Month: October 2019

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Discount Brokerage Weekly Roundup – October 28, 2019

Halloween is just around the corner, and for the online brokerage industry, it appears that they’re poised to deliver lots of treats and perhaps even a few tricks for DIY investors this year. Of course, this year’s scary prospect for Canadian discount brokerages might be vanishing profits, but as the US online brokerages are showing, even when commissions disappear, profits don’t have to.

In this edition of the Roundup, we continue our coverage of the fallout of falling commission prices, with a closer look at the conference call from TD Ameritrade and what hints it provided for the US and Canadian online brokerage industry. From there, we take a peek into what the folks in Sherwood forest are up to now that their vision of a zero-commission world is here, and they have to compete in it. As always, we’ll cap things off with chatter from investors on Twitter and in the investor forums.

More Commission Price Fallout: The TD Ameritrade Conference Call

It’s hard to pick a bigger story for this month or year than the fall of commission prices for stock trading in the US. This past week provided additional colour to the unfolding saga of the new reality for online investors and online brokerages in the US, as TD Ameritrade reported earnings and held their investor conference call.

With several earnings announcements and conference calls already having taken place (for Interactive Brokers and E*TRADE), it was interesting to see where the analysts who were on the call focused their questions and what could be gleaned from the responses of outgoing CEO Tim Hockey and CFO Steve Boyle.

There were a number of interesting, if not surprising, observations about this call, with implications for the US online brokerage market in general, and perhaps hints of things to come for Canadian online brokerages too.

One of the first standout items about this conference call was that the analyst questions appeared to take the new commission-free reality in stride. Unlike the clearly disoriented moments in early October when the pricing cuts were announced, there was clearly a more rational tone struck that seemed to suggest: “commission-free trading is here to stay, now what?”

Perhaps the clearest recurring question that came up on the conference call was that of mergers & acquisitions – with the subtext being the acquisition of E*TRADE.

A total of six questions referenced directly or indirectly the prospect of an acquisition being more likely now that commissions have gone to zero. While there was no definitive response on the part of Ameritrade regarding possible acquisitions (or being acquired), there was a clear acknowledgement that TD Ameritrade’s timing for the acquisition of Scottrade couldn’t have been better because it contributed scale. Nonetheless, reading between the lines on that response, it is clear that scale is going to be a critical pillar to the success of TD Ameritrade going forward.

In terms of the path forward, TD Ameritrade is looking for both growth and for increased efficiency. In terms of growth, areas such as stock lending appeared to have boosted earnings coming into this call (bets against cannabis and Beyond Meat helped that), however, in the longer term, they are looking to other lines of business and to other markets overseas to boost assets and revenues.

Outside of growth, there were also remarks and comments made with respect to cutting costs. It is abundantly clear from Schwab and E*TRADE that the path forward to sustainability in the zero-commission world is going to require efficiency, or as they like to call it, “streamlining.”

What stood out as an interesting move is the sentiment expressed by Boyle that Ameritrade is going to be “focusing on what is our core competency where we can grow, not trying to be all things to all people.” Subtle shade aside to the online brokerages moving into more traditional financial services, the notable context here is that Ameritrade is going to ramp up efforts to acquire and service high net worth individuals and potentially look to realign how they deliver services to account holders that may not take advantage of the full feature set. Specifically, Boyle stated “we do have a number of customers who have relatively small revenue with us. And we think it – there are a number of ways where we’re providing value that people will be willing to pay for.”

What is apparent from the ability of TD Ameritrade to pivot their pricing so quickly to zero was that this eventuality is something they had prepared for for quite some time. In fact, the “strategic resiliency project,” as it was called, was set in motion in 2017 so there was plenty of runway for Ameritrade to adjust to the new reality.

Hockey was surprisingly upbeat about the zero-commission move. His confidence rested on the premise that Ameritrade has an award-winning (and perhaps best of breed) platform that passive and active investors alike will take to, as well as deep bench of value-added features that other online brokerages have not invested in to the same degree. The net result: with commission price no longer a barrier, Ameritrade has one of the strongest competitive advantages in terms of customer experience of all the major US online brokerages and that will attract customers away from other brokerages. Anecdotally, according to Hockey, this is already happening.

For Canadian discount brokerages, the emerging playbook for the zero-commission reality is starting to become clearer thanks to the experiences of brokerages south of the border. While it is still likely to be some time before commission prices hit zero in Canada, it is clear that the path to financial sustainability for discount brokerages rests in creating a best-in-class service and technology experience, as well as offering access to other financial services. As such, it is no longer a race to the bottom per se as much as it is a race to the middle.

The balance of technology, pricing, and experience mean that investors looking to manage their wealth, not just trade the stock market, will think holistically about who the right online brokerage is for them. Conversely, the zero-commission rate also appears to be providing a chance for online brokerages to rethink who the right customers are for them.

Sherwood Like Cash

The ground is clearly shifting beneath the online brokerage industry in both the US and here in Canada. Even though the headlines this month have been dominated by the drop in commission fees by the major online brokerages, there have nonetheless been important stories and developments that deserve a little more time in the spotlight.

Now on the defensive, the online brokerage that was the catalyst in “democratizing” pricing for online investors, Robinhood, announced this month the re-launch of their cash management program.robinhood cash mgmt

One of the more potent arrows in its quiver, the cash management feature offers Robinhood clients the ability to earn high interest (2.05% at the time of publishing) on uninvested cash balances as well as access to a (great looking) debit card.

Just under a year ago, Robinhood attempted to launch this feature by labelling it as a checking/savings feature, and in doing so, earned the extreme ire of the US financial regulators. Nonetheless, after some time in the penalty box, Robinhood posted to their blog that their shiny new feature is “coming soon” – an interesting move in the midst of the zero-commission melee, as the report got eclipsed by bigger news stories about the industry.

Even so, Robinhood, like Interactive Brokers, has picked up on the idea that offering high-ish interest on uninvested cash balances is likely to not only keep existing customers happy but appeal to prospective customers.

