Welcome to part 2 of Mark to Market, the comic where we break down complicated market concepts into easy to understand comics.
In part 1 of this chapter, Mark Tradewell, a fictional DIY investor, decided to invest some of his funds in his Tax Free Savings Account into shares of the ABC company. When he got to the market, however, he encountered three different kinds of price information: a bid price, an ask price, and a last price. Now that Mark has figured out what those prices mean, he’s ready to invest. But how?
Follow the adventures of Mark Tradewell and friends, as they wander through the complex maze of stock market terms, products and ideas, in search of understanding, confidence and mastery of personal finance. Each chapter takes a new concept or term and unpacks it in a series of parts, starting with the Limit Buy, a fundamental part of any DIY investor’s toolkit. Be sure to watch this space for part 3.
Even though this past week was technically a short one in both Canada and the US, Friday couldn’t come fast enough for several online brokerages (and one Texas senator).
In this edition of the Roundup, we take a detailed look into what is sure to be yet another chapter in the history-making story of GameStop (and other meme stocks) and the impact on the superstar US online brokerage, Robinhood. Though we normally have two big stories to report on, this is a gargantuan story that is worth giving the whole spotlight to. We’ll check back in on some additional developments around the Canadian online brokerage market in our next edition. To maintain some semblance of tradition, we’ll also include highlights of activity on Twitter and chatter from DIY investor forums.
Errors of Commission and Errors of Omission: Robinhood Grilled Over GameStop
After a very big storm, you can expect a very big cleanup. And, after the very big storm that hit the online investing space in the US, there’s a lot to be cleaned up, especially in Sherwood Forest, aka Menlo Park, aka Robinhood headquarters.
The conversation about what exactly happened with GameStop, shorting, hedge funds, Robinhood, and payment for order flow continued this past week. Curious eyes were treated to a virtual gathering of members of the US House Financial Services Committee as they sought an audience with characters from the recent trading saga, to hear testimony and air some grievances about the events that unfolded for retail investors at the end of January.
Though this was not a formal trial, it did put a lot of actions “on the record” that would otherwise be able to be swept under the financial rug. On that note, it was a win for transparency relating to these events to at least have several of the key players involved answer for their part in “what happened.”
For Canadian DIY investors and online brokerages, it might be easy to dismiss this event as American political theatre rather than a consequential event; however, points that were raised in this inquiry could have serious implications for online investing in Canada.
Suffice it to say, there’s a lot to unpack from the five-hour-plus back-and-forth session. But to (ironically) paraphrase a Robinhood catchphrase, to keep things “digestible” for readers, we’ll narrow this story down to the most important points from the GameStop hearing.
Key Point #1: Who Was There and Who Was Not
By now, there are a couple of emerging celebrities in the GameStop stock story, and many of them were present at this hearing.
Top billing, of course, goes to Keith Gill, aka “Roaring Kitty,” who is a person of interest in this story given his role in being the “face” of the “squeezer” Reddit army who, through the power of online communities, were able to narrate their interest and point of view on why going long on GameStop was an awesome opportunity to make money.
Of greater interest to the world of DIY investing and online brokerages is the CEO of Robinhood, Vlad Tenev, who is now the face and name associated with the zero-commission online brokerage and who sits at the heart of so much controversy.
Also called to testify were Reddit Co-Founder Steve Huffman, Citadel CEO Kenneth Griffin, and “squeezee”/Melvin Capital Management Founder and CIO Gabriel Plotkin.
Of the many fascinating developments around “hauling in” individuals to testify before a congressional committee, it is noteworthy that senior executives from other online brokerages were omitted. These companies benefitted from the trading activities taking place during the GameStop run-up (many of them also make money via payment for order flow) and also implemented restrictions of various degrees for retail investors to be able to buy or trade meme stocks such as GameStop in late January. But, for better or for worse, Robinhood was in the hot seat on this one.
Certainly, important players were brought before the House Committee on Financial Services to elaborate on “what happened,” but placing Robinhood alone under the “online brokerage” microscope put the focus on their business practices and not on those of the industry they are part of, a move that misses a lot of valuable context.
