Posted on Leave a comment

Discount Brokerage Weekly Roundup – June 22, 2018

There are lots of reasons to cheer as summer officially started this week and, of course, its Friday. For Canadian DIY investors, and much of the world really, the news coming out of the US has dominated airwaves. And, while nobody really knows exactly what’s going to happen next, it’s interesting to see how the leaders of online brokerages in the US are positioning themselves in this uncertain environment.

In this edition of the roundup, we take a deep dive into a recent financial services conference in the US that brought together the heads of three large US online brokerages to provide insights into their particular companies and on the space for online investing in general. From there, we’ll tack on the tweets from DIY investors this week as well as some interesting forum posts on two popular online brokers.

Views from the Top: Perspectives from US Online Brokerage Leaders

In early June, many financial services providers gathered in New York City for the annual Sandler O’Neill Global Exchange and Brokerage Conference. The participant list included many notable names from the US online brokerage market, including the leadership from E*TRADE Financial, Interactive Brokers and TD Ameritrade, three of the four largest publicly traded online brokerage trading firms in the US.

As part of the conference, one-on-one interviews with the three US online brokerages were conducted which offered a unique window into what’s going on at each firm – as told by the leadership themselves.

Given their status as public companies, it is a balancing act to reveal something meaningful about what’s taking place either in the industry or in their firm, while being cautious not to let too many ‘secrets’ out of the bag. Suffice to say, it’s also kind of fun to hear how the different leaders communicate and pull it off.

There were a number of themes that emerged from the conversations with Karl Roessner (CEO, E*TRADE Financial), Tim Hockey (President & CEO of TD Ameritrade) and Thomas Peterffy (CEO & Founder, Interactive Brokers) as well as some interesting reveals and hints of things to come.

Of course, the human side of the interactions was also interesting to take note of – specifically the styles of each of the leaders. Before jumping into the details of what we learned, we’ll detour into some observations about the leaders themselves.

In Karl Roessner’s interview, for example, the energy and enthusiasm came through in the cadence and pace of his answers. It seemed to match the overall banner that E*TRADE appears to be marching under, which is a return to their core identity as a leading trading firm. By comparison, Thomas Peterffy was a much more measured speaker which seemed to also match the ‘slow and steady’ approach to continued success achieved by Interactive Brokers. Between the two was Tim Hockey, again another articulate and calculated speaker who seemingly matched the overall arc of where the firm has come from since he came aboard and where it may go under his leadership.

Getting back to important themes and discoveries from the Sandler O’Neill Global Exchange and Brokerage Conference, one of the most prevalent talking points was growth in accounts.

In the case of E*TRADE and TD Ameritrade, recent acquisitions of other trading firms have helped to contribute growth to the number of accounts and client assets. The fact that both of these firms opted to acquire to grow presented some intriguing comparison points.

For example, in acquiring another firm, the timing and nature of the impact to the clients of acquired firm is something that has to be carefully planned for. E*TRADE acquisition of OptionsHouse for $725 million in 2016 as well as the purchase of one million Capital One retail brokerage accounts in January 2018 have added a substantial number of new clients to the organization. In the interview, Roessner stated that to ensure the transition for the Capital One clients goes smoothly, E*TRADE is taking some extra time to get the client experience just right. Of particular interest is the fact that E*TRADE has made a concerted effort to go back to its ‘active trading’ roots for the past two years, however many of the Capital One brokerage account holders are typically not that active, so it should be interesting to see how E*TRADE tackles the challenge of having many more clients that don’t necessarily have the time, confidence or desire to trade actively. One way might be via E*TRADE’s own roboadvisor service – which they call “Core Portfolios.”

TD Ameritrade’s acquisition of Scottrade, which was announced in October 2016 and was finally completed in September 2017 brought the total number of accounts at TD Ameritrade to 11 million. In recounting that transaction, which was the first major acquisition at TD Ameritrade under Hockey’s leadership, it was interesting to hear how Ameritrade had modeled what was going to happen and when they could start to see the impact to clients when the platforms were finally combined (which happened in February 2018). The impact to clients really didn’t take shape right away, it was only after the existing Scottrade clients found themselves using TD’s platforms did they attrition (turnover) rate start to increase. Nevertheless, what was revealing was that once new clients familiarized themselves with the TD Ameritrade platform (Thinkorswim), there was an accompanying lift in the number of trades made by clients.

Also, while on the topic of TD Ameritrade, it was intriguing to hear that Investools, the exceptionally well-designed investor education program offered by TD Ameritrade is being translated to service the Asian markets (China) and that it is going to become an area of even greater focus as Ameritrade looks to pursue getting into the Chinese/Asian investor marketplace.

The growth-by-acquisition strategy was one end of the spectrum and squarely at the other was Interactive Brokers, which has seen incredibly strong growth almost from the get go of becoming a public listing. The interview with Thomas Peterffy was filled with nuggets of information that add depth and context to the IB approach and the realities of being an online brokerage.


One of the most interesting takeaways from the Interactive Brokers session is how Peterffy described the ‘ecosystem’ of online brokerages in the US. Namely that TD Ameritrade and E*TRADE clients that outgrow the experience, platform or pricing of these two firms naturally gravitate to Interactive Brokers. In other words, Ameritrade and E*TRADE act as feeders for Interactive Brokers – which is one of the reasons IB has been able to maintain its growth trajectory. Another important contributor to growth for Interactive Brokers has been their international footprint – in particular their longtime presence in Asia (they have been in Hong Kong for about 25 years). The account sizes of the Hong Kong investors rival, on average, those of the US clients.  Perhaps the biggest news that was revealed by Peterffy was that Interactive Brokers will be opening an electronic bank. There are already plans in motion to do so which will enable Interactive Brokers to offer an even broader array of banking services to clients in certain jurisdictions.

The US online brokerage space is always an exciting market to look into because it is dynamic as well as transparent about the kinds of performance metrics and initiatives that impact (or are result of) clients. Canadian discount brokerages, on the other hand, are not as large, do not report the same kind of granularity of data and typically don’t move at the speed and scale of the US online brokerages. Even so, it is worth noting that all the brokerages in the US don’t focus exclusively on order execution only anymore.

The online brokers in the US now include digital/managed advice services (e.g. robo-advisors), banking services and international expansion plans. That each of these US online brokerages have had to diversify their businesses from just online trading is a sign that Canadian discount brokerages are going to compete more heavily with both the banking as well as the managed advice services already in place. It is seemingly ironic that over the span of time that online brokerages have been around, the ‘DIY’ investing world seems to have come full circle as more individuals gravitate towards the managed wealth or digital wealth solutions – perhaps the most convenient is that there are now more one-stop-shopping options to choose from.

Discount Brokerage Tweets of the Week

From the Forums

Weighing in on the Best Online Brokerage

A perennial question among online investors is which online brokerage is best? In this recent post from the reddit Personal Finance Canada threads takes a long look at the pros and cons of Questrade as well as several other online brokerages as viewed by online investors.

Getting Started with TD Direct Investing

As one of Canada’s most popular online brokerages, TD Direct Investing’s recent enabling of online account openings is only going to help speed up the process of getting a new account opened. In this post from reddit’s Personal Finance Canada thread, one user is curious about the online signup and learns some interesting tips from fellow forum users.

Into the Close

That does it for (yet) another eventful week. With uncertainty continuing to grow in markets the upside is that the volatility of the ‘summer’ weather doesn’t quite seem to matter much. If you do find yourself out and about, try to find a way to make it enjoyable! To help get things along, here’s a fun compilation of dance moves – have a great weekend!!

Leave a Reply