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Discount Brokerage Weekly Roundup – June 9, 2017

In a slight pause from presidential shenanigans, we kick off this weekend alongside the Canadian Grand Prix rolling into Montreal to celebrate its 50th anniversary. In many ways, the world of elite car racing mirrors the online brokerage space, both here in Canada and especially in the US. Both are subject to constant improvements and the reality is that both require constant adaptation to man and machine to perform incrementally better year after year.

In this edition of the roundup there are both grand prizes and intense competition which create the formula for a very interesting recap. Starting first with some big news in the deals arena, we profile the launch of a custom offer that is bound to get on the radar of the deal hunting crowd in the months to come. From there, we recap the highlights and insights on the US online brokerage landscape from a recent convention that provided some privileged access to the thoughts of leaders of major US online brokerages. To gear down, we’ll take a lap around Twitter track to see what DIY investors had to say about and to Canadian discount brokerages and we’ll wave the checkered flag alongside some forum posts into the close. Start your engines, here we go.

Eyes on the Prize

Great news for DIY investors heading into the summer, not only is the weather hot, but so too are the deals. In what is typically described as the ‘slow’ season for online brokerages, this year it appears that things are a bit different.

Not only are markets (at least in the US) continuing to push record highs, they are doing so in spite of uncertainty with the US presidential state – something that would otherwise leave markets rattled. And, while there are certainly the naysayers saying the rally in stocks has gone well beyond where it should have, the fact remains: prices continue to rise and assets continue to be poured into the markets.

What this means for DIY investors is that despite the looming uncertainties, there is an inevitable pull into participating in the move upwards. While there may be lots (and lots) of bad news, for DIY investors the good news is that Canadian online brokerages are anteing up all kinds of promotional offers to make opening an online trading account more worthwhile.

On that note, the big news this past week was the launch of the SparxTrading.com exclusive offer with Questrade where individuals who sign up for an online trading account can receive up to $88 in commission-credits, which are good for up to 60 days from the point of account opening.

One of the most appealing facets of this offer is that individuals can qualify with a minimum deposit of $1,000. That said, it is important to understand that Questrade does charge inactivity fees (of $24.95 per quarter) if a client’s total assets with Questrade are less than $5,000. Fortunately for Questrade, there are numerous ways to have the ‘inactivity’ fee waived, all of which can be found here.

As far as commission-free trade offers at Questrade, this current offer is one of the (if not the) best offer for individuals interested in a sign-up promotion with Questrade. Since this offer was put together via the Questrade affiliate program, SparxTrading.com may receive a payment for individuals who sign up using the promotion code Sparx88.

Compared to the current (and standard) affiliate offers of $50 in commission credits that are widely available online, however, the $88 commission-credit promo offers DIY investors significantly better value. In addition, the standard term to use the $50 commission-credit offer is 30 days whereas the Sparx88 commission-credit offer is good for 60 days. In short, those looking to open a Questrade DIY investing account will be hard pressed to find a better offer.

Of course, those DIY investors shopping around for an online trading account offer will be pleased to find out that there are also more deals from other brokerages on the horizon. Although we can’t confirm publicly which brokerages are launching offers soon, we can say that there is a high probability that June will have a few more pleasant surprises in store for DIY investors.

Made in Manhattan

Every so often, a window into the inner workings of the online brokerage industry opens up to reveal the fascinating activities that take place behind the scenes. Even more intriguing, however, is when the normally guarded CEO’s of the US online brokerage industry are the ones providing the insights. Admittedly, this next piece is going to appeal to the online brokerage enthusiasts, but there some very noteworthy scenarios that were uncovered.

This past week the Sandler O’Neill 2017 Global Exchange & Brokerage Conference took place in New York City and offered up a unique snapshot of the current state of the online brokerage industry in the US. Interviewed at this year’s conference were CEO’s of three of the largest US online brokerages: Thomas Peterffy (Interactive Brokers), Tim Hockey (TD Ameritrade) and Karl Roessner (E*Trade Financial).

Having the opportunity to listen in on the comments and insights from the respective heads of these US online brokerages offered some clues into where the industry south of the border is heading and what that might mean for Canadian discount brokerages as well as for DIY investors.

While there was certainly a lot of ground that was covered in each of these interviews (which lasted about 25 minutes a piece), there were three main themes that emerged about the landscape for online brokerages in the US.

The first, and widely acknowledged development, was the wave of price drop events that took place earlier this year and the resulting fallout. Specifically, the lowering of commission pricing across the board provided an interesting look at the reactions and responses from each of the respective heads of the interviewed brokerages.