That said, there is no denying that Robinhood has a significant retail investor client base, and many of those investors have smaller balances and are not as sophisticated or as experienced as the investors at some rival online brokerages.
In looking at the “big picture” of this particular hearing (and apparently there will be more hearings to come), one of the central figures in this fiasco was Robinhood. The business practices that are synonymous with Robinhood, which happen to be very important in their ascension, were also very much under scrutiny. Practices or features like payment for order flow, “gamification” techniques, zero-commission trading, and “democratizing” financial markets all came under fire – surprisingly – by the panel of committee members.
As troubling and perplexing as the testimony was, it seems like the biggest danger did not get any airtime. The most frightening portrait of events and systemic vulnerabilities that could impact many more stakeholders than just Robinhood customers came from the Founder of Interactive Brokers, Thomas Peterffy, who was not one of those providing testimony but who did appear in a TV interview to provide some food for thought. We’ll dive into that in just a moment.
Key Point #2: Ducking Details Makes You Look Either Incapable or Guilty
Just to put it out there, getting grilled by a congressional panel about major mishaps in business practices isn’t going to be high on many people’s bucket lists (except for maybe a certain pharma-bro).
The unenviable position that Robinhood CEO Vlad Tenev found himself in seemed, upon final analysis, to be a crisis of his own making and potentially the result of not doing the requisite preparation. Either way, it wasn’t Tenev’s finest (four) hour(s).
The first interesting takeaway is that Tenev always seemed to be in “commercial” mode – taking as many opportunities as he could to try to bring the focus of his answers to the mission of Robinhood. It often sounded more like a commercial for Robinhood than like he was directly addressing the questions he was being asked. His opening remarks are perhaps the clearest example of that.
Why that matters, however, is that during the course of the inquiry, there were some very (important) direct questions that didn’t seem to have been properly addressed. Too much time was spent – perhaps on purpose – talking about mission or esoteric elements instead of directly addressing the questions. This left many of the responses from Tenev sounding hollow or superficial. Here are some examples.
In an exchange with Rep. Cindy Axne from Iowa, the topic of user experience and design of the Robinhood platform garnered some informed scrutiny. With a background in digital design, Rep. Axne asked why design elements on Robinhood’s platform were intentionally built to look like or simulate a casino.
#Robinhood‘s interface is CLEARLY designed to make the average investor – Americans like my nephew – feel like they’re gambling in a casino.
This is at the heart of “gamification,” which is a big part of what observers of Robinhood characterize as one of their most appealing features. Arguably, Tenev would be well versed in what has clearly been a huge differentiator for their platform since inception. For a firm to have worked so long and so hard at making the experience of investing seem “fun” – it raises the question of why there wasn’t a better response as to whether or not it is appropriate for an online investing platform to embellish user behaviour with elements to celebrate actions.
Tenev, who acknowledged using behavioural research as part of the standard course of business for designing refinements, stated flatly that Robinhood is against supporting “gamification.” Nevertheless, his statement that “we want to give people what they want in a responsible, accessible way” rings hollow against the features cited by Rep. Axne.
It seemed unclear that the majority of users, who Tenev cited as longer-term investors, would want the kind of features intended to generate the “excitement” that active traders crave.
Another important interaction (and arguably the most damning) took place between Tenev and Rep. Madeleine Dean of Pennsylvania. The basic crux of Dean’s line of inquiry tore a page from the classic “what did they know and when did they know it?” playbook.
Not surprisingly, it was the simplest yet most elegant way to piece together what happened when Tenev was first notified that Robinhood effectively got margin called and the subsequent decision to restrict trading in select securities.
The full exchange is worth watching on C-SPAN, but as the clip below shows, when asked directly what mistakes were made by Robinhood – something that Tenev stated on several occasions that took place – he was at a loss to specify what those mistakes were.
Rep. Dean asked, “You admitted to making mistakes. Specifically, what mistakes did you make?” The silence leading into the response was deafening.
To improve consumer protection on @RobinhoodApp we must first understand what happened and what you are apologizing for @vladtenev.
Further, another series of damaging “non-answers” came in the specifics of recounting what customers were told and when they were told it.
