While one basketball legend is retiring another one is seeing his star rise. Whether it’s professional basketball or the world of DIY investing, performance is what counts. For the race that is the Canadian discount brokerages landscape, however, coasting along is not an option.
In this week’s roundup, we take a look at continued signs of life with one online brokerage who is getting prepped to move deeper into the investor education space. Next we take a look at the latest results from online brokerage in the US to see what trends are emerging across the brokerage industry as a whole. From there we’ll preview the upcoming investor education events in the week ahead and close out the round up with comments from DIY investors on Twitter and around the investor forums.
Making the Grade
This first few months of 2016 have been busy for Virtual Brokers. After their recent commission price adjustments, Virtual Brokers has tried to distance itself somewhat from the “ultra low cost” discount brokerage image and in place of the label try to introduce features and services that offer up more value for the dollars being spent on commissions. A recent article in the Globe and Mail featured a quote from Virtual Brokers CEO Bardya Ziaian in which he stated “I want to go beyond the notion that Virtual Brokers is a cheap way of trading, we want to add value.”
In line with this move to offer greater value, Virtual Brokers appears to be ramping up efforts to provide additional market research information and education to DIY investors. Their latest move was noted this week as they announced a webinar in partnership with Morningstar to discuss the Morningstar economic moat feature. In addition to the webinar, there are also plans in the near term to offer more value-added research and analysis of markets to clients. While details are still to come, it’s clear that Virtual Brokers is actively moving towards a ‘value’ focused offering.
As one of the relatively newer entrants into the DIY investing space, however, Virtual Brokers still has to outcompete the massive amounts of advertising and marketing resources being spent by their peers. The boost in exposure by being crowned the top online brokerage in the Globe and Mail has certainly made a material difference to Virtual Brokers. And, in order to keep atop the standings, there has to be a clear focus on delivering innovative and useful features. In other words, for Canadian online brokerages, the best way not to be noticed is to stand still.
Let’s Get Digital
Earnings and quarterly reports from US online brokerages are kicking off once again. What’s particularly interesting about this round of reports is that Charles Schwab, the largest online brokerage in the US, has just crossed the one year mark since they launched their robo advisor service (or as they call it the ‘digital advice’ segment), and, according to the numbers, there are about 6.6 billion reasons to celebrate.
On a year over year basis, Schwab had very healthy gains in net revenues (+16% to $1.8B), net income (up 36% to $412M) and modest account growth (+3%). Part of the reason for those gains came from their robo-advisor segment which attracted $6.6B in assets in just over a year’s time.
Despite being an online brokerage, Schwab makes the majority of its revenue from interest revenue, asset management and administration fees whereas trading revenue made up 13% of net revenues for the quarter. And, while the volatility over February and March may have provided a 12% quarter over quarter increase in trading revenues, the notion of what it takes to succeed in the online brokerage space clearly points to having something more than trading revenues to keep you going.
The reason these numbers matter is because they clearly demonstrate that there is a market for the ‘managed wealth’ that appears to be outpacing the DIY trading segment. Further, it also shows how sensitive the earnings at online brokerages are to interest rate moves and why low rates are a challenge to the business model.
For Canadian online brokerages, there has clearly been an interest in following suit with Schwab’s model of deploying robo-advisors; Questrade and more recently BMO began offering these ‘digital advice’ products as a way to capture market share from the not-so-do-it-yourself crowd. Virtual Brokers also appears to be positioning themselves within this space as they were recent sponsors of the Morningstar robo-advisor conference.
While the scale of the US wealth management market is considerably larger than Canada’s, it is interesting nonetheless to see how online brokerages are going to have to adapt their offering and business for a robo-world. Earnings for E*trade and Interactive Brokers are also on deck for the upcoming week so the picture of where investors are (or aren’t going) will be even clearer heading into the end of April.
Patio weather has arrived, and it’s a refreshing week ahead for discount brokerage-sponsored investor education events. Here are some upcoming sessions that may be of interest to options enthusiasts, those interested in international investing, and ETFs. Technical analysis, trading strategies, and a fundamental landscape overview round out this week’s selection.
NBDB – Technical Analysis with Mr. Gaetan Royer of Cobalt Investments – [Fr]
Scotia iTRADE – Dogs of the Dow – Easy as 1, 2, 3 with Pro Market Advisors
TD Direct Investing – Introduction to Investing in Options
NBDB – International Investing – [Fr]
Scotia iTRADE – Options Trading Using Technical Analysis with Montreal Exchange
TD Direct Investing – Introduction to Investing in Options
Desjardins Online Brokerage (Disnat) – Macro Masters Foundations Course
Virtual Brokers – Understanding Morningstar’s Economic Moat
Discount Brokerage Tweets of the Week
Spring is here. And while it brings flowers, and showers it also seems to bring bugs – at least for some. Mentioned this week are: BMO Investorline, Questrade, Scotia iTrade TD Direct Investing and Virtual Brokers.
From the Forums
For many investors keeping a handle on all of the official slips and forms and calculations can be, well, taxing. In this thread from reddit’s Personal Finance Canada section, however, the stress level for some of Questrade’s clients (and for many Questrade staff) spiked as it appears T3 forms for some clients were being sent to others. Whoops. The link is worth a read to see the reactions of investors as well as how Questrade stepped up to address the situation.
Green or Red?
It seems many investors looking for an online brokerage account tend to narrow the field down to a couple of choices and from there the hair splitting begins. In this post from Redflagdeals.com’s investing forum, the community weighs in on TD Direct Investing vs CIBC Investors Edge vs Questrade.
Into the Close
That’s a wrap for this week. With earnings season in full swing and a rally that nobody seems to trust, the next week will be fun one for traders. In the meantime, enjoy the spring weather and the human highlight reel that is Kobe Bryant (arguably a great DIY’er) in his last game.