ShareOwner transitioning to Wealthsimple… what happens to our kids’ dividend portfolio?

Long time readers will recall that when Baby T1.0 was born, we decided to set up a dividend portfolio for him. We had a simple idea: pick 15 dividend paying stocks and DRIP all dividends by buying fractional shares. We wanted to drip all dividends to take advantage of the power of compound interest. After some research, we found that ShareOwner was the only Canadian broker that allowed for dripping fractional shares. We opened an informal trust under my name with ShareOwner and invested $12,000. 

A few years later, Baby T2.0 was born. Since at that time we were focused on building up our dividends, we didn’t set $12,000 aside to create another dividend portfolio for her. Instead, Mrs. T and I decided that we’d split the already setup ShareOwner dividend portfolio evenly between the two kids when they are adults. With that, the kids’ dividend portfolio was born.

Kids’ Dividend Portfolio with ShareOwner

When we set up the portfolio, we handpicked 15 dividend paying stocks that should continue to flourish long term. The stocks that we picked were:

  • BlackRock Inc (BLK)
  • Walt Disney Co (DIS)
  • Enbridge (ENB.TO)
  • Fortis (FTS.TO)
  • General Mills (GIS)
  • Johnson & Johnson (JNJ)
  • Procter & Gamble (PG)
  • Qualcomm (QCOM)
  • Royal Bank (RY.TO)
  • Shaw Communication (SJR.B)
  • Suncor Energy (SU.TO)
  • Telus (T.TO)
  • TD Bank (TD.TO)
  • Visa (V)
  • Verizon (VZ)

Since the portfolio inception in September 2014, we haven’t invested additional money. I had left everything on autopilot – get dividends and buy more fractional shares via DRIP. All I have to do is keep track of the adjusted cost basis (ACB) via a Google spreadsheet. 

Due to the global pandemic, the price of some of these stocks have dropped significantly. Enbridge, Suncor, and Shaw are the only three stocks that have underperformed compared to the book price. On the dividends front, Suncor has recently cut its dividends and Disney has suspended its dividends indefinitely. All the other dividend stocks have continued to pay and have raised dividends every year. In 2019, the portfolio generated over $550 in dividend income. 

Overall, the portfolio has performed well. Since the portfolio inception, it is currently valued at over $20,000, an annualized return of 9.12%. In comparison, the Vanguard Canada All Cap ETF (VCN) had a five-year annualized return of 6.39% and the iShare Core S&P Total US Stock Market ETF (ITOT) had an average five year return of 10.18%. 

ShareOwner transitioning to Wealthsimple

In Dec 2015, Welathsimple acquired ShareOwner. When the news was announced, I had anticipated Welathsimple to make some changes to ShareOwner, perhaps merging the two and offering the best of the both trading platforms to their clients. 

Recently, I received an email from ShareOwner informing me that ShareOwner is winding down its operations and will transition all accounts to Wealthsimple Trade platform by the end of 2020. Given the acquisition back in 2015, I wasn’t completely surprised by this announcement. 

Per ShareOwner’s email:

  • DRIPs, pooled orders, and scheduled trades will no longer be supported as of November 2, 2020.
  • All compatible ShareOwner.com accounts will be automatically moved to Wealthsimple Trade before the end of 2020. This includes all individual non-registered, RRSP and TFSA accounts that are CAD-denominated
  • All other account types must be closed or transferred to another institution by November 2, 2020.

ShareOwner noted that if we wish to sell assets as part of our decision to transfer or close our account, we may do so via zero commission immediate trades. All commission fees on immediate sell trades will be waived. In addition, all account closure and transfer fees (i.e. to another financial institution) will be waived. So ShareOwner and Wealthsimple are being extremely accommodating to existing clients. 

Since ShareOwner supports many different accounts, only the following accounts will be transferred to Wealthsimple Trade:

  • Individual non-registered accounts (CAD-denominated accounts only)
  • Individual TFSA accounts (CAD-denominated accounts only)
  • Individual RRSP accounts (CAD-denominated accounts only)

This means the following accounts are incompatible with Wealthsimple Trade: 

  • Joint accounts
  • Individual RRIF accounts
  • Spousal RRIF accounts
  • Spousal RRSP accounts
  • Corporate accounts
  • Investment Clubs
  • Individual LIF accounts
  • Spousal LIF accounts
  • LIRA accounts
  • USD accounts
  • Trading Authority accounts (including individual non-registered, TFSA and RRSP accounts)

This could be a bit problematic for existing clients that have one of the incompatible accounts with ShareOwner.

ShareOwner vs. Wealthsimple Trade 

There are quite a bit of difference between ShareOwner and Wealthsimple Trade. For the most part, both are considered as discount brokers.

Wealthsimple Trade Features

Wealthsimple Trade currently supports the following features and functions:

  • Individual RRSPs, TFSAs, and non-registered accounts (CAD currency only)
  • $0 commission on all trades 
  • 1.5% foreign exchange rate on USD trades
  • Ability to digitally deposit and withdraw funds
  • Ability to digitally place limit and market orders on thousands of US & Canadian listed equities (including many not currently offered on ShareOwner.com, e.g. CHK, ACB, SHOP)
  • Receive and view digital statements and reports
  • Wealthsimple Trade is only available via mobile application. There’s no desktop website available. 

