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Discount Brokerage Weekly Roundup – June 28, 2013

It has been predictably quiet in the discount brokerage space this past week with many self-directed investors out enjoying summertime activities. Still, there are some updates on several discount brokerage promotions that are noteworthy as we head into July.  Also, there are a couple of advertising/marketing stories that might be of interest for those keeping a closer eye on the industry.

Easy Come, Easy Go

The end of June is here and with it several discount brokerages are retiring some promotions. First, the Disnat SCATE promotion will end as of June 30th.  Also slated to expire at the end of June will be the 100 free trades offer from Scotia iTrade.  For details on the discount brokerage deals, check out our deals page here.

Not all the deals and promotions originally supposed to expire at the end of June will come to an end though. It seems that Scotia iTrade and Questrade have had a change of heart about a couple of their respective promotions. Scotia iTrade’s “Refer-a-Friend” offer has been extended to July 31st 2013 and Questrade also has extended its Advantage offer out to the end of August 2013.

Baby Not on Board

Even though it is not a Canadian discount brokerage, the news that the agency famous for bringing us the E*Trade baby is moving along signals a change in the times.  Discount brokerages in the US spend hundreds of millions of dollars in advertising per year and it appears that E*Trade is making a move to lower these advertising costs.  To read more about the story, click here.

Winning the Customer Service Game

Advertising also seems like it is on the mind of HSBC InvestDirect after their recent win of the Dalbar Direct Brokerage Service Award. We got what looks like a sneak peek at a promotional video that highlights what it took for the HSBC InvestDirect team to win this year.

Discount Brokerage Fees Still Matter

Last Friday’s article in the Globe and Mail ‘A primer on low-commission’ trading by Rob Carrick provided a quick overview of many discount brokerages’ fees.  Both Virtual Brokers and Questrade stand out as low-fee choices however as we pointed out in the special series comparing these two discount brokerages to each other, the low-commission price may mask other fees, such as data or platform fees, that are required in order to fully take advantage of the low commission rates.  An individual (named “Uss”) in the comments section of the article also made an interesting observation that Interactive Brokers wasn’t part of this low-commission rate primer although their rates are just as competitive at the lowest end of equity and option commission pricing currently available. Interactive Brokers has typically not been included in the annual online broker ratings that Rob Carrick publishes because they do not offer registered accounts and it would be safe to assume that is why they were not included in this primer either.

As a reminder for next week, Canadian stock exchanges will be closed on Monday July 1st for Canada Day and U.S Markets will close early (1PM) on July 3rd and will be closed all day July 4th.

Hope you all have a safe and enjoyable Canada Day and long weekend!

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Commission-Free ETFs at Canadian Discount Brokerages: A Clever Lure or a Good Deal for Investors? Part 2

In part one of this series, we looked at which Canadian discount brokerages are currently offering commission-free ETFs as well as why commission-free ETF trading has started to become so popular. In part 2 of this series, we take a closer look at the types of commission-free offers available and provide some tips for investors who might be considering commission-free ETFs as part of their discount brokerage comparison research.

There’s commission-free and then there’s commission-free

While the term “commission-free ETF” does suggest a no cost transaction, in reality there are a couple of different interpretations as to what “commission-free” actually means.

Company Number of Commission Free ETFs Minimum Trade Amount Hold Period (minimum) Details Link
All Canadian ETFs (>250) $5000 1 business day National Bank Direct Brokerage Commission-Free ETF Plan
60 $1000 1 business day Qtrade Commission-Free ETF Plan
All ETFs* (only buys are commission-free) $0 None Questrade Commission-Free ETF Plan
50 $0 1 business day Scotia iTrade Commission-Free ETF Plan
All ETFs* (only buys are commission-free) $0 None Virtual Brokers Commission-Free ETF Plan

As the table above shows, there are several ETF commission models being offered by Canadian discount brokerages.