Perhaps most interesting reactions came from Tim Hockey and Karl Roessner, who acknowledged that the increased attention that the pricing war received in the media potentially helped to contribute to more clients engaging with either firm and more new clients coming on board. It seems somewhat counter intuitive that the online brokerages would see lower commission pricing revenue as a positive, but there was a definite spin on the benefits of increased account growth. For Interactive Brokers, low commission pricing appears to have been part of the strategy from the get-go, and as such, Thomas Peterffy seemed to communicate that he will continue in the same direction of focusing on low cost execution, margin and excelling at automation in order to win over new clients.

Stepping back to assess the big picture on pricing, the writing appears to be on the wall for the US online brokerage industry that commission pricing can – and will likely – continue to drop. All three brokerage heads felt that their respective enterprises could withstand pricing drops and that diversification strategies (such as increasing efforts to onboard managed wealth clients) are already in play.

The next big theme discussed by the three brokerage CEO’s interviewed was the role that technology continues to play in the operations of their respective online brokerages as well as what it means for the future of their organizations. In some ways, it seems obvious that an ‘online brokerage’ would rely on technology quite extensively – and while that is true, there appears to be a substantial transformation taking place in financial services to become more ‘tech’ savvy. One example cited by both E*Trade and TD Ameritrade, for example, was the move to a more ‘agile’ workflow structure for technology solutions deployment. A particularly detailed example of this work in action was provided by Tim Hockey, who highlighted a doubling in ‘throughput’ that came from a combination of a 36% increase in agile run projects and 25% increase in budget for technology projects.

What this means for DIY investors is that responsiveness to feature change requests will likely improve and the time for innovative features and user experience enhancements to ‘go live’ will decrease.

Finally, the third major theme that was discussed was the general absence of volatility in the stock market and how that has impacted the online brokerage industry (by a lack of trading). While there were theories advanced as to why this might be the case, what was particularly interesting was that both Thomas Peterffy and Tim Hockey alluded to volatility returning.

In the case of Peterffy, he had mentioned that while algorithmic traders and options traders are currently equipped to handle the current market conditions, an outsized move could potentially displace many of the trading strategies that have done so well in a low volatility environment. From Hockey’s point of view, the ‘reversion to the mean’ case was made in which  volatility would be likely to return to long term historical averages (i.e. the VIX at 12 – 14).  In either scenario, however, online brokerages would stand to benefit from increased trading activity. And, for DIY investors, it is a good reminder that planning a strategy ahead of time for a higher volatility period would be prudent thinking.

Clearly, there was lots of interesting ground covered at the most recent Sandler O’Neill Brokerage Conference. For Canadian DIY investors, one of the key takeaways is that some of the changes in the US are also taking place here in Canada and that service levels as well as pricing can be expected to improve, albeit at a slower pace. When it comes to selecting an online brokerage, however, one of the new markers for making that choice would appear to be how proficient the organization is at managing technological change – since it appears that the only certainty confronting the online brokerage space is the necessity to adapt quickly to changes in technology.

Discount Brokerage Tweets of the Week

This week it looks like the usual suspects were in the spotlight with DIY investors. Mentioned in the tweets (some more angry than others) were CIBC Investor’s Edge, Questrade, Scotia iTRADE, TD Direct Investing and Virtual Brokers.

From the Forums

A Marginal Strategy

The combination of the right online brokerage that can offer the right price and a low cost of capital bears all the hallmarks for a winning strategy. Whether or not the recipe works is another question altogether. That was the basis behind this post from redflagdeals.com’s investing thread in which one user was curious about a passive strategy using Interactive Brokers to pull it off. Worth a read for what the community had to say.

Not Your Average Couch Potato

Planning out investments that take little time and effort can itself take an upfront investment of time and effort. That said, it is time well spent and especially so when creating a detailed post to put in front of the reddit community to have them weigh in on it. Such was the case in this post on a passive strategy that certainly generated a lot of active discussion on the personal finance Canada subreddit.

Into the Close

If you made it this far, congratulations! It’s been an eventful week and even though all of the exciting and mundane news has been ‘trumped’ by the media frenzy, there are still many very interesting things happening across this great planet of ours. Whether you tune into the online world or actually get out and enjoy the great weather, have a great (and tweet free) weekend! Of course if you’re looking for a little inspiration for that weekend drive (or that longshot position), here’s a little video to get you on your way.

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