The $0 commission on all trades is a big draw. This would allow for small dollar amount trades without needing to worry about commission fees. 

Unlike many millennials, I don’t like the idea of trading only via mobile application. I prefer trading on a desktop to allow me to “see” more things. 

What Wealthsimple Trade misses compared to ShareOwner

While Wealthsimple Trade may be a good fit for many Canadians that want a no frill discounted trading platform, Wealthsimple Trade does not have many features that ShareOwner offers.

Here are some features that Wealthsimple Trade does not have compared to ShareOwner:  

  • Purchase of fractional shares
  • Dollar-based orders
  • DRIP: All dividends paid out will accrue as cash in your account.
  • Pooled orders 
  • Scheduled trades
  • USD currency accounts
  • Portfolio plans
  • Trading authorities

The biggest misses for me are the inability to DRIP and no purchase of fractional shares. This means Wealthsimple Trade won’t allow us to execute our original investment plan for our kids’ portfolio: invest in 15 dividend stocks and leave them on autopilot by fully investing dividends via full drip. 

For people that utilize scheduled trades, moving over to Wealthsimple Trade means you have to manually trigger each trade. The inability to do dollar-based orders can also create problems for some individuals. While Wealthsimple Trade is a good trading platform overall, it lacks some key features that existing ShareOwner clients rely on. 

What to do with our kids’ dividend portfolio?

While I am not too pleased about ShareOwner going away, I have been anticipating this news for a few years. Given Wealthsimple Trade’s limited features, what should we do with our kids’ dividend portfolio before Nov 2? 

Below are a few options Mrs. T and I are considering.

Option 1 – Transfer portfolio to Wealthsimple Trade

The first option is to transfer kids’ dividend portfolio in-kind to Wealthsimple Trade. We’ll leave everything the same. Per ShareOwner’s email, existing fractional shares will be retained in the account, but we won’t be able to purchase additional fractional shares. 

For this option, we’d accrue dividends then manually purchase shares. We’d purchase one stock each time and go through the 15 stocks before repeating the process. For example, we can wait till we have around $500 then use that money to BLK share(s). Then wait for a bit before buying DIS share(s).

Option 1 Pros

There are a few pros with the option 1 approach. First of all, we would retain our kids’ dividend portfolio. Wealthsimple Trade offers free commission trades so we can nibble on additional shares whenever there is additional cash available. 

Option 1 Cons

The biggest disadvantage with this approach is that there will be a lot more manual work. I would have to wait for dividends to accumulate before purchasing more shares. Since the share price for BlackRock, Visa, Disney, Royal Bank, and Qualcomm are close or over $100, that means it would take some time to accumulate that much cash via dividends (we only received over $550 in 2019, with some dividend suspensions/cuts, the dividend received for 2020 may be lower). 

That means, it can be years before we end up purchasing additional stocks for stock #15 and repeat the buying process again. This isn’t really ideal. 

Furthermore, since eight out of the 15 stocks are US stocks and there’s a 1.5% foreign exchange rate on USD trades, this isn’t ideal either. 

Doing option 1 would also mean opening yet another account with yet another financial institution. I suppose it’s not a big deal given that we’d be closing our ShareOwner account.

Option 2 – Sell everything, transfer portfolio to Wealthsimple Trade, purchase all-in-one ETF

If you recall, we had recently re-constructed kids’ RESPs by going from multiple ETFs to holding only a Canadian all-in-one ETF. By holding only an all-in-one ETF (i.e. XGRO), this has simplified the RESP’s management. 

So, the second option would be a similar approach. We’d sell all 15 dividend stocks that we currently own with ShareOwner and transfer all the cash to Wealthsimple Trade. We would then use the money to purchase a suitable all-in-one ETF. 

Since our kids are still young and have a very long investment timeline, for this “new” kids’ portfolio, we would want to be fully invested in equities, rather than 80-20 equities and bonds break down we’re utilizing for RESP. Thereforefore, for option 2, we would purchase either the Vanguard All-Equity ETF (VEQT) or the iShare Core Equity ETF (XEQT). Whenever there’s a distribution we would take the cash and purchase additional shares.

Option 2 Pros

This option 2 approach is simple and straightforward. There are some managements throughout the year but it shouldn’t be time consuming. Utilizing either VEQT or XEQT would allow us to be fully invested in equities and take advantage of capital appreciation. Using an all equity ETF would provide instant asset and geographical diversification.  

Setting up an account with Wealthsimple would keep the kids’ portfolio completely separate from our dividend portfolio. Since there’s no informal trust option with Wealthsimple Trade, we’d have to open an individual taxable account under either my name or Mrs. T’s. We’d have to figure out the tax implication of transferring the portfolio to the kids later down the road. 

Option 2 Cons

The only con with this approach is that we’d be paying management fees every year. But at less than 0.25% MER, the annual fees should be very small. 