First, there are those discount brokerages that offer a limited selection of ETFs that can be traded commission free – as in commission-free to buy and commission-free to sell.  The brokerages that offer this type of pricing are:

  • Scotia iTrade (which offers 50 ETFs commission-free)
  • Qtrade (which offers 60 ETFs commission-free)

Thus the trade-off is that there might be true ‘commission-free’ ETF free trading but only on a handful of ETFs. There are also minimum amounts of time (often at least 1 business day) that an investor needs to hold the ETF in order to qualify for commission-free status.

Another variation on ‘commission-free’ ETFs are from discount brokerages that allow purchases of any ETF commission-free but will charge the normal commission charge on the sale of the ETF.  Thus, only the purchase of the ETF is commission-free. The discount brokerages currently offering these types of commission-free ETF purchases are:

The offer from National Bank Direct Brokerage is slightly different in that it allows for unlimited commission-free ETF buying and selling but only of Canadian ETFs and only for a limited amount of time.   Although commission-free ETF trading at National Bank Direct Brokerage is currently part of a promotional offer, depending on the response they receive from prospective clients, their promotion could turn into a standing offer in the future.

Whatever the model being used, it is clear that with any ETF commission deal from the Canadian discount brokerages, there are certain strings attached. For self-directed investors, it is important to understand the terms and conditions attached to the ETF commission pricing and be vigilant about the strings that come attached to these offers.

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Commission-Free ETFs at Canadian Discount Brokerages: A Clever Lure or a Good Deal for Investors? Part 1

Every day increasing numbers of self-directed investors are either turning to exchange traded funds (ETFs) to meet their investing goals or are learning more about how ETFs could help lower their investing costs.   Given the interest in these products by self-directed investors and the commission costs that are associated with buying and selling ETFs, Canadian discount brokerages have not only taken notice but have also sought to leverage this interest to their benefit.

In the first of this three-part series, we briefly review the landscape of commission-free ETF trading in Canada. In part two we’ll look at what types of “commission-free” ETF trading options investors have as well as provide investors with several tips to keep in mind when considering these types of ETFs with a discount broker.  Lastly we’ll be taking a look at each discount brokerage’s commission-free ETF offering in detail to see what the pros and cons are of each.

It’s so Hard Being Popular

The case for investors embracing ETFs is relatively simple to make. Essentially, with ETFs investors get most of the benefits of a mutual fund (the two primary ones being professional management and diversity in composition) but at a fraction of the management cost.  Beyond the diversity and low management costs of ETFs, one of the biggest attractions for many investors has been the fact that ETFs, unlike their mutual fund counterparts, trade on stock exchanges the same way ‘normal’ stocks do.

The freedom to buy or sell them short, to take options on ETFs and to enter and exit with relative ease has meant that investors of all kinds have a very versatile tool in their wealth creation toolbox to work with.

Ironically, it is the popularity of ETFs that might be their undoing.  Data from the Canadian ETF Association (CETFA) shows that ETF landscape in Canada contained 257 ETFs from 6 distinct providers as of May 2013.  While their data does show strong demand and interest in ETFs with self-directed investors as well as with institutional investors, a recent article about the state of ETFs suggests that the ETF craze might be plateauing. Data from the US suggests that the sheer number of ETFs may have exceeded the interest and capital that can be allocated to them.

In short, it appears that there are hints of an oversupply of ETFs relative to demand for them. The consequence  is a predictable downward price pressure and intense competition.

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Discount Brokerage Weekly Roundup – June 21, 2013

While storms were raging across stock markets this past week, it was definitely calmer waters in terms of discount brokerage news and chatter.  In this week’s roundup, we look at the actions that landed another Canadian discount broker in the IIROC penalty box, a report by TD on Canadian investors as well as a review of the chatter on stock forums about brokerages and some useful cautionary investing tales. Finally, we take a quick look at the results from the twelfth edition of  the U.S. Self-Directed Investor Satisfaction Survey results from J.D. Power released earlier this week.

Scotia Capital gets called for an offside

Over the past several weeks, it seems that that Investment Industry Regulatory Organization of Canada (IIROC) has been handing out a series of penalties to Canadian discount brokerages. Joining the likes of Questrade and Interactive Brokers, the decision against Scotia Capital Inc (the parent of Scotia iTrade) was based on activity between 2009 and 2011, shortly after it had acquired E*Trade in 2008.

