly. This, also, isn’t the best way way to understand active vs passive investing.

What it is

In simple terms, an active investor is someone who is trying to beat the market, while a passive investor is someone who is trying to replicate the market (or a market segment). The movement of a market is measured by weighing all the individual stocks in that market and averaging out their direction. So when you hear that the TSX is down 2%, it means that while some of the stocks may have gone up and others gone down, overall, the average stock price fell 2%.

As of writing this post, the TSX is up 4.61% compared to a year ago. A passive investor looks at that number and says “yeah, I could settle for that.” An active investor says “nah, I could do better.”

How it works

Again, the key to all of this is that a stock market’s average return is literally just the combined return of all the stocks on that market. This means that if you bought a portfolio 1 year ago of all the stocks on the TSX, weighted by their market share, your return over the past year would be 4.61%. It’s really just junior high level math.

So, a passive investor chooses to guarantee themselves a return equal to the average market return. An active investor attempts to predict which stocks will outperform the market average. If the average return of their portfolio is higher than the average return of the market - boom, they won.

This is why the first two definitions of active vs passive investing are faulty. An active investor could buy $10,000 worth of a few stocks and hold for a year, in the hopes that they outperform the market, while a passive investor could buy $20 worth of the market every day for a year. Frequency doesn’t matter.

Similarly, an active investor might keep buying Tesla over and over, while a passive investor will continually rebalance their portfolio to align with the market.

So which is better?

The answer is a little bit complicated (but only a little bit). If you want to get rich quick, passive investing ain’t gonna do it for you. But for my money, I’d choose passive investing over active investing any day. And that’s because it turns out humans are awful at predicting what stocks will over-perform. In fact, over the past 20 years, about 90-95% of active investors failed to beat the market.

The situation gets even worse when you consider that a lot of active investors are actually paying someone else a management fee to pick stocks for them, which takes even more off the top. On the other hand, there are plenty of low-cost ETFs which attempt to replicate segments of the market, like the well-know-and-loved VGRO or XGRO. (portfolios like these are called “index funds”).

Of course, the real answer is that we should all just keep buying GameStop.

Wealthsimple now has FHSA’s! Even if you don’t plan on buying a house immediately, you should open one soon, so that your contribution room begins growing.