Questrade discount brokerage has just come out with a great way for retail mutual fund owners to save on high management fees by offering to rebate up to 1% of those fees.
What’s the deal with the Questrade mutual fund rebate?
Questrade will rebate up to 1% of the management fee for any mutual funds held at Questrade. This amount has to exceed $29.95 per month for the investor to get any rebate. This means that you need to have more than $36,000 in mutual funds before the rebate kicks in.
How is this possible?
When an investor buys a mutual fund from an advisor then the advisor is paid a “trailer” each year which is based on the amount of the investment.  Typical trailers for equity mutual funds are 1%. Bond and money market funds will be lower. The amount Questrade will rebate will be equal to the trailer paid on the funds you owned.
The problem is for a do-it-yourself investor who wants to buy retail mutual funds is that they can only buy them through an advisor or a discount brokerage and they are charged for the trailer even if they don’t have an advisor. With this new program the investor will be able to save most of the trailer amount.
How much will it cost to transfer my mutual funds to Questrade?
If you transfer before March 2, 2009 from a different financial institution and transfer at least $25,000 then it will be free of charge.
How much are mutual fund trading fees?
Questrade charges $9.95 per mutual fund trade.
I don’t have $36,000 – is it still worthwhile?
Depends on the situation – if you are close enough to $36k (ie $30k or more) and will be buying more mutual funds then it might be worth doing even though you won’t get the rebate for a while. At the very least it won’t cost you anything.
Another situation might be if you have some back-end funds that you don’t want to pay commissions on. If you are planning to just buy low cost ETFs then you might consider moving the mutual funds to the same institution.
Where do I sign up?
Click on the banner below or on any of the links you see in the article.
I demand more information!
Check out my Questrade discount brokerage review and my Questrade referral promotion articles for more information.
Is it really cheaper to pay $10 per trade rather than get my advisor to do it for me?
Let’s look at an example – say you have $100k in mutual funds with an average mer of 2.5% and the only service you get from your “advisor” is he completes 12 trades per year for you “free of charge”.
With the advisor you will pay a total of $2,500 per year for the fund management, the advisor’s services and the 12 trades.
With Questrade you will get a rebate of $1,000 (approx) and you will pay $120 for the trading fees for a grand total of $1620 for the fund management and the 12 trades.
$2,500 (current fees) – $1620 (Questrade fees) = a savings of $880 per year.
Personally, I’d rather invest in passive index funds and ETFs which are way cheaper (also available at Questrade) but for anyone who wants to own retail mutual funds – this is a great deal.
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I like Questrade, and I think this is a good first step, but I have several problems with it.
I have yet to find a single fund that actually gives the full 1% trailer fee rebate. Even on funds with extremely high MERs of +6%, Questrade will never rebate more then 0.9%
This leads me to believe their marketing is a lie, they say you can get up to 1% of the value of your fund’s value back with their “Mutual Fund Maximizer”. In reality after their fees the number is much lower. Here is what you get back based on the value of your account and the 0.9% trailer rebate:
$50,000 – 0.18% rebate, $90 (Questrade keeps $409)
$100,000 – 0.54% rebate, $540 (Questrade keeps $459)
$200,000 – 0.72% rebate, $1440 (Questrade keeps $559)
$500,000 – 0.83% rebate, $4140 (Questrade keeps $859)
$1,000,000 – 0.86% rebate, $8640 (Questrade keeps $1359)
Better to have the rebate then not, but you see with their fees its virtually impossible to get even 0.9% let alone 1% back.
I think if Questrade wants they could dominate the discount mututal fund market. They should only change their $29.95 “administrative fee” when you actually cash out your rebate balance (annually). Then small investors (who are more likely to have mutual funds) would get a more “democratic price”.
Cheers, Jordan
Jordan, why is the maximum 0.9%?
You make a very good point that the $30/month does eat up some of the 1%.
When I do the calc for $100k I get a rebate of 0.64% instead of your 0.54% assuming the trailer fee is 1%.
I’m not sure but I wouldn’t be surprised if there are funds that pay more than 1% trailer fees (ie 1.25%) so those might end up giving someone with a lot of money a 1% rebate.
Never mind – I found the calculator and yes it doesn’t appear to use 100% of the trailer.
Hi Four Pillars — I posted the following on MDJ the other day to clear up any misconceptions about our Mutual Fund Maximizer and trailer fee rebates.
After the processing fee ($29.95 per month), the Maximizer rebate is 100% of the rebate paid by the fund company whether the trailer is 1.25% or .5%.
As for the calculator showing .9% of the trailer fee as stated by the fund company in their annual prospectus, this is because what is stated by the fund company is not always accurate. In other words, the actual rebate does not match the anticipated rebate. We keep that in mind when we post the anticipated trailer fee in the calculator or in the rebate tracker in myQuestrade.
Let me illustrate this with an example: a fund company promises a trailer of 1%. However, for several consecutive quarters they do not pay us, and so we cannot pay out a rebate to investors who hold that fund. If we post the rebate as promised by the fund company, our clients may make purchasing decisions based on that number. By posting an anticipated rebate based on actual experience, our clients will have a more realistic picture of what they can expect.
As I stated above, when rebates are paid out, they are 100% of the rebates we receive, whether the fund company pays 90% of their posted rebate or 110%.
Lynn Suderman
Communications Manager, Questrade
Hi Lynn, thanks for the clarification.
It sounds like the 0.9% is just an ‘estimate’ and not an upper limit as Jordan and I had assumed.