Scotia Capital was hit with a $150,000 fine for failing to have policies and procedures in place that could detect potential wash trades and high closing prices.  To read more about the settlement, check out the IIROC press release or a great write-up about it in the Globe and Mail.

The Investor Survey Says…

TD Bank Group released results from a recently commissioned a survey of Canadian investors. The survey asked just over 1000 Canadian investors about their thoughts and perspectives on the investing climate in the next 12 months.  Of those surveyed, 41% felt that their personal portfolios would improve even in the face of mild Canadian and US economic recoveries and a poor global economic outlook.    This suggests that investors surveyed might be more interested in looking closer to home for investing ideas rather than looking abroad.

Another interesting finding from the survey is a classic illustration of behavioural finance in action.  Given the run up in the markets experienced for the first half of this year, the rising prices seemed to have also lifted the outlook of investors. Paradoxically, investors are constantly told or reminded that past performance doesn’t guarantee future results, yet it is interesting to see how the past does, in fact, shape investor perceptions.   As described in their press release, those investors surveyed who experienced a loss were more prone to being pessimistic about the future than those investors who experienced a gain.

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Discount Brokerage Weekly Roundup – June 14th 2013

This past week was a fairly quiet one for Canadian discount brokerages, so this roundup will focus on some of the interesting events that took place in the discount brokerage space more generally.

The most popular story in the discount brokerage space continues to be the supposed return of retail investors to equity markets.  Digging a little deeper into exchange activity, however, it seems investors don’t seem to be participating in all markets equally.

In last week’s roundup we reported the metrics from Questrade as well as Interactive Brokers that suggest trading activity is increasing.  Based on the recent performance of the US discount brokerages TD Ameritrade, Interactive Brokers, E-Trade and Charles Schwab, it seems that traders have been well aware of this trend already. According to a recent report by Bloomberg, these US discount brokerages have seen an increase of 38% since January 2013.

In the Canadian marketplace, the TMX group (which represents over 80% of trading activity in Canada) recently reported their trading statistics for May 2013.  The picture the trading volume numbers paint is definitely not as rosy as it is in the US.

For the Toronto Stock Exchange, the year-to-date number of transactions was 17.4% lower compared to the same point last year.  Even grimmer, however, is the number of transactions for the TSX Venture Exchange which saw a drop of almost 44% in transactions compared to the same time in 2012. Interestingly, the Montreal Exchange, where most of the Canadian options trading takes place, increased by almost 4% compared to this point last year.  This data point certainly suggests that the interest in options trading has remained much stronger among investors than participating in either the TSX or the TSX Venture listed equities.

Discount brokerages  seem to have their work cut out for them though if they wish to compete in this low trading activity environment. Interactive Brokers, in its presentation at the Global Exchange & Brokerage Conference in New York last week, disclosed how it is intending to achieve its ambitious goal of being a dominant global player in discount brokerage services.  In a nutshell, they aim to be a very low cost option for investors and as their numbers point out, it seems to be working. In terms of trading activity, customer accounts and profit growth, Interactive Brokers is posting some very interesting numbers relative to its peers.

One data point that is particularly relevant for active traders to pay attention to is the aggressive expansion Interactive Brokers has managed to achieve in margin lending.  From 2007 to 2013, Interactive Brokers has seen their market share for margin lending among discount brokerages increase from 5% to 30%. By offering ultra-low rates, especially on products that active traders access, it seems that Interactive Brokers is hitting the mark.

This past week, margin lending was also the focal point of the latest promotion being offered by National Bank Direct Brokerage. While only for a limited period of time, it is a unique offering compared to what other promotions are currently being run, and this deal will most likely be watched very carefully to see if it will be run again at some point.

While it is still too early to draw any conclusions, Canadian discount brokerages are likely to increase taking aim at users of margin trading and active traders as these are often higher value clients to bring on board.