Another new feature announcement from Robinhood also launched last week, which is the roll out of stop-limit orders for options trading. Interestingly, despite zero-commission trades for equities being implemented at other online brokerages in the US, options trading commissions – specifically per contract prices – are still in place. At Robinhood, however, options trading (including the per contract fee) is still $0.

The launch of this new feature is likely one part the result of client request and another part strategic news item to point out that there are still features to Robinhood that provide economic benefits to active investors. That said, options trading is both more complex and obscure to many DIY investors than stock trading is.

The data and platform requirements are equally more sophisticated, as are the competitors (e.g. Tastyworks) so Robinhood definitely has its work cut out to be able to effectively draw DIY investors into options trading if they don’t already do it, or to attract options traders into their platform and away from the bells and whistles that other platforms already offer.

In spite of the new features, it is clear the path forward for Robinhood is going to be significantly tougher to compete in. By all measures, the stand-alone online brokerage is officially a thing of the past, and where they were once entirely focused on stock trading, they are now going to have to be able to execute well in options trading, cryptocurrency trading, and broader personal financial services. With other financial service providers launching commission-free trades, including Square announcing the end of 2019 as when they’ll roll it out, we’re really excited to see what innovations drive interest and investors to particular brokerages and investments next.

Discount Brokerage Tweets of the Week

From the Forums

Safety is no Accident

A self-proclaimed “couch potato investor” on Reddit contemplates switching from Questrade to TD Direct Investing due to concerns over Questrade’s security guarantee. Forum users weigh in on their favourite discount brokerages and the role they have to play in security precautions.

The Fund-amentals

A Redditor who has newly signed up to Desjardins for their group RRSP at work asks for guidance in which fund to pick. Commenters on this post explain RRSPs and offer advice on assessing one’s risk aversion.

Into the Close

That’s it for another week of discount brokerage activities. There continue to be lots of smaller developments that we’re tracking as the news about zero-commission trading continues to settle down. The next big wave of earnings is also washing over the market, so in addition to the sugar high from all the candy consumed this week, there’s also going to be lots of data to digest. Hooray for spreadsheets!

 

 

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Discount Brokerage Weekly Roundup – October 21, 2019

On the eve of election night in Canada, citizens are tasked with making an investment of their own in the party or candidate that they believe is in their best interest. Another voting machine, the stock market, provides price as a proxy for expectations. Fascinatingly enough, the recent activity in US and Canadian online brokerage is providing a glimpse of where DIY investing is heading next.

In this edition of the Roundup, we dive into the latest earnings announcements from US online brokerages in the wake of the recent commission-fee cuts and read the tea leaves as to what’s brewing for the industry and investors alike in this new pricing reality. Speaking of trends, it looks like combos are the menu item of choice in the bank-owned online brokerage battle here in Canada – our second story spills the tea on what’s about to be trending for DIY investors. As always, there’s plenty of chatter from investors to dish out in the Twitter posts and in the investor forums.

Forecast for Online Brokerages: Cloudy with a Chance of Upside

As every experienced trader knows, sentiment and expectations drive pricing. Prices in the stock market, however, are dynamic and constantly changing which, by extension, means that so too are expectations.

The recent and rapid implosion of prices of US online brokerage stocks was anything but rational. While the market is an efficient pricing mechanism, during times of heightened emotion or uncertainty there’s a natural mispricing moment, and since the big price drop earlier in the month, we’ve witnessed the recalibration of expectations and calculations restore some sense of calm to a rattled industry.

This past week, the earnings announcements and management guidance for three of the big four names in the US online brokerage space were released. And, without giving away any spoilers, it appears expectations are shifting from pessimism to cautious optimism.

Since early October, the stock prices for publicly listed online brokerages AMTD, EFTC and SCHW have rallied an average of 15.3%. Interestingly, the online brokerage that touched off the avalanche in pricing drops, Interactive Brokers, is down about 4% over the same period of time.

What’s behind the change in sentiment? Fortunately, the question is somewhat answerable thanks to earnings conference calls held last week for E*TRADE Financial and Interactive Brokers.

The timing of earnings releases and subsequent investor conference calls so close to drop in commission pricing means that predictably, the “plunge” is almost all of what analysts covering these online brokerages wanted to discuss on the conference calls.

Despite the best efforts to pry additional information out of company management, there wasn’t a lot of brand-new market moving information that was revealed. More than anything, there was a lot of soothing of nerves and spin on what the significant loss of revenue from trading commissions would mean going forward.

At E*TRADE, for example, the CEO Mike Pizzi framed the loss of $300 million per year of commission revenue as an opportunity to win back clients to a best-of-breed trading platform. Indeed, that appears to be a pillar of the new narrative and the competitive reality.

Without trading commission costs, active traders will undoubtedly be seeking out the best online investing experience – including the best trading platform, decision support, and feature set. In that way, established brands like E*TRADE and Interactive Brokers (and Schwab and Ameritrade) have a significant leg up on the newcomer Robinhood for the most lucrative account holders (active traders) who need advanced tools and convenience.

Despite the many evasive dips and weaves of management to the analyst questions about what happens next, there were still a few interesting takeaways revealed by tuning into these calls.

The first, and arguably most significant for Canadian online brokerages, is that Interactive Brokers sees a business case for bringing commission-free trading here to Canada. In a question from analyst Will Nance from Goldman Sachs during the Interactive Brokers earnings conference call, it was asked whether or not IBKR Lite would be expanded to other locations around the world served by Interactive Brokers. Chairman and now former CEO of Interactive Brokers, Thomas Peterffy, stated that unlike the US, there weren’t that many equities markets internationally that could support robust payment for order flow. One exception: Canada.

Another important and recurring question that arose was the prospect of consolidation in the US online brokerage space and whether E*TRADE would be a candidate to be acquired.

Asked on both the E*TRADE conference call and on the Interactive Brokers one, it was interesting that there appears to be a renewed chatter about this online brokerage in particular. While nothing was affirmed in the call with E*TRADE, the door wasn’t closed on the topic either.