With either VEQT and XEQT, the distribution yield isn’t that high (~2%), so the cash distribution wouldn’t be as high as what we get from the ShareOwner dividend portfolio. However, we’d be trading the lower yield for hopefully a higher portfolio return. 

Option 3 Sell everything, use the cash for our own dividend portfolio 

Since the kids’ dividend portfolio is an informal trust under my name, all dividends received have been taxed under my name. With option 3, we’d sell everything, transfer the cash to TD, then use that cash to build more dividend paying stocks, including some of the top Canadian dividend stocks. To be as tax efficient as possible, we could wait till early January before transferring the cash to our TFSAs and/or RRSPs.

This approach would allow us to increase our forward looking dividend income, expedite our financial independence journey, and hopefully allow us to live off on dividends earlier. To some, this approach can be viewed as a more selfish approach. 

However, when we are financially independent, we do not plan to touch the principal. Our plan is to live off on dividends and perhaps supplement with some side income. Ultimately we’d like to pass our dividend portfolio to our kids and their kids. So option 3, in some ways, is building a future dividend portfolio for our kids. 

Option 3 Pros

The biggest advantage of Option 3 is that we would be able to increase our forward dividend income and expedite our financial independence journey. At a 4% dividend yield, the $20,000 should be able to generate around $800 in annual dividends. By closing down our ShareOwner account and not opening another account, this will reduce the amount of tracking we need to do on a regular basis. (Although Wealthsimple Trade is supported by Wealthica so tracking should be pretty easy).

Option 3 Cons

The biggest disadvantage with this approach is that we won’t have a dedicated portfolio for our kids. If we were to look back 10 or 20 years down the road, we might regret our decision. Having said that, since we do plan to pass down our dividend portfolio to our kids and their kids, maybe closing down the ShareOwner dividend portfolio and merging it with our own dividend portfolio won’t be that big of a deal. 

Summary – ShareOwner transitioning to Wealthsimple 

Changing discount brokers is not ideal but it appears that ShareOwner and Wealthsimple are being as accommodating as possible to existing clients. For that, I have to give them some kudos. 

Since we had been anticipating the merger between ShareOwner and Wealthsimple for a few years, the recent announcement wasn’t a surprise to us. We just have to determine the best option for us and execute it. For now, we are leaning toward Option 3 with Option 2 as the backup option. The idea of adding more cash to our dividend portfolio and expediting our financial independence journey is quite appealing. We can always pass down our dividend portfolio (or a portion of it) to our kids once they have shown that they are financially responsible.

Note: In case you’re wondering why we’re not using the transfer agent route once ShareOwner goes away… we want simplicity with the kids’ dividend portfolio. Using multiple transfer agents isn’t really all that simple to me.

Dear readers, are you currently investing with ShareOwner? What do you plan to do before November 2nd? 

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12 thoughts on “ShareOwner transitioning to Wealthsimple… what happens to our kids’ dividend portfolio?”

  1. Tawcan –

    I am sure, though anticipated, this isn’t an easy decision. In addition – having the chance to simplify your finances with one less brokerage is probably ideal. I support the choice you made!

    -Lanny

    Reply
  2. Unless I’m missing something, couldn’t you also just put that money in a regular (not trade) WealthSimple account and let the robot do its thing?

    Reply
  3. I plan to close my Shareowner account and move it to TD for simplicity and management. Like you the change was expected. I am just disappointed as I liked the fractional share approach and had been with them for 30 years

    Reply
  4. I started out with Shareowner but eventually moved everything to Questrade many years ago when I was consolidating accounts.

    Reply
  5. Hi Bob,

    Thanks for all the sharing you do on this site. I am sure you have looked into this already but what about the “Canada Education Savings Grant” here is the link to the information at Wealthsimple:

    https://www.wealthsimple.com/en-ca/learn/what-is-resp

    If you were to set up an RESP account for each of your children at Questrade (Since you already have an account there and they allow you to set up a drip) and then each year contribute $2,500.00 per child. The government will then kick in $500.00 per child. It would take you about 4 years to complete the transfer of the approximately 20K you have already. After that you can let it ride or continue to contribute.
    Another perk is any and all gains within the account won’t be subject to any income or capital gains taxes as long as the money is in the account.

    Reply
    • Hi Bill,

      We already have RESPs set up for both kids and contribute $2,500 per kid each year. The dividend portfolio for the kids was something that we set up separately.

      Reply
  6. I had the child tax credit for my children go into a special bank account in their names and then purchased the
    minimum amount of shares in their names which I held outside a company. This meant that I was able to get the fractional shares and the dividends were in their names. I did their taxes each year to declare these amounts (very minimal). When they turned 18 and started university, I gave them control of the money. There were no tax consequences since the money was always considered to be in their names ..they still have the shares (33, 30 and 26) and had all bought homes last year (before covid and the big jump in prices). If you can show that the child tax credit is in a special account and that it was this money that was invested, the income from the shares is not
    attributed back to the parent.

    Reply

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