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Special Series: Dalbar Canada’s Direct Brokerage Service Award – Part 2

In part 1 of this series, we took a brief look at how self-directed investors typically access information about discount brokerage customer service and introduced Dalbar Canada’s research in this area.  Specifically, Dalbar’s Direct Brokerage Sales Effectiveness (DBSE) program measures the performance of client service teams at discount brokerages.

In this part of our series, we take a closer look at the evaluation itself to see how Dalbar measures quality customer service, how the evaluations are conducted and what the implications are for self-directed investors when comparing customer service at discount brokerages.

Knowing what counts

Given the number of evaluations being conducted to try and find ‘the best’ Canadian discount brokerage, it is increasingly important that self-directed investors be clear on exactly how a measurement of a discount brokerage is structured.  To avoid falling victim to clever marketing, whenever Canadian investors see a discount brokerage ranking, the following three questions are worth keeping in mind:

  1. What is being measured (ranked)?
  2. How was it measured?
  3. Does the measure actually measure what it says it does?

In the case of Dalbar Canada’s Direct Brokerage Service Award, what is being measured is “quality” of the customer experience when interacting with a particular discount brokerage’s customer service agents.  Of course, how “quality” is defined can be highly subjective so readers should keep this in mind when considering the explanations below.

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Caution, Cunning and Competition: Three Investing Lessons from Game of Thrones

Set against the backdrop of epic conquests, bloodthirsty barbarians and Machiavellian-style manipulation, Game of Thrones is capturing imaginations across the globe.

At times the investing world seems a lot like the savage and cruel arenas characters from the story find themselves in.  Even though the story takes place in a mythical land, it focuses on a very familiar theme for those in the real world: power.  As in their world, wherever there is power to be had, money is not far behind.

The tactics and strategies about how best to come out on top in the Game of Thrones are probably just as appropriate in the stock market as they are in the mythical forests and deserts (minus the broadswords and beheading).

Here are three lessons every player in the markets and the Game of Thrones needs to know in order to avoid having their heads handed to them:

#1: Watch your back

Risk management is a tidy euphemism for making sure you’re in control of your exposure to loss.  While you may not be toppled from a fiefdom anytime soon, taking outsized risks with your portfolio can leave you feeling stripped of title and wealth.

#2: Use your size to your advantage

In the stock market, performance is all relative. Large pools of capital have a much tougher time outperforming the index than do smaller investors.  The advantages of being small are that you can be nimble with your entries and exits as well as having more flexibility in terms of the size and type of companies you can consider.

#3: Play to win

The most important investing lesson in the Game of Thrones is to be tactical. Everyone else in the market is vying for victory so knowing your competition is as crucial as knowing whom to support.  In the investing world, your capital is your strength. Every dollar you capture can work for you and every dollar you lose weakens you so as the commander of your capital, choose your battles and your alliances (investments) thoughtfully.

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Discount Brokerage Weekly Roundup – June 7th 2013

This week’s discount brokerage update features the newly announced deal by BMO InvestorLine, a couple of great forum post on the Financial Webring Forum on Qtrade vs. RBC Direct Investing  as well as another article from The Globe and Mail about Canada’s best discount broker.

Deals Getting Some Air

Unlike a lot of deals that tend to start right at the beginning of the month, BMO InvestorLine has tended to announce their new deals a few days into the start of a new month.  In keeping with their routine, this past week they BMO InvestorLine announced their latest promotion where new account openings can choose between receiving 2000 Air Miles or $250 cash back. The minimum deposit to qualify for this offer is $100,000 so it is one of the higher priced promotions currently being offered by a discount brokerage. For more details on this and other deals for June 2013, click here.

Traders Coming Back?

It looks like investor activity is starting to climb in the US which is likely the result of major indices hitting new all-time highs last month.  Overall markets appear to be shrugging off bad news and rallying on good news.  Interactive Brokers reported their daily average revenue trades (DARTs) improved from this time last year (13%) as well a slight month over month improvement (6%).

Canadian discount broker Questrade also reported improved options trading activity since they introduced multi-leg options trading.  The following screenshot of the news release hints at trading activity with Questrade having picked up. To read Questrade’s full press release regarding options trading activity, click here.