For additional context, E*TRADE had communicated achieving a target earning per share (EPS) of $7 by 2023 and in this earnings announcement call, that timeline was pushed back by a year to 2024. The current EPS forecast is ~$4 so even if the P/E ratio (9.88) manages to stay the same by 2024, the share price by that point could hit $70 (closing price on Friday was $40.85).

Normally, a downward revision or delay in EPS of that nature would prompt a sell off, however based on the drop in price prior to this earnings release, it’s evident the market believes it was oversold and hence the stock rallied. Moreover, it’s a vote of confidence in management that the market believed that hitting that target is achievable.

Suffice to say, the fact the door was left open to an acquisition suggests that if the price is right, management would consider a sale, and there’s even a target price on what that might be. When asked by an analyst if Interactive Brokers would consider buying E*TRADE, Peterffy rejected the prospect – however, it would be hard to imagine that even if they were kicking the tires on an acquisition, that they would disclose as much in a conference call.

Another very interesting takeaway from the investor conference calls was that even though there might not be commissions on equities trades any more, commissions on options trades are likely to stay buoyant for quite some time. The complexity of options strategies and trading almost necessitate having the right platform in place, and so this somewhat technical requirement could serve to ringfence trading commissions for these types of securities.

All told, the story going forward for the US online brokerage industry is still highly fluid.

There were a slew of new feature announcements (which will be covered in a subsequent Roundup) most notably the ability for investors to trade fractional shares (something Schwab and Ameritrade announced last week).

The reality is that there is no exact playbook to navigate a fundamentally different world than the one that has been in place for the past three decades. That said, it is fascinating to see just how adept each online brokerage is at evolving to the new reality of zero commissions for equity trades.

There are undoubtedly other levers and fees that can be used to grow revenues, as well as diversification away from just order execution – a preferred path it seems for Schwab and E*TRADE. There’s also a lot of cost cutting that is slated to take place. E*TRADE announced a number of initiatives in its conference call. Curiously, Interactive Brokers reported a 15% year over year increase in their total headcount, a signal that in spite of everything, they appear to be building out their overhead and team resources, not shrinking it the way that Schwab recently announced they would.

We’re eagerly awaiting what TD Ameritrade will have to say about the journey forward in their conference call, however, we suspect it will be some variation of what as already been said by E*TRADE, Schwab, and Interactive Brokers. There is a strong platform and client experience appeal to TD Ameritrade, so they certainly have a leg to stand on in that department. Add to that another very strong trading platform experience and new entrants are going to have a tough time competing. Ironically, zero commissions might accelerate the onboarding of clients to TD Ameritrade at the expense of other “low cost” online brokerages.

It does beg the question as to what’s next for Robinhood – the zero cost online brokerage that essentially helped to catalyze the industry race to zero commissions. In a way, they appear to be victims of their own success, and the other online brokerages appear to be forcing the hand of Robinhood to compete on feature sets and value drivers beyond just commission price.

Just because commission prices have fallen to the ground, it doesn’t mean that the incumbent online brokerages won’t be hitting that same ground running.

Packaged Delivery

For any fast food aficionados, there’s nothing unfamiliar about the combo being a better deal than the single item. Turns out that DIY investors hungry for a deal at Canada’s bank-owned brokerages might just be in luck. Earlier this month, National Bank Direct Brokerage launched their newest pricing offer which also happened to come with perks (like lower commission pricing) for anyone who was also a National Bank client.

Another bank-owned brokerage also seems to be looking to offer a compelling online investing side-order to its banking clients. Scotiabank, parent to Scotia iTRADE, is offering up clients who sign up to the recently launched Ultimate Package 10 commission-free trades in the first year, and five commission-free trades every year that the account is open.

This new offer is likely going to generate some waves with DIY investors and potentially open a new front in the online brokerage battle.

In terms of the offer itself, the threshold for this banking package requires a minimum balance of $5,000 to be maintained in the bank account. However, there are a number of daily banking features and perks to keep things worthwhile. To boot, there is a cash incentive of up to $350 that would make this offer even more compelling relative to other onboarding offers from the online brokerage side of many big bank-owned brokerages. Finally, there is the ongoing commission fee waiver for five trades per year which is likely to appeal to the very passive investor. Combined with Scotia iTRADE’s selection of commission-free ETFs, there’s a lot on the table for the right profile of investor who has enough to surpass the inactivity fee threshold ($10,000). For investors under the age of 26, however, this is an especially interesting choice because those inactivity fees are waived for younger investors.

When it comes to the future of online trading in Canada, it appears that bank-owned brokerages are relying on their biggest asset – the banking relationship – to entice DIY investors to stay put.

This is almost certainly the next front in an ongoing battle for DIY investor assets, one that non-bank owned brokerages such as Questrade, Virtual Brokers or Qtrade Investor will have to figure out how to counter.

One likely scenario is for the non-bank owned brokerages to start providing high interest on uninvested cash – something that has clearly been shown to work for Interactive Brokers. As has been the case in the US online brokerage market, the major online brokerages have increasingly started to deploy “bank-like” solutions such as bill payment capability and even credit cards to enable a “one-stop shop” experience for personal finance management.

With more zero-commission fees on the horizon for the Canadian discount brokerage space, this latest combo experiment may buy brokerages some much needed time before having to drop their commission rates to zero. More importantly, combo offers like this keep customers from casting their gaze over the fence.

Interestingly, unlike a race to the bottom, this appears to be the next step in a bidding war for loyalty.

The unintended consequence to the bank-owned brokerages, however, is that they will have to get all points of the service experience right – from banking through to wealth management – because going forward, those fortunes, like those of their clients, are going to be tied closer together than they have ever been before.

Discount Brokerage Tweets of the Week

From the Forums

Clean Break

Breaking up is never easy, so in this forum post on the Financial Wisdom Forum, a user seeks advice on the process of leaving their full service broker for a discount brokerage account at NBDB.

Fee-dom

In search of investment options without fees that add up over time, a Redditor asks for discount brokerage options and advice for a first-time investor in this forum post.