There was a concerning absence of awareness about exactly when and what communications were relayed to Robinhood clients in the days leading up to the restrictions as well as on the day of those trading restrictions being imposed. Tenev cited a blog post and social media posts being made but could not recount specifics on timelines for those or other client communications. Also, the shifting narrative on why stocks were being restricted from trading also made it seem like Tenev did not have a clear answer for users, which further adds to the uncertainty surrounding these events.
Finally, we would be remiss if we didn’t also point out the interaction with Rep. Alexandria Ocasio-Cortez of New York. It came well into the session, and while it seemed like most of the time was spent getting to a lead-up, the journey to the punchline read like a laundry list of Robinhood’s missteps. As for the punchline itself, Rep. Ocasio-Cortez pointed out the obvious conclusion that commission-free trading does not equate to free trading: There is clearly a cost to Robinhood users, which comes in the form of poorer execution.
This week, Rep. @AOC grilled Robinhood’s CEO at #Gamestop hearing: “Doesn’t that mean that trading on Robinhood isn’t actually free to begin with b/c you’re just hiding the cost, the cost in terms of potentially poor execution or the cost of lost rebates to your customers?” pic.twitter.com/rVkBGBuLjj
Ever since that testimony, Robinhood and Tenev have been on a full-court press of PR moves. Since late January, the Robinhood blog has been busier than it has been in many months. The latest post appearing on the blog features a video of Tenev tackling some of the questions and sentiment coming at him/Robinhood. He is, interestingly, also more active on Twitter.
Key Point #3: We Didn’t Hear How Bad Things ReallyWere
While there are still more hearings ahead, the most troubling statement came from someone not at the hearing but who is also deeply familiar with market function.
Founder, and now retired CEO, of Interactive Brokers Thomas Peterffy appeared on CNBC to provide his take on the GameStop fiasco. And, true to form, he did not mince his words.
Peterffy stated that “we have come dangerously close to the collapse of the entire system” and that the general public, the US Congress, and financial regulators are unaware of just how bad things could have become.
To make his point crystal clear, he walked through the math on the outstanding shares of GME and how it would have been (almost) impossible, and likely catastrophic, for many counterparties to attempt to purchase GME stocks – which they would have been required to do by law – had GME stocks continued to climb in price. For further clarity, had options buyers collectively exercised their call options, they would have had to receive 270 million shares, but there are only 50 million shares outstanding.
In this nightmare scenario, clearinghouses would likely have collapsed or defaulted. Brokerages would then have been the counterparties responsible, and they too could have collapsed. It would have been nearly impossible to untangle the ensuing mess.
If it sounds alarmist, consider for a moment what would have happened if Robinhood did have the capital on hand to meet the 10x margin requirement handed to it by the clearing firm.
What would likely have happened then?
It stands to reason that GameStop would, or at least could, have continued higher. What is not yet clear is the price that GameStop could have risen to before the financial system would have headed into an uncontrolled meltdown.
Would circuit breakers kick in? Could they even prevent the swell of interest that could have come at Robinhood if the online brokerage did have the requisite capital to manage the surge in settlement requirements?
In that light, it seems to be clear that it was a direct result of Robinhood’s failure to be properly capitalized for this scenario that probably helped save the financial markets from significant ruin. A happy accident in not being prepared ended up saving the day.
Peterffy positioned the current scenario and regulatory environment as needing repair to resolve this particular oversight. He called specifically for better tracking and reporting of short selling and changing the margin requirements.
Whether this is a “bug” in the system, which the new reality of social media enables users to exploit when trading, or this is a case of financial elites changing the rules of the game after being caught offside, it’s clear the rules of trading online have changed and are still too opaque to be considered “fair” for all.
Why Is This Relevant to Canadian Online Investing?
While it is still unclear what the repercussions will be in the US, the testimony shared thus far and the series of events experienced at the end of January can provide a few clues as to what Canadian online brokerages and DIY investors will be paying closer attention to going forward.
The first item that we’ve discussed a few times before comes back to user experience, and specifically how investor behaviour intersects with design features.
