Many seasoned investors know that the stock market acts as a giant voting machine on what things are worth. What many people gloss over, however, is the fact that stock markets often start figuring out what something is worth by looking into the future and ignoring what things are worth in today’s dollars. Why this is relevant, especially today, is that despite what is happening now – or perhaps because of it – stock markets are looking at a picture of the future world that is doing better (economically) than it is today. Here’s hoping it’s a better, more prosperous future, for those long overdue that prosperity.
In this edition of the Roundup, out of recognition of the protests against racism and social injustice in general, and the Black Lives Matter cause in particular, we will once again use our platform to provide a moment to educate and engage with a difficult but necessary conversation. From there, we’ll step back into the coverage of Canadian discount brokerages, and how one popular brokerage has the deals stage and spotlight all to themselves at the moment. As always, we’ll wrap up with chatter from DIY investors on Twitter and in the investor forums.
Resolving difficult issues requires both commitment and resolve.
Taking a stand against the kinds of social injustices that led to the needless death of George Floyd and many others before him requires courage to raise your voice against racist actions and behaviour.
Even though the Weekly Roundup puts online brokerages and DIY investing in the spotlight, there’s no denying that the story that deserves the spotlight is this one.
In order to do our part to help effect change, we encourage readers to take a few minutes to watch a powerful interview with Jane Elliott, an educator who has been working with commitment and resolve to end racism in the United States.
Questrade Promotions Take Centre Stage
If there is one theme that 2020 has thrown at DIY investors and online brokerages, it is to be prepared for change. At the beginning of the year, very few people saw the COVID-19 pandemic unfolding the way it did. Fewer still could have predicted the market trajectory over the course of the pandemic – with stomach-turning volatility ultimately leading markets and certain stocks to be in record territory (high and low).
Since the massive stock market declines in March and throughout their subsequent recovery, a regular feature of the Roundup has been monitoring the impact of the surge in volume of trading and volatility to online brokerages. The net takeaway from data in both the US and Canada is that the business of being an online brokerage has never been better – at least from a revenue-generation standpoint. Account openings are at record levels, and with trading volumes up and commission-per-trade also still pushing almost $10 at most major Canadian online brokerages, the earnings for the past three months have likely been as healthy as they’ve been in almost a decade.
One area that hasn’t seen as much action, however, has been the deals and promotions from Canadian discount brokerages. In this month’s section, the biggest story for a change wasn’t what the newest deal was, it’s what it wasn’t.
BMO InvestorLine, one of Canada’s big-five bank-owned online brokerages, has had an active deal of some kind or another – whether cash-back or commission-free trade – for about as long as we’ve been tracking promotional offers. This month, however, on the heels of what was set to be another new offer to replace an expiring cash-back promotion, there was nothing.
Granted, BMO InvestorLine still has their referral promotion and their offer for transfer-fee coverage, but their absence from the new deals of the month is a notable change for the space and is, perhaps, a signal that strong demand by DIY investors for online trading accounts has forced online brokerages to either pause or delay launching promotions. Indeed, from the online brokerage’s point of view, when demand is so strong, incentive offers are less likely to determine whether or not a DIY investor will ultimately choose to open an account.
Interestingly, the withdrawal of BMO InvestorLine from the commission-free trade or cash-back promotion offer section this month means that Questrade is the sole provider of offers in the commission-free trade space – something that is almost unheard of in the history of tracking offers for DIY investors in Canada over the past decade.
How long other Canadian online brokerages enable Questrade to be the sole provider of a promotional offer is a real unknown. It is interesting to note that incentive offers provided by online brokerages are meant to attract the attention of DIY investors. As referenced in last week’s Roundup, the latest rankings on investor satisfaction by J.D. Power suggest that the differences between online brokerages in Canada continue to shrink. As such, what would prompt an online investor to try one brokerage over another might come down to something like a promotional offer. All things being about equal, the better deal appears to be part of the decision-making process and as a result, Questrade stands to be on the winning side of many of the “undecided” DIY investors.
A closer inspection of the comments on social media, in particular Twitter, also highlights the frequency with which Questrade is mentioned as a viable option for DIY investors contemplating which online broker to choose. Thus, competitors to Questrade will be challenged to educate consumers and/or provide a much stronger user experience in order to compete against Questrade on a feature-for-feature basis. Judging by the latest J.D. Power investor satisfaction results, in which Questrade was crowned the top online brokerage in this regard, other Canadian brokerages have their work cut out for them. Not only do promotional offers by online brokerages make sense for simply attracting undecided clients to try out a particular provider, but they also offer a way to shift the value perception in what is a very competitive market without having to undertake a massive technology project or feature release.
In short, it seems like the calculus favours Canadian online brokerages coming to market with deals in the not-too-distant future, and it also seems like until that happens, Questrade will have carved out a market-leading position in the deals-and-promotions space. Given that there are no challengers to them for commission-free trades, then it is safe to say at this point, theirs are the best (and only) online brokerage commission-free deals at this time. So, for Questrade, on top of the recent achievement of best online brokerage from J.D. Power, they are putting even more distance between themselves and the rest of the Canadian online brokerage pack. While large bank-owned brokers may be able to rely on the strength of the banking brand, that will only work to a point. For other brokerages, however, the message is fairly clear: invest heavily either in improving the client experience or in attractive incentives, otherwise it will be incredibly difficult to get the attention of investors without spending a lot to do so.
Discount Brokerage Tweets of the Week
From the Forums
DIY or Bust
A Redditor looking to venture into truly DIY investing turns to the forum for insights from fellow forum users in this post. Responses range from suggestions on TFSA contributions to guidance on which online brokerage might best suit them.
Minimizing Risk of Transfer
In this post, a forum user ponders whether in the midst of COVID-19 is a good time to transfer their portfolio. Fellow Redditors weigh in on the myth of timing the market and point to the bigger picture in investing.
Into the Close
That’s a wrap on another edition of the roundup. Markets continue to push higher, and even though the economic news is not as bad as it originally was predicted to be, there are growing warnings by notable investment-industry personalities (including the founder of Interactive Brokers) that prices are starting to become detached from underlying value. In other words, the market appears to be overbought. At a certain level, markets will reach a tipping point; however, in the near term, DIY investors and online brokerages are setting their sights as high as Elon Musk. Here’s hoping that the market-trading autopilots are prepped for the bumpy ride ahead.