Into the Close

With online brokerages and the ongoing fee-asco now in the spotlight, the focus on the industry is almost unprecedented. We are definitely in uncharted territory as to what will ultimately shake out as a direction for the industry, and that uncertainty is going to definitely translate into lots of questions from consumers.

Turns out that in addition to putting an X on a ballot this week, DIY investors are going to need to remember to tune into the blue X to stay on top of what’s going on. We’re thrilled to see where this next chapter takes us and are starting to get the feeling we’re going to be needed now more than even we could have imagined. Here’s to whatever comes next.

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Discount Brokerage Weekly Roundup – October 15, 2019

Welcome back to the market action after what was hopefully a restful long weekend. While many DIY investors will start the week feeling cheerful, it was pretty clear that after a stretch like the one we’ve just witnessed, a few online brokerages are feeling like they’ve had the stuffing knocked out of them.

With so much chatter and attention focused on commission-free trading battles taking place in the US, it’s easy for news stories and developments from Canadian online brokerages to fly under the radar. Fortunately, this post (Canadian) Thanksgiving edition of the Roundup is tracking some of the smaller but important developments taking place. Our first story highlights some deals activity that points to more volatility in October for discount brokerages in Canada. From there we’ll review emerging trends of features and enhancements that, curiously, aren’t getting a lot of coverage. As always, we’ll serve up the forum post favourites and a healthy portion of Twitter commentary to cap things off.

Discount Brokerage Deal-ite

With the end of the year in sight, there will be more than just Christmas decorations starting to light up online brokerages across Canada. Invariably, the more organized among us will already be done with their Christmas gifts and be kicking the tires on RRSP accounts. As such, Canadian discount brokerages are likely seeing their websites light up with traffic from these early shoppers looking to get a handle on what offers and features exist to support investing for retirement.

This past week, we noticed RBC Direct Investing, one of Canada’s largest bank-owned brokerages, re-release one of their more popular offers to Canadian DIY investors: 25 commission-free trades that are good for up to one year.

While this latest move by RBC Direct Investing coincides with the celebration of their 30th anniversary as an online brokerage in Canada, it’s clear that commission-free “offers” now have to stack up against the expectation and anticipation of “commission-free trading.” Indeed, a lot has changed over the past 30 years in the online brokerage industry, with the biggest changes taking place over the past few weeks.

Undoubtedly, the tsunami of zero-commission trading that slammed into the US online brokerage market has been (and will be) a hot topic of conversation among Canada’s discount brokerages. With the launch of this latest offer from RBC Direct Investing, other Canadian online brokerages will also be feeling the pressure to come to market with something equally, or more, compelling.

Timing-wise, October will continue to be an interesting and somewhat volatile month for Canadian discount brokerage deals – especially those from bank-owned online brokerages.

For example, Scotia iTRADE’s “Get Self-Started” lowered pricing and cash back offer is scheduled to expire on October 15th (at the time of publishing). Later in October, BMO InvestorLine’s cash back promotion is also set to expire.

Add into the mix that National Bank Direct Brokerage’s new lower pricing takes effect on October 15th, and it is clear that the remainder of the fall season will be great for DIY investors seeking out better pricing on commissions and deals suited to attract new business.

With all of the activity taking place this week, we’re banking on the fact that this will be just the beginning of a burst of activity from Canadian online brokerages who are gearing up for their most competitive year ahead yet.

New Website Changes Signal New Features & Strategies

With online trade commission pricing facing even more downward pressure, the writing is on the wall for the Canadian discount brokerages to get more creative and improve their user experience. Given the recent events in the US online brokerage market, the timetable to deploy these new changes has almost certainly been accelerated.

Commission commotion aside, over the past few weeks we’ve noticed some interesting changes to several online brokerages websites that have been curiously flying under the radar.

One of the first important changes noted was the Virtual Brokers website, which quietly underwent a significant facelift earlier this month.

Historically, the launch of a new website was almost always accompanied by some kind of announcement, press release, or even chatter on social media or investor forums. In this case, there was no mention to be found on social media channels run by Virtual Brokers or chatter from investors.

The look and feel of the new site is more streamlined and hints towards a new visual direction. It’s less “cartoony” and more corporate, with a heavy emphasis on their designation as the “best online brokerage” by the Globe and Mail.

It’s hard to say whether no reaction is better than a negative one, but it is noteworthy that nobody mentioning anything is possibly a harbinger of where online investors are pointing their attention (and where they aren’t) when it comes to Canadian online brokerages. Redoing a website is no small feat, so it’s a safe bet there was a lot of effort and expense that went into the redesign and what the ROI is will remain to be seen.

Interestingly, with a new CEO (Kurt MacAlpine) taking the helm at CI Financial, the parent to Virtual Brokers, as well as digital being “critical” to the long-term strategy at CI, it seems like there will have to be a series of significant changes coming.

Clearly the non-bank-owned brokerages (other than Questrade) are going to have to double down on efforts to stay in the spotlight given the competitors they are up against. A rethink of digital experiences and pricing strategies is almost certainly the next order of business to come.

On the bank-owned brokerage end of things, we have also been noticing changes appearing to the CIBC Investor’s Edge website, specifically with regards to the design and knowledge-driven features appearing on the homepage. Interestingly, there were whispers of a new platform coming from Investor’s Edge in a forum thread in September so these changes seem to be in line with, or supporting, a shift in either look and feel or user experience.

One of the most important evolutions to the CIBC Investor’s Edge site that has been taking place is in the knowledge base. From webinars to video content to articles, it appears that Investor’s Edge has been working quietly to build out this important kind of resource and making it publicly accessible to DIY investors.

Similar to Investor’s Edge, we’ve also taken notice of a buildout of the knowledge base at Scotia iTRADE. Historically iTRADE has invested consistently in webinars for educational content, however, over the past year or so there has been more focus being placed on supporting material (e.g. “how to”) and other financial content, such as their tax content series.

In spite of all of the changes mentioned above, one interesting observation regarding these additional features has been the relatively quiet, if not completely silent, roll out.

