Q&A With Mike Foy of J.D. Power and Associates
What is a big story for DIY investing in 2020 that caught your attention?
The biggest story of 2020 has to be the influx of new Canadian self-directed investors entering the market for the first time in the aftermath of COVID. The combination of lower-cost or even free trading, a sharp market decline providing an ideal entry point, and the additional time and opportunity to trade as individuals either lost jobs or transitioned to a work-from-home model all contributed to this significant trend. A big question is, effectively, will firms convert these new investors into long-term, loyal, and profitable clients.
What can online brokerages do to improve the experience for this group of investors in 2021 and beyond?
There are numerous opportunities for firms to improve, but a few key areas stand out. One is around the mobile experience. Canadian online brokerages in general are real laggards relative to other industries when it comes to the mobile user experience; many don’t have native investment apps or have very limited capabilities. Firms like Wealthsimple and Robinhood in the US have been extremely successful attracting especially younger investors, in part because of a mobile-first approach to design and user experience, and other firms will need to improve quickly and significantly to appeal to mobile-centric younger consumers.
Additionally, firms will need to provide more robust and intuitive digital tools and educational content in order to justify continuing to charge investors trading fees in an environment where that service is increasingly available at no cost. One specific example of that would be around Socially Responsible Investing (SRI), which continues to become more important, especially to younger investors. Providers that can deliver to investors visibility into how to ensure alignment between their investments and their unique personal values will have a leg up
You also hear from online brokerages directly. What are one or two important topics that came up often with that group (especially in 2020)?
One concern is definitely about Robinhood and, more broadly, how free trading, which is virtually ubiquitous in the US now, is potentially shaping Canadian investor expectations and perceptions of trading fees. Some of the business models and revenue sources that allow many US firms to offer “free trading” don’t necessarily work in the Canadian legal and regulatory environment, but much of that is likely lost on the average investor.
You have covered online brokerages in Canada for a long time. How would you characterize their pace of change and innovation in 2020? Do you think things will accelerate in 2021? What might contribute to them changing?
The pace of change and innovation in the industry in the past has been fairly slow, but that will need to accelerate going forward, given increasing competition and evolving consumer expectations being driven by industry innovators (e.g. fintechs) as well as other industries that have embraced digital transformation more aggressively.
Your online brokerage ranking is an influential source for online investors to consult as part of their research. Can you provide a comment on the strengths and limitations?
Obviously I’m biased, but I think the biggest strength of our research and rankings is that, unlike many brand evaluations out there, ours is based not on “expert” subjective opinion but on feedback from actual clients who invest with the firms we rank. We also ask a robust battery of questions about all aspects of the experience to determine our scores, rather than relying on a single, top-of-mind reaction.
In terms of limitations, I would never suggest someone just choose the firm that scores highest in our rankings because they essentially reflect the average Canadian self-directed investor, but of course not all investors have the exact same needs and preferences. Digging deeper to understand how the strengths of various providers align with your own needs is a critical step in the selection process.
Management Practice for North America at J.D. Power
About Mike Foy
Mike Foy is Senior Director of the Wealth Management Practice for North America at J.D. Power.
He is responsible for the company’s research on both individual investors and financial advisors, as well as developing research-based client experience solutions that drive measurable results for wealth management firms.
Mike has worked in the wealth management industry for over 20 years. Prior to joining J.D. Power, he served as director of research and strategic sales at Penton Media, where he oversaw the advisor benchmarking research practice. Previously, he held senior product development and marketing positions at HNW, a boutique digital marketing agency focused on the wealth market, and at Dow Jones and Merrill Lynch.
Mike earned a bachelor’s degree in English literature and philosophy from Muhlenberg College in Allentown, Pennsylvania and an MBA from Rutgers Business School. He currently resides in central New Jersey with his wife and two children.