Close is Good Enough

Looking through the Financial Webring forum, this post was spotted where the user (“Amira”) was trying to decide between Qtrade and RBC Direct Investing.

One of the most interesting answers came from the user “Ockham” who basically suggested not worrying too much about picking the best discount brokerage as they are all very similar to one another:


 Another “Best Discount Brokerage”

An article in the Globe and Mail (by Gail Bebee) was published earlier this week entitled “For the DIY investor, which discount broker is best?”   This article is another in the growing list of those identifying who they think is Canada’s best discount brokerage. Ultimately Gail Bebee narrowed her top three choices down to BMO InvestorLine, RBC Direct Investing and Qtrade with her top choice being BMO InvestorLine.

Whether the results from Rob Carrick’s annual discount brokerage review will concur could make for interesting times at the champion’s podium.

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Special Series: Dalbar Canada’s Direct Brokerage Service Award – Part 1

When searching for the right discount brokerage, a lot of information can be obtained online about the pricing of discount brokerage accounts, commissions and services.  Some features, such as customer service, require more work to learn about.

After knowing what it costs to be a client of a discount brokerage many self-directed investors value knowing what they can expect by being a customer.  Finding out this information often requires asking friends, relatives, or other clients about their experiences. Some individuals even go as far as searching through forum comments about the experiences of others with particular brokerages.

Unfortunately, the only sure-fire way for an individual to know which discount brokerage best suits their needs is to be a client. Given the time, expense and risk associated with “sampling” a brokerage, however, it is neither a popular nor pragmatic choice for many.  Instead, self-directed investors turn to third-party ratings to help them approximate who the right discount brokerage may be.

As part of our continued look at the rankings and evaluations of Canadian discount brokerages, this two part series looks at Dalbar Canada and in particular their Direct Brokerage Service Award as a tool investors can use as part of their research.

A Quick Background on Dalbar Canada and the Direct Brokerage Service Award

Dalbar Canada is a financial services research company that has been in Canada since 1997. They are a subsidiary of the US headquartered Dalbar Incorporated which has been around for 37 years.

Since 1998, Dalbar Canada has been conducting evaluations of discount brokerages, with a particular focus on the client service experience. Their Direct Brokerage Service Evaluation (DBSE) program takes a structured and methodical approach to understanding how discount brokerages interact with clients on the phone.

Dalbar Canada is probably most well-known among self-directed investors for their Direct Brokerage Service Award (DBSA) which has often been a part of the marketing materials of RBC Direct Investing for many years, and more recently on HSBC Invest Direct’s advertisements. In addition to the recognition, the recipient of the award receives permission to display the official seal (pictured below) of the award on their marketing materials to let consumers know of their accomplishment.

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Outlook on the Junior Mining & Exploration Sectors from WRIC 2013

With speakers, analysts, exhibitors and investors all converging in the same space, the World Resource Investment Conference (WRIC) is a great opportunity to gauge the pulse of the Canadian junior mining and exploration sectors.  Of course, with a year that has unfolded the way it has for the junior mining and exploration space, many attendees and speakers were content that there was a still pulse to be found at all.

Since January (the time of the last resource conference) the TSX Venture, where many Canadian exploration and mining stocks are listed, has declined about 24% and is drifting towards lows not seen since 2008.

Going into this year’s conference, it was a safe bet that was going to be a lot of doom and gloom to go around.  The sentiment from several speakers and from attendees was that there weren’t as many investors through the door as has been previously observed.  One blog post stated the following of the conference:

“The place was dead. I have never in my life seen this trade show so dead.”

Sobering statistics put forward by sector analyst John Kaiser also fanned the flames of negativity.  According to Kaiser’s research the list of companies on the TSX Venture with less than $200,000 in the bank has climbed to over 700, a sign that many of these companies will simply not have the capital on hand to continue operating.  Brent Cook, author of the Exploration Insights newsletter, echoed the same sentiment in his interview.

The consensus, it appears, is that things in the junior mining sector seem likely to get worse before they get better.