Robinhood’s mission was to “democratize finance” by making the experience of investing as accessible as possible. As their CEO pointed out to Rep. Ocasio-Cortez, they are also a private business with a fiduciary duty to act in the best interest of their corporation, which means they have to consider how to maximize revenues and, by extension, profits. At what point do those interests conflict?
User experience features that Robinhood is now facing increased scrutiny and legal action over relate to the idea of “gamification” – the kind of user interaction moments that might misrepresent important financial decisions for something like gameplay. Being encouraged to tap an app up to 1,000 times and getting confetti when placing a trade don’t sound like the kind of enhancements that make trading accessible. They do sound like things that make trading fun.
This hearing and testimony will almost undoubtedly be a topic of conversation among senior executives at Canadian online brokerages who know they have to make their platforms more appealing to a shifting demographic but who now will have to seriously reconsider putting in certain features (like confetti) and even talking about investing in a way that might communicate that investing can be too enjoyable.
With financial literacy about online investing being nowhere near where it ought to be for the general public, the conversation about investing responsibly is one that will need to balance being engaging while at the same time not crossing a line that makes it resemble a video game lacking real-world consequences.
Another important consequence for Canadian online investors, in particular, is where and how they communicate about investing in specific securities.
One of the key factors in the GME stock surge was the rapid and widespread dissemination of information – true or not – on social media and forums. These are areas that we at Sparx are continuously monitoring. Some recent statements by Canadian securities regulators suggest that they will be watching the chatter on securities and, most importantly, observing whether or not individuals who are talking up or down a particular security have disclosed whether or not they have a position in said security.
Finally, one other area Canadian online brokerages might want to pay closer attention to based on the activity taking place in the US relates to communications to clients. Rep. Dean from Pennsylvania had a simple but powerful test to subject Robinhood to that is equally relevant to Canadian online brokerages: What did they know and when did they know it?
The crushing phone wait times, the ongoing system interruptions, and even the errors in data reporting that arise are all systemically risky situations that are neither new nor immaterial to investors. Although they do not impact a specific set of stocks, these actions ultimately impede the ability of self-directed investors to fairly and efficiently trade the markets. And, if held to account, Canadian online brokerages will have to be able to answer those two simple questions when it comes to explaining why they have yet to fully resolve these issues.
There is already data showing even greater investor interest in trading markets this year than there was during March and April of 2020, which suggests even further stress on the systems of Canadian online brokerages that are already struggling.
The GameStop story is unique in that it focused on one specific stock, but it is already clear that huge retail investor surges can happen again. Whether it is for blockchain or cannabis or any stock whatsoever, any online brokerage that cannot meet the sudden spike in demand or, worse, cannot fulfill the basic requirement to provide efficient access to trade the stock market should be prepared to face scrutiny in two places: financial regulators and the court of public investor opinion.
In this post and this post, investors ask about the wisdom of buying cryptocurrency. Their fellow Redditors express very strong opinions about whether buying crypto is smart, or just harmless fun, or the equivalent of wasting money at a casino.
(Im)Balancing Act
A Redditor with $40,000 in a TFSA invested it all in a healthcare company. That lucky decision paid off – to the tune of about $343,000. Now they don’t know how to invest this much larger amount. In this post, Redditors weigh in with their advice (and to express their envy).
Into the Close
Don’t be fooled by fewer days on the calendar. There was a lot of news for such a short week and much that we didn’t get to highlight. The events surrounding the GameStop saga are as fascinating as they are frightening. So, as a little bit of levity, here are puppies. Have a great week!
It’s fitting that after so much discussion about “shorts” in the news, we also now have a short(er) trading week upon us. With one fewer trading day, it also means the deadline for RRSP contributions is ticking closer, adding to the pressure that is evidently already building at Canadian online brokerages this month.
In this edition of the Weekly Roundup, we take yet another look at the customer service angle at Canadian online brokerages, this time zeroing in on another recent set of rankings that measure digital interactions. From there, we dive into some exciting new features being launched by Canadian brokerages that will help take some of the guesswork out of investing before and during retirement. As always, we’ll serve up a generous helping of investor commentary from Twitter and the investor forums.