The emerging picture is a curious one. On the one hand, it’s clear that Canadian online brokerages are actively working to deliver value-added components to their product experience, in part, to offset the perception of being a place to go to for low-cost trade execution. That said, the accompanying lack of chatter or lack of excitement/buzz is anomalous.

With commission rates under pressure of falling further, it is going to become increasingly more important for online brokerages to highlight what makes them special.  The muted messaging and marketing from several notable online brokerages around new feature development make it harder for DIY investors to talk about what’s special about an online brokerage.

By cutting back on marketing, discount brokerages may feel like they’re saving precious resources, but if there’s one thing that online brokerages can’t afford more than lower commissions, it’s to be forgettable.

Discount Brokerage Tweets of the Week

From the Forums

Platform for Discussion

When it comes to picking a trading platform, finding a straight answer is somewhat of a challenge. In this forum post on RedFlagDeals, one forum user decided to create a new watering hole for fellow readers to contribute information on and learn about discount broker trading platforms.

Greener Pastures

There’s no question the environment is having a moment. But is investing in green energy as good for a portfolio as it is for the planet? A Redditor asks for advice to help his parents invest in green energy ETFs and gets some sage advice for those nearing retirement. Read more here.

Into the Close

After the long weekend, there’s a lot to digest heading into the week ahead (not just the leftovers either!). It will be another wild week for US online brokerages as earnings from Schwab cross the wire premarket on Tuesday, and E*TRADE after market on Thursday. The lingering questions for analysts, investors, and other industry participants is where things go from here, and this week, we may just get a much clearer picture.

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Discount Brokerage Weekly Roundup – October 7, 2019

You have to hand it to October. For whatever reason, this is the month of the calendar year where there happens to be more volatility than usual in stock markets. It even featured prominently in the Back to Future franchise as the date in which travelling through time would be achieved. Although time travel in a DeLorean may not be here, it seems like for Canadian DIY investors, the future of online trading is.

In this week’s Roundup, the commission rate carnage in the US takes centre stage. With all major online brokerages in the US dropping trading commission rates to zero, it was an historic time to be witnessing this seismic shift in this industry. Speaking of history, our follow up story is about a Canadian bank-owned brokerage who marked their 30-year anniversary as an online broker with a timely video on how much has changed. Of course, staying on top of the comments on social media and in the forums is standard fare, and these close off this edition of the Roundup.

US Online Brokerage Commissions Rocked

There are big deals, and then there are the kinds of weeks like the one the online brokerage industry in the US had. In what could genuinely be characterized as the most explosive (or implosive) week in online brokerage history, investors, media, and online brokerages alike all watched in jaw-dropping awe as commission prices for trading online collapsed to zero. Everywhere.

Within one week of the already low-cost online brokerage Interactive Brokers announcing that they would introduce zero-commission trading as part of IBKR Lite, the entire suite of online brokerage players in the US followed. Starting on October 1st with Charles Schwab, then TD Ameritrade, and finally E*TRADE on October 2nd, billions of dollars in commission revenues were vapourized, along with market caps for the publicly traded US online brokers.

With the moves catching many in the investment world (surprisingly) by surprise, stock prices for the US online brokerages were hit hard. Charles Schwab dropped by 9%, TD Ameritrade was decimated to the tune of 25%, and E*TRADE fell by 16%. The blow back even hit Canadian bank TD for a drop of 2%, which owns 42% of TD Ameritrade.

There is certainly lots to unpack, and likely still many more stories to emerge from what just happened. One thing that does stand out, however, is just how fast the industry as a whole followed the lead of Interactive Brokers.

As we mentioned in last week’s Roundup, the “Z Day” playbook had likely already been written, with many online brokerages in the US aware of what could or would need to happen if one of the major competitors took commission rates to zero. For that reason, although it was painful to do so, the industry was prepared to respond quickly in the event the nuclear option was triggered.

As part of the fallout, the question many Canadian investors are asking (if not outright demanding an answer to) is when online brokerages in Canada will move to full zero-commission trading.

When the online brokerages in the US finally hit the big red button, Schwab was offering standard commissions at $4.95 and both TD Ameritrade and E*TRADE were at $6.95 (all dollar amounts in USD).

For an apples to apples comparison, the “standard” commission rates for Canadian online brokerages range from $4.88 at HSBC InvestDirect to $9.99 (at Scotia iTRADE and TD Direct Investing). Other online brokerages offer variable pricing of $0.01/share with minimums of $1 (Interactive Brokers), $1.99 (Virtual Brokers), and Questrade ($4.95) so depending on the order size, it may be cheaper to execute certain trades there than by paying a fixed fee. And, as we reported last week in the Roundup, National Bank Direct Brokerage will soon be launching their active trader pricing at $0.95. Flat fee pricing for active traders at Virtual Brokers is $3.99, and $4.99 at Scotia iTRADE.

The key takeaway is that the point of no return has likely already been passed for Canadian online brokerages’ commission pricing. For some quick context, Schwab’s $4.95 USD converts roughly into $6.59 CAD.

So, it seems that Canadian online brokerages are going to be counting on the “inertia” effect of Canadian DIY investors as long as they can, hoping that investors don’t want to go through the “hassle” of switching online brokerages if the perceived benefit is not really worth it.

It is worth pointing out that the majority of the word “meh” is comprised of “eh” and that might be appropriate to characterize what the response would be here if Canadian online brokerages took down their pricing to the near zero level. As such, it is likely that Canadian online brokers have much more time than their US counterparts to bring commission rates down. And that time buys flexibility.

One of the important differences between the Canadian and US online brokerage marketplaces is that the level of competition is nowhere nearly as intense. So, while the impact of publicly traded online brokerages taking their commission rates to zero makes headline news and moves markets in the US, there are no publicly traded online brokerages here in Canada to make the same kind of splash.

If zero is not the right number, then what is? Would it really be worth it for passive investors to switch online brokerages if the commissions they paid per trade were $3 or $2 or just $1?

