A Canadian's random thoughts on personal finance

Feb 1, 2009

ETrade's inactivity fees

I'm not happy with ETrade. I opened trading accounts there a couple of years ago, but until recently I only used the self-directed RRSP account. The regular trading account that you get along with the RRSP account sat idle.

Then, in October, Pizza Pizza (PZA.UN) shares dropped to the point that the distribution yield hit 14%. Now, the percentage yield is only interesting if it's a percentage of a large number, or if it's compounding; but at 14%, it meant I could buy 100 shares (for $640, which I had lying around) and the monthly distribution would be more than enough to buy one additional share every month. I transferred the cash, put in the order, activated the synthetic DRIP, and by the end of the year, the three distributions I had received had already covered the (rather pricey) $20 trading commission.

When I checked the account in January, I was in for a surprise: they had charged the account a $25 "inactivity fee". I thought at first there was some sort of mistake, but it turns out they charge regular accounts (not registered accounts) $25 each quarter in which you make fewer than two trades. There is an incredible irony in charging me an inactivity fee the very first time I used this account.

I was not impressed. At this point, I think my letters to ETrade speak for themselves:


Hello,

You have charged my cash trading account a $25 "low-activity admin fee". I would like it to be refunded immediately please. My account ID is XXXXXX.

I find it absurd and infuriating that you charge me $25 specifically for providing me with no service. Your trading fees and currency exchange rates are already among the costliest in the industry, and they are only tolerable because I don't trade frequently. If you insist on charging me $25 per quarter to do nothing for me, I will be closing my accounts, transferring my holdings to a brokerage with a sane fee structure, and publicizing my displeasure as widely as possible.

I don't mind paying for service, but I refuse to pay for a lack of service, and I suggest you take a moment to reflect on the wisdom of surprising your customers with this mean-spirited, punitive fee.


Out of respect to the service agent, I won't name him or post his reply, but perhaps you can infer what was said from my response:


Dear Xxx,

Thank you for your reply, but I'm afraid it doesn't stand to reason. Why does ETrade need to charge this fee if I make one trade, but not if I make two? Why does ETrade encounter these back-office expenses if I have $4999 in my account, but not if I have $5000? It is absurd. I think the real explanation is that ETrade wants to guarantee themselves a minimum revenue stream from each customer regardless of the level of service provided. This is what happens when you let accountants run your business.

More to the point, other discount brokerages don't charge this fee. I would rather part with $125 for closing my account than get hit with this infuriating fee every quarter, or pay $160 every year for trades I don't want to do.

I think ETrade needs to consider carefully whether they want to lose people like me as customers. Certainly, my account balance is tiny now, since most of my assets are elsewhere, and I am at the start of my investing career; but I'm looking for a broker to use for the next three decades until my retirement, and I'm not going to choose one who charges me for nothing.

I will not pay this fee again. It is up to you whether that is because you have waived it, or because I have closed my account.


As expected, they did not waive the fee, and the service agent seemed to become somewhat personally affronted by my emails, which prompted me to say this:


Dear Xxx,

I didn't mean to accuse you personally of setting the policy. I made an effort to refer specifically to "ETrade" separately from yourself, but if I wasn't clear enough, I apologize.

Nonetheless, the inactivity fee is unacceptable to me. I am aware of a number of discount brokerages that have no such fee, so charging me a fee for no service is not only unethical: it also puts ETrade at a disadvantage relative to its competitors. I will be exploring my options before the time comes that ETrade can charge me that fee again.

I do not want to switch brokerages (partly because I don't want to pay the $125 ransom to get my assets back) so I would sincerely appreciate it if you could find a way to help me get this "fee for nothing" waived.


Naturally they were unable to waive the fee. What I have done is open a TFSA at ETrade and move my shares there. The TFSA is a registered account and is not subject to the inactivity fee. With any luck, that $25 fee is the last money I'll be paying ETrade for a very long time.

What do you think? Am I being unreasonable?

9 comments:

preston said...

I have this same problem with etrade. $160 a year is now what they charge in inactivity fees. This is absurd and completely unwarranted. I really hope people realize this and stop investing there money with this company.

doogie99 said...

Yep - I agree wholeheartedly with your complaint. I have had this fee charged against me as well.

You're bang on with your comment about "guaranteeing themselves a revenue stream" and "when a company is run by accountants" (paraphrased).

I've often said exactly the same thing in similar words when describing these kinds of companies and their business practices.

Furthermore, I think that these fees are brought in knowing that they are going to be unpopular but I'm guessing that as trade volumes drop Etrade is trying to figure out how to maintain or grow revenues. That is where these kind of half-baked, customer-hating fees and ideas come from.

I used to work for a company not so long ago where we made similar, customer-unfriendly decisions. These were driven by our US parent - when unit growth of a product starts plateauing you end up having to adjust price. These price adjustments are often weakly justified and are purely required to increase earnings year over year. Ah, the pain of being part of a public company with shareholders to please. This usually comes at the expense of customers.

ranndino said...

Spot on. To my dismay I recently realized that I have been charged $40 per quarter in inactivity fees (for a total of almost $280 now). It is partly my own fault for not keeping up with my account, but nevertheless it's ridiculous because, as you state, they charge fees for doing nothing. What's even more frustrating to me is that at the time I opened my account you could avoid these inactivity fees by opening a linked savings account with E-Trade, which is what I did. I did not need this account and don't use it. I simply opened it and put some money in it for the specific purpose of avoiding the $40 per quarter inactivity fee. It seems that while I have not been using the account their policies have changed and they started charging me. This is absolutely infuriating and I am looking for alternatives. Now I also find out that they charge $60 to close the account. Absolutely ridiculous!

Aqaunut said...

I was hoping to find a way to reverse 5 (FIVE) years of inactivity fees which they started charging me once I turned off paper statements. If I had been getting a paper statement I would have done whatever it took to stop these exorbitant fees. I only had 2 stocks with $2000 in the account and actually forgot about them until I wanted to transfer them to another brokerage account. They have been stealing all of my cash dividends which I have been paying taxes on for five years and STILL charging me $40 a quarter for an Inactivity Fee!

Aqaunut said...

I was hoping to find a way to reverse 5 (FIVE) years of inactivity fees which they started charging me once I turned off paper statements. If I had been getting a paper statement I would have done whatever it took to stop these exorbitant fees. I only had 2 stocks with $2000 in the account and actually forgot about them until I wanted to transfer them to another brokerage account. They have been stealing all of my cash dividends which I have been paying taxes on for five years and STILL charging me $40 a quarter for an Inactivity Fee!

Jill said...

Hi. Same exact thing happened to me - had a small holding (that I didn't pay attention to) and ended up with $400 in fees because I didn't meet eTrade's minimum holding amount (was $10K but was reduced to $2K in 2010) or conduct a minimum of 2 trades per qtr. In the end, $100 was taken off, but still an ugly situation.

Theresa said...

Same story. I had stock from ten years ago that I thought I owned until I checked back in with e-trade and found out they had been steadily deducting from my account due to lack of activity. They liquidated my stock for me, thank you very much.

Nick said...

They have stopped charging inactivity fees but I have had no luck recouping fees from the past two years.

I have moved my account to Scottrade, only to be hit with a $60 transfer fee from Etrade. Fortunately Scottrade has offered to pay 50% of these transfer fees and promised no inactivity fees.

I had heard something about a class action lawsuit against Etrade but haven't seen much lately. Any word out there?

Patrick said...

@Nick: You must be talking about ETrade in the US. ETrade Canada became Scotia iTrade and they still charge a Low Activity Account Admin Fee, though it has changed somewhat in the two years since my original blog post.