Canadian Online Brokerages Struggle at Delivering Service Online
The drumbeat for better customers service among DIY investors in Canada is getting louder by the day.
Increased coverage among high-profile financial writers in Canada, as well as a number of studies by financial research firms, validates what we have been seeing for many months on social media: Most Canadian online brokerages are falling short on providing timely customer service experiences.
Columnist @rcarrick said he’s received complaints about several bank-owned firms, but @TD_DirectInvest was named most often. As the largest player in the brokerage business, TD has had issues keeping up with client demand to speak to its live reps. https://t.co/J7SXJWBNWx
While data has been emerging this year that puts the issues faced by online brokerages in the spotlight, it is somewhat confusing for online investors since different studies measure different aspects of the “service” experience.
Both the actual wait times experienced by Canadian DIY investors and the unpredictability of what users can expect when reaching out as either a customer or an interested consumer have potentially far-reaching consequences to the industry as a whole. And, as the data shows, if these issues are not addressed, the recent online brokerage challenges taking place in the US could spill over to providers here in Canada.
The Story in Numbers
At the end of January, a couple of important Canadian online brokerage rankings were published. We covered The Globe and Mail’s online brokerage rankings in detail earlier this month, with a significant amount of time spent diving into the wait times that were measured at Canadian online brokerages in January (2021).
Online Brokerage
Wait Times (min)
BMO InvestorLine
87
CIBC Investor’s Edge
101
Desjardins Online Brokerage
170
HSBC InvestDirect
125
Interactive Brokers
66
National Bank Direct Brokerage
69
Qtrade Investor
28
Questrade
128
RBC Direct Investing
90
Scotia iTrade
179
TD Direct Investing
58
Virtual Brokers
7
For a quick refresh, the table above contains the average wait time data reported as part of the online brokerage rankings among the 12 firms that were reviewed. Interestingly, in a post by DALBAR on LinkedIn, additional information about the wait times was provided that illustrates the range of wait times at each firm. Readers of the Weekly Roundup post in which these numbers were thoroughly examined can appreciate why average values, on their own, might not convey the full picture. The study data cited by The Globe and Mail rankings reported the average wait times, but the graphic below adds additional context around those average values.
Aside from the 25x difference between the average of the lowest wait times (Virtual Brokers) compared to the highest average wait times (Scotia iTrade), one of the most striking trends to jump out is variation in wait times that occurred as online brokerages took longer to respond. At the far right of the chart shown above, five firms in particular stand out with highly variable wait time ranges:
Of these firms, it was most evident that Questrade had the highest range of wait times, which stretched from about 50 minutes to just under 300 minutes, with an average of 128 minutes. By comparison, HSBC InvestDirect had an average of 125 minutes but a much narrower range of wait times, stretching from just over 60 minutes to about 210 minutes. When ranges this wide are part of the service experience, it is essentially a gamble for DIY investors as to exactly how long they are going to have to wait before connecting with a service agent.
Another striking feature of the data on the chart is where Qtrade Investor landed in terms of wait times. Their “worst” wait time (of about 50 minutes) was approximately the best wait time that any firm behind them could achieve.
These data points are also important because of how they compare against another set of online brokerage rankings that focused specifically on service levels. Financial services research firm Surviscor also released online brokerage service rankings at the end of January and concluded that there were clear and persistent shortcomings in the response times of most Canadian online brokerages.
Unlike the DALBAR study, which took a snapshot of one week’s worth of telephone data in January 2021, Surviscor conducted 163 service inquiries per online brokerage between January and December of 2020 on contact forms, emails, and social media channels.
The average industry response time in 2020 ended up being 55 hours, which was actually an improvement over 2019, in which response times across the industry averaged out to 62 hours. One of the most compelling points observed in the Surviscor analysis of service response times, however, was that service has been trending in the wrong direction for many years now, and although COVID-19 can certainly be considered a contributing factor, the data shows that even before the pandemic, meeting customer response times online was a challenge.
Change the Channel or Channel the Change
When comparing the data from the Surviscor and DALBAR studies, it’s clear that the kind of service experience a consumer can encounter with a Canadian online brokerage depends on the channel used, which is a big problem on a number of levels.