For example, it might not be inconceivable that a Canadian online brokerage attempts to try the gym membership strategy of charging a monthly fee whereby traders can make as many trades as they want (subject to some very well thought out terms and conditions).

Alternatively, Canadian online brokerages could take their rates down to a “toonie” or a “loonie,” and the rates could seem inconsequential. A round trip using a cash fare on the TTC (Toronto’s transit system) costs $6.50 (as of the writing of this post) so a round trip for a stock trade that came in at less than that (without the risk of similar delays hopefully!) would be easy marketing fodder.

Perhaps the biggest ace up the sleeves of bank-owned online brokerages in Canada would be the bundling of banking relationships to achieve the best commission rates. National Bank Direct Brokerage’s latest pricing move is a perfect example of this approach where clients of National Bank get a break on commission pricing at NBDB. A much larger online brokerage competitor could, however, afford to take pricing even lower than the $6.95 watermark. For the non-bank-owned (or non-credit union-owned) brokerages, this latest pricing cut is a bellwether to move faster to cut rates and figure out other value drivers. Dragging their heels is not an option any more.

There will undoubtedly be lots to continue to watch unfold as the US industry tries to adjust to a new commission rate environment while still trying to remain profitable. One of the main forecasts for what will happen next is that industry consolidation will take place.

Sustainability in the online brokerage space lies in scale, which for now will be achieved through acquisition, so it won’t be surprising to see E*TRADE surface again an as acquisition story. Potentially, however, so could Robinhood. It has been structuring itself for an IPO and has been operating as a zero-commission broker from day one, so it not only has the infrastructure and critical mass of key client segment baked in, but it also has founders and their backers looking for a liquidity event. Add to that the terrible climate for tech IPOs in the US at the moment, and it seems like paying a premium for a Robinhood now would likely leapfrog an acquisition of E*TRADE. Like other brokerages, E*TRADE’s forecasts are going to be revised downwards, which means they’re also likely to be acquired at somewhat of a discount if they do get acquired at all.

For Canadian online brokerages, it is likely that the battle for DIY investors will further its split into either passive investors or active ones. With lower commission fees will likely come more trading, and more active traders need better tools – like trading platforms, and data, to time their entries and exits. With zero commissions, frequent trading is likely to see a resurgence, so those novice “day traders” on the sidelines will undoubtedly be enticed to step back in.

On balance, it seems that online brokerages who can offer a better trading experience are going to likely earn higher praise than those who simply offer lower pricing. Any broker who offers both a great trading platform and lower price for commission (*ahem Interactive Brokers*) will be a natural contender for Canadian DIY investors going forward. Throw in the convenience of managing banking, credit cards, line of credit or a mortgage, and you’ve got a trifecta for DIY investors.

The only question now is how long Canadian DIY investors will have to wait before someone claims the mantle of being the first to offer all three in this brave new commission-free world.

RBC Direct Investing Celebrates 30 Years as an Online Brokerage in Canada

The universe can be somewhat poetic in its timing. Amidst the backdrop of all of the activity in the online brokerage space in the US, this past week RBC Direct Investing officially celebrated the incredible milestone of 30 years as an online brokerage for Canadians.

To mark the occasion, the team from RBC Direct Investing opened the market at the Toronto Stock Exchange and produced a video commemorating the journey from 1989 to 2019.

It will undoubtedly be an exciting year for all the online brokerages, but in particular for bank-owned online brokerages like RBC Direct Investing for the remainder of 2019 and 2020.

No stranger to jumping ahead of their bank-owned brokerage peers in lowering commission prices, RBC Direct Investing was the first of the big bank-owned online brokerages to lower their commission rates down to $9.95 a trade in 2014. Like their peers, it’s clearly a question of when, rather than if, commission prices will drop again and by how much.

We’re keen to see whether RBC Direct Investing will once again set the pricing pace among the bigger brokerages and especially given the spotlight being shone on zero-commission rates in the US (and further afield in Europe and Australia). Given the volatility in the space right now, we’re curious where the next 30 (days) takes Canadian DIY investors.

Discount Brokerage Tweets of the Week

From the Forums

Unluck-eh

While applying for a permanent residency, a Redditor who’s new to Canada is having trouble opening a TFSA and has asked the DIY investor community for their advice. Read the full discussion here.

Uncomfortable Questions

A Redditor with a managed portfolio is curious about index funds but worries that the inquiry will offend their financial advisor. DIY investors discuss the situation and the potential profit outlook here.

Into the Close

Staying on the throwback to the 80s, it was 30 years ago in 1989 that the video game Zero Wing was launched, which eventually gave rise to the meme “All your base are belong to us.” Video games, like the online brokerage industry, have changed dramatically since then. What the events of the past week have shown, however, is that the future can show up faster than expected and that those clamouring for commission-free trading (at least in the US) have now received what they wished for. While we now chuckle at how silly the games 30 years ago look compared to today’s, it is also remarkable to think that one day it will be considered equally silly that online brokerages were able to charge as much as they were for trades for so long.

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Discount Brokerage Deals & Promotions, October 2019

*Updated Oct. 15* There probably couldn’t be a better name for the current season that online brokerages find themselves in this year. Fall is definitely here and more than just the leaves on the trees, commission rates are dropping to the ground this October.

The casualties in the US online brokerage space are making headlines and among Canadian discount brokerages, there are already signs commission pricing is falling. The latest Weekly Roundup highlighted National Bank Direct Brokerage’s move to lower their rates substantially and their new offering for younger investors.

For those keeping score at home, this is just the beginning of October.

In terms of the impact to and outlook on deals and promotions, it’s safe to say that there are a lot of folks in the Canadian discount brokerage industry who are going back to the drawing board on how to navigate the coming tsunami of price drops. One possible life boat (for now) will be generous promotional offers – which is great news for DIY investors heading into the end of the year and what is almost sure going to be the most competitive RSP season yet.

For the moment, there wasn’t a significant amount of discount brokerage deal activity to start the month. Questrade extended their transfer fee offer while HSBC bid farewell to their summer promotion. October has historically been known as a volatile month for stock markets, and for deal hunters in the Canadian discount brokerage space, it’s likely to be just as wild a ride. Hang on tight!

