From what I read about the ADRs, there may be fees involved, I need to find a prospectus for BCHPY. I'm not too concerned about them at the moment as I've only purchased a small amount. However, it does seem that there can still be underlying fees for taxes, foreign exchange rates, etc. that are considered "custodial services". I don't know yet how Fidelity handles them.
In the document entitled "Understanding American Depository Receipts (ADRs)" on the Fidelity Web site, it is noted that these fees could be from $0.01 to $0.03 a share; if the ADR pays dividends, it can be deducted from those or, they may appear as a separate fee on a monthly statement. It hasn't been a month yet since I've purchased BCHPY, so I don't know all of the details yet. I have sent an e-mail to Tony Dawe to provide or point me in the direction of the prospectus for the BCHPY ADR, I will be glad to share that (unless some else is able to find it first).
That being said, the ADRs could possibly end up being a continuous source of fees as a fraction accumulated over the lifetime of the ADR, whereas purchasing a large number of actual shares is a one-time fee that may eventually be eclipsed by the value of the stock. Owning the actual shares also grants one the rights as a stockholder, while with ADRs, the stockholder is the institution that holds the underlying security.
If I were to compare buying the stock vs. buying the ADR, then I would say that buying the stock is like taking money out of an ATM that charges a fee. For the fee percentage to diminish, you need to withdraw more money. Buying the ADR is like renting furniture, you don't have enough money up-front to buy it outright, and the manageable monthly payments have extra costs built into them.
Not financial advice, but my strategy is going to be: a) if I have a large sum to invest and I plan on holding the security long-term (5 or more years is what I consider long term), then I am going to purchase BRCHF and pay the $50 foreign transaction fee; and b) if I have a smaller amount to invest and I plan to sell it under 2 years (more likely a little more over 1 year for tax purposes), then I will accumulate ADRs instead of putting the money into a savings account.
Just as a side note, below is the information that I found on the SEC's Investor Bulletin for American Depository receipts:
A common practice for collection of the custody fee is for the ADR depositary bank to subtract the amount of the fee from the gross dividends paid by the bank to ADR holders. Typically, the Depository Trust Company, (DTC) will announce both the gross dividend rate and the net dividend rate after deduction of the ADR custody fee. The ADR depositary banks pay DTC the net dividend, and DTC allocates the net dividend to its users. However, a number of ADR issues do not pay periodic dividends, which prevents the fees from being collected through the above described mechanism. In this case, DTC charges the fee to its users (i.e., banks and broker-dealers) who pass them on to their customers.
Depositary banks may charge other fees, such as relating to the distribution of dividends, foreign currency exchange, voting of shares, and other matters.
BRN Price at posting:
60.5¢ Sentiment: Buy Disclosure: Held
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