Mar 24, 2007 04:30 AM
 

James Richard MacDonald says this scenario shows what's at stake in his proposed class-action suit:

Suppose you held $200,000 (U.S.) in U.S. government bonds within your RRSP that mature on Dec. 9 and planned to continue holding exactly that portion of your portfolio in U.S. government bonds on an ongoing basis.

One day, your holdings are worth $200,000. The next day, your bonds mature and $200,000 is paid into your account.

But before the funds touch down in your account, allowing you to reinvest in more U.S. bonds, your brokerage whisks the money away, converting the U.S. dollars to Canadian currency, and charges you a conversion fee of 1.5 per cent to 2 per cent for the transaction.

After paying the bank's currency conversion fee of $3,000 or more, your holdings – no matter what the current Canadian exchange rate is – are now worth $197,000 or less in U.S. dollars.

So now, in order to reinvest the funds into U.S. bonds, you must first convert the new Canadian dollars back to greenbacks, paying your brokerage another 1.5 per cent to 2 per cent conversion fee.

Your holdings will have been reduced further to $194,000 or less and your brokerage has pocketed about $6,000 in unnecessary fees, MacDonald says.

All of this could be saved if investors were given the option of keeping sale and dividend proceeds in U.S. currency for use in their next U.S. purchase, he adds.

The scenario would be even more costly if you wanted to buy stocks or bonds on the London Stock Exchange or another foreign bourse. The brokerage houses will first change your Canadian dollars into U.S. dollars and then convert again into the third currency.