Expired Deals

HSBC InvestDirect’s 30 commission-free trades promotion expired at the end of September.

Extended Deals

Questrade has extended their transfer fee promotion indefinitely. The terms and conditions don’t specify an end date to this offer although Questrade states they can change the terms of the promo at any point. This promo continues to see traction and offers coverage of transfer fees of up to $150 for switching to Questrade with no minimum transfer amount required to qualify. Scroll down for more info!

*Update October 15 – Scotia iTrade has extended their $50 cash back offer, which also includes discounted commission pricing until March 2020. This promotion has been extended from October 15th to the end of the month; for those DIY investors that are looking to open a new account, this could be the promotion for you. Further details on the offer can be found below.

New Deals

*Update October 15 – RBC Direct Investing is offering a new deal on commission-free trades. If you open a new Direct Investing account by December 13th, you can qualify for 25 commission-free equity and ETF trades to use within a year. More details on this promotion can be found below.

Discount Brokerage Deals

  1. Cash Back/Free Trade/Product Offer Promotions
  2. Referral Promotions
  3. Transfer Fee Promotions
  4. Contests & Other Offers
  5. Digital Advice + Roboadvisor Promotions

Cash Back/Free Trade/Product Offer Promotions

Company Brief Description Minimum Deposit Amount Commission/Cash Offer/Promotion Type Time Limit to Use Commission/Cash Offer Details Link Deadline
Jitney Trade A Sparx Trading exclusive offer! Use the promo code “Sparx Trading” when signing up for a new account with Jitneytrade and receive access to their preferred pricing package. n/a Discounted Commission Rates none For more details click here none
Open and fund a new account (TFSA, Margin or RRSP) with at least $1,000 and you may be eligible to receive $88 in commission credits (up to 17 commission-free trades). Use promo code SPARX88 when signing up. Be sure to read terms and conditions carefully. $1,000 $88 commission credit 60 days Access this offer by clicking here: $88 commission-credit offer . For full terms and conditions, click here. none
Open and fund a new account (TFSA, Margin or RRSP) with at least $1,000 and you may be eligible to receive 5 commission-free trades. Use promo code 5FREETRADES when signing up. Be sure to read terms and conditions carefully. $1,000 5 commission-free trades 60 days 5 commission-free trade offer December 31, 2019
Scotia iTrade Open a new qualifying account and fund it with a minimum of $2,500 and you may be eligible to receive $50 cash back. This offer also includes $6.99 per trade commissions until March 1, 2020. Be sure to read the terms and conditions for more details. $2,500 $50 cash back and $6.99 per Canadian and US equity/ETF trade. Cash back will be deposited by January 31, 2020. $6.99 per trade commission pricing active until March 1, 2020. Cash Back Offer Details October 31, 2019
Open a new RBC Direct Investing account by December 13th and you may be eligible for 25 commission-free equity and ETF trades. You must deposit or transfer $5,000 in your account by February 14th, 2020 to be able to use this promotion. Make sure that the offer code MCFT1 is applied if you wish to qualify for this deal. As always, be sure to take a look at the terms and conditions for further details. $5,000 25 commission-free trades 1 year Commission-Free Offer Details December 13, 2019
Disnat Desjardins Online Brokerage is offering new clients 1% of assets transferred into the new account in the form of commission credits (to a maximum value of $1,000). Minimum qualifying deposit is $10,000. To qualify, individuals will have to call 1-866-873-7103 and mention promo code DisnatTransfer or email: [email protected]. See details link for more info. $10,000 1% of assets transferred in the form of commission-credits (max credits: $1,000) 6 months Disnat 1% Commission Credit Promo none
Open and fund a new qualifying account with at least $25,000 and you may qualify for one month of unlimited commission-free trades and up to one month free of an advanced data package. Use promo code ADVANTAGE14 when opening a new account. Be sure to read terms and conditions for full details. $25,000 commission-free trades for 1 month + 1 month of advanced data. 1 month Active Trader Program December 31, 2019
BMO InvestorLine Open a new qualifying account at BMO InvestorLine with new assets worth at least A) $100,000; B) $250,000; C) $500,000+ or D) $2M+, and you may be eligible to a cash back reward of up to A) $100; B) $225; C) $600 or D) $2,000. Use promo code SPARXCASH when registering to qualify. Be sure to read full terms and conditions. A) $100,000 B) $250,000 C) $500,000 D) $2M+ A) $100 B) $225 C) $600 D) $2,000 Cash back will be deposited the week of June 15, 2020. BMO InvestorLine Cash Back Offer Details October 31, 2019

Expired Offers
Last Updated: Oct. 15, 2019 12:02 PT

Referral Promotions

Company Brief Description Minimum Deposit Amount Incentive Structure Time Limit to Use Commission/Cash Offer Deposit Details Link Deadline
BMO InvestorLine If you (an existing BMO InvestorLine client) refer a new client to BMO InvestorLine and they open an account with at least $5,000 the referrer and the referee may both be eligible to receive $50 cash. To qualify the referee must use the email of the referrer that is linked to their BMO InvestorLine account. See terms and conditions for full details. $5,000 You(referrer): $50; Your Friend(referee): $50 Payout occurs 45 days after minimum 90 day holding period (subject to conditions). BMO InvestorLine Refer-a-Friend January 2, 2020
Refer a friend to Questrade and when they open an account you receive $25 cash back and they receive either A) $25; B) $50; C) $75; D) $100; or E) $250 depending on the amount deposited amount. Enter code: 476104302388759 during account sign up to qualify. Be sure to read the terms and conditions for eligibility and additional bonus payment structure and minimum balance requirements. A) $1,000 B) $10,000 C) $25,000 D) $50,000 E) $100,000+ $25 cash back (for referrer per referral; $50 bonus cash back for every 3rd referral) For referred individuals: A) $25 cash back B) $50 cash back C) $75 cash back D) $100 cash back E) $250 cash back Cash deposited into Questrade billing account within 7 days after funding period ends (90 days) Refer a friend terms and conditions Code Number: 476104302388759 none
Scotia iTrade If you refer a friend/family member who is not already a Scotia iTRADE account holder to them, both you and your friend get a bonus of either cash or free trades. You have to use the referral form to pass along your info as well as your friend/family members’ contact info in order to qualify. There are lots of details/conditions to this deal so be sure to read the details link. A) $10,000 B) $50,000+ A) You(referrer): $50 or 10 free trades; Your “Friend”: $50 or 10 free trades (max total value:$99.90) B) You(referrer): $100 cash or 50 free trades; Your “Friend”: $100 cash or 50 free trades (max total value: $499.50) 60 days Refer A Friend to Scotia iTrade tbd
If you (an existing Qtrade Investor client) refer a new client to Qtrade Investor and they open an account with at least $1,000 the referrer and the referee may both be eligible to receive $25 cash. See terms and conditions for full details. $1,000 $25 cash back (for both referrer and referee) Cash deposited at the end of the month in which referee’s account funded Refer A Friend to Qtrade Investor none