First, and perhaps most ironic, is that when it comes to online capabilities for service touchpoints at Canadian online brokerages, in spite of the hairpulling wait times, it is still faster (in most cases) to wait on the phone than it is to send electronic correspondence.
In fact, when comparing the magnitude of the difference between the phone and online channels, the range went from 1x (Questrade) to 786x (Virtual Brokers). Excluding the outliers, the average factor difference was 39x between phone and online interactions. One clear standout in both the digital and telephone categories was Qtrade Investor, which had the shortest wait time on the phone and the second-fastest response time online.
To Surviscor’s point, the digital interactions may have been deprioritized compared to phone channels because customers would be more likely to use the phone channels; however, as far as making a first impression count, most Canadian online brokerages would not get a flattering response.
A second important consideration is that for the financial services industry as a whole, trust is an integral part of consumer confidence.
Granted, DIY investors are flocking to the markets in droves because of perceived generational opportunities to build wealth, but when those same investors are hitting roadblocks to getting issues addressed or questions answered, confidence takes a hit. If you add issues of platform stability to that, then individual investors lose faith that financial services firms are up to the task of safely and reliably providing the opportunities for wealth creation that much of the marketing suggests is possible.
With just a few weeks to go until the RSP contribution deadline for 2020, this is prime time for DIY investors looking to online brokerages for RSP options. It is against this backdrop that the wait times experienced by Canadian investors stand out as something that could ultimately become a much more important component to online brokerage selection than has been the case in the past. Deeper than that, however, the notion of lag time is anathema in the age of online investing.
The recent Robinhood debacle that resulted in trading in certain securities being restricted has been blamed on wait times for trade settlement – a stunning vulnerability in the year 2021. For DIY investors in Canada, the clear and present risk to consider is an online brokerage’s capacity to meet a respectable service delivery standard, especially during times of market volatility or heightened interest (which is arguably when those systems are needed the most).
For Robinhood, not only did they suffer a blow in the court of public opinion, but they are also going to have to answer tough questions from lawmakers and face the wrath of an increasing number of lawsuits. Other than the growing chorus of complaints from Canadian consumers and financial media, there isn’t anyone holding online brokerages accountable for their service standards.
Ironically (again), the longer Canadian online brokerages take to address these service gaps, the more likely it is that the industry will find themselves taking centre stage in a mass media story or, worse, the focal point of a Reddit wave. Make no mistake, the clock on this story is most certainly ticking.
New Features From Online Brokerages Chip Away at Guesswork
After talking at length about where Canadian online brokerages are struggling, it’s a nice change of pace to shift the focus to areas in which they’re looking to innovate and deliver additional value to clients as well as to DIY investors more broadly.
Readers of SparxTrading.com know that we regularly engage with Canadian online brokerages on a number of new features and developments (case in point: our Look Back / Look Ahead series). Two interesting features that were brought to our attention from Canadian online brokerages are worth highlighting to readers.
BMO InvestorLine Launches a Checkup for Portfolios
With a tsunami of new investors joining the stock market, one of the biggest challenges many of them face is understanding how to answer a very basic question: “Am I on the right track?”
Fortunately for DIY investors, BMO InvestorLine recently announced a new online tool that helps investors analyze their current portfolios against a set of investor profiles, to see whether or not their portfolios are in line with their desired investment objectives.
The adviceDirect Portfolio Health Check tool is interesting for a number of reasons, but chief among them is that it is freely available to the general public to use, and it is both simple and fast to complete.
Individuals can enter details about their financial picture (no personally identifiable information is captured) and assess it on four key parameters: asset allocation, diversification, security ratings, and risk. In about three steps, users can quickly see where they measure up to their “personality” type and also see what they may want to consider changing in order to bring their portfolio in line with their respective investing personality type.
In terms of who might be interested, this tool appears to be built around investors (rather than traders) who are interested in taking a portfolio approach to building wealth. This means that the tool is likely to have mass appeal, and it serves as a great starting point to the conversation about whether or not the composition of a portfolio is on target.