Expired Offers
Last Updated: Oct. 31, 2019 15:30 PT

Transfer Fee Promotions

Company Brief Description Maximum Transfer Fee Coverage Amount Minimum Deposit Amount for Transfer Fee Eligibility Details Link Deadline
Move your brokerage account to Questrade and they’ll cover the transfer-out fee up to $150. $150 n/a Transfer Fee Promo none
Transfer $15,000 or more to RBC Direct Investing and they will pay up to $135 in transfer fees. $200 $15,000 Transfer Fee Rebate Details none
Transfer $15,000 or more into a new HSBC InvestDirect account and you may be eligible to have up to $152.55 in transfer fees covered. $152.55 $15,000 Confirmed via email contact with HSBC InvestDirect Rep. Contact client service for more information. none
Transfer $15,000 or more to Qtrade Investor from another brokerage and Qtrade Investor may cover up to $150 in transfer fees. See terms and conditions for more details. $150 $15,000 Transfer Fee Rebate none
Transfer $20,000 or more to a National Bank Direct Brokerage account and they will pay up to $135 plus taxes in transfer fees. $135 $20,000 Transfer Fee Rebate none
Transfer at least $25,000 or more in new assets to TD Direct Investing when opening a new account and you may qualify to have transfer fees reimbursed up to $150. Be sure to contact TD Direct Investing for further details. $150 $25,000 Contact client service for more information (1-800-465-5463). none
Transfer $25,000 or more into a CIBC Investor’s Edge account and they will reimburse up to $135 in brokerage transfer fees. Clients must call customer service to request rebate after transfer made. $135 $25,000 Confirmed with reps. Contact client service for more information (1-800-567-3343). none
Disnat Desjardins Online Brokerage is offering up to $150 to cover the cost of transfer fees from another institution. To be eligible, new/existing clients need to deposit $50,000 into a Desjardins Online Brokerage account. You’ll have to call 1-866-873-7103 and mention promo code DisnatTransfer. See details link for more info. $150 $50,000 Disnat 1% Commission Credit Promo none
BMO InvestorLine Open a new qualifying account with BMO InvestorLine or fund a qualifying existing account and you may be eligible to have transfer fees covered up to $200. Contact client service for more details. $200 Contact client service for more information Contact client service for more information (1-888-776-6886) none

Expired Offers
Last Updated: Oct. 2, 2019 00:30 PT

Other Promotions

Company Brief Description Minimum Deposit Amount Required Details Link Deadline
Disnat Desjardins Online Brokerage is offering $50 in commission credits for new Disnat Classic clients depositing at least $1,000. See terms and conditions for full details. $1,000 Broker@ge 18-30 Promotion none
Scotia iTrade Scotiabank StartRight customers can receive 10 commission-free trades when investing $1,000 or more in a new Scotia iTrade account. Trades are good for use for up to 1 year from the date the account is funded. Use promo code SRPE15 when applying (in English) or SRPF15 when applying in French. Be sure to read full terms and conditions for full details. $1,000 StartRight Free Trade offer none

Expired Offers
Last Updated: Oct. 2, 2019 00:30 PT

Digital Advice + Roboadvisor Promotions

Robo-advisor / Digital advisor Offer Type Offer Description Min. Deposit Reward / Promotion Promo Code Expiry Date Link
Discounted Management Open and fund a new Questrade Portfolio IQ account with a deposit of at least $1,000 and the first month of management will be free. For more information on Portfolio IQ, click the product link. $1,000 1st month no management fees KDKFNBBC None Questrade Portfolio IQ Promo Offer
Cash Back Open and fund a new or existing SmartFolio account with at least $1,000 and you could receive 0.5% cash back up to $1000. Use promo code PROMO1000 when opening a new account. See terms and conditions for full details. This offer can be combined with the refer-a-friend promotion. $1,000 0.5% cash back to a maximum of $1000. PROMO1000 January 2, 2020 SmartFolio Cash Back Promo
Discounted Management Open a new account with BMO SmartFolio and receive one year of management of up to $15,000 free. See offer terms and conditions for more details. $1,000 1 year no management fees STSF April 30, 2019 SmartFolio New Account Promotion
Cash Back – Referral BMO SmartFolio clients will receive $50 cash back for every friend or family member who opens and funds a new SmartFolio account. Friends and family referred to SmartFolio will receive $50 cash back for opening and funding an account, plus automatic enrollment into SmartFolio’s mass offer in market at the time. See offer terms and conditions for more details. $1,000 $50 cash back (referrer) $50 cash back (referee) Unique link generated from SmartFolio required. None SmartFolio Website
Transfer Fee Coverage Transfer at least $25,000 into Virtual Wealth when opening a new account and you may be eligible to have up to $150 in transfer fees covered by Virtual Wealth. $25,000 up to $150 in transfer fees covered None None Contact customer service directly for more information.
Last Updated: Oct. 2, 2019 00:30 PT