From a business development standpoint, this is also an interesting and savvy move by BMO InvestorLine to be part of the conversation about wealth management. Analogous to mortgage calculators helping potential homeowners understand some of the mechanics around house purchases and borrowing, the adviceDirect Portfolio Health Check tool is a timely resource for anyone wanting to get a digital “second opinion” on how their investments stack up. This is entirely in line with their adviceDirect offering, which enables investors to consult with a licensed investment professional about recommendations but leaves the actual work up to the investors themselves to implement.
In a crowded landscape of online brokerages that would normally be focusing on commission pricing, this public-facing tool will enable BMO InvestorLine to be visible to the right kinds of investors at the right moment and, because it is free, for the right price.
Looking in the RRIF-View Mirror
Against the backdrop of service enhancements at Canadian online brokerages, one important feature launched at the end of 2020 will help clients of RBC Direct Investing who are thinking about income when retiring.
Starting in December 2020, RBC Direct Investing enabled clients with Registered Retirement Income Fund accounts (such as RRIFs, LIFs, LRIFs, RLIFs, PRIFs) to be able to view payment details online, without needing to call or wait for a letter. In light of the wait times on the phone channel, this is a timely development.
To help navigate the most important details of a RRIF, the “RRIF View” provides a snapshot of a client’s plan, with information on the required minimum annual withdrawal amount and scheduled payment dates.
While this is a small development, it is an interesting example of a feature that is important to users who have this kind of account – it got a quick highlight as part of the Navigators series that publishes updates at RBC Direct Investing.
At this time of year, there is a lot of discussion about contributing to RRSPs, but there isn’t nearly as much information available on the next steps of funding retirement, in particular the variety of options available to individuals with an RRSP.
Fortunately, RBC Direct Investing also has a fairly good guide explaining RRIFs, which is helpful for individuals needing to navigate this new account type. With this new feature, RBC Direct Investing might also have the opportunity to spark a conversation about online brokerage platforms and the ease with which RRIF account holders can stay on top of key information.
A potential investor asks in this post whether they should wait until after the stock market crash – or at least massive correction – that many experts predict is imminent, in order to buy stocks at rock-bottom prices. Fellow Redditors share their strong opinions about the value of time in the market versus trying to time the market.
Up, Up & Away
From boredom to FOMO to a record bull market, there are many reasons that retail investing is surging in Canada right now. In this post, hundreds of Redditors discuss meme stocks, cryptocurrency, market bubbles, crashes, index funds, interest rates, and a whole lot more.
Into the Close
With the combination of Lunar New Year, Valentine’s Day, and Family Day, there have been many reasons to celebrate this past week, and Friday being that much closer certainly adds one more item to the list. There’s a lot of gripping drama playing out in the US this week, with the GameStonks trade under the microscope. With snow and cold showing up just about everywhere, including Texas, this is going to be a weird one. Hang in there.
February is now well underway. In case you might have missed it, a forty-something quarterback managed to nab yet another Super Bowl win, and for the moment, it appears that the forty-something-plus crowd on Wall Street managed to squeeze out a win over the younger investors – at least for now. History is in the making all around.
In this edition of the Roundup, we dive into the deals and promotions activities that Canadian online brokerages are up to. From there we analyze the fallout from the meme stocks push and contemplate what it should make Canadian online brokerages think about as we head out of this historic turn of events. As always, there’s thoughtful commentary from the investor forums and a selection of interesting tweets.
Forecast for Deals & Promotions: Mostly Sunny for February
The month before the official start of spring is a good news/bad news moment. Yes, better weather is around the corner, but no, it’s not here yet.
Fortunately for DIY investors, the forecast heading into the deadline for RSP contributions is filled with some bright patches, most notably that the Canadian online brokerage deals section is brimming with activity. If there is a dark cloud lingering over deals activity this year, it’s that several online brokerages have opted to stay on the sidelines rather than post an offer during RSP season for DIY investors.
In more “normal” times, not having a deal during RSP season would be unlikely. With the sustained interest by DIY investors in opening new accounts – especially given the recent run in “meme stocks” – many online brokerages are struggling to keep up with the level of demand and, thus, pacing themselves when it comes to bringing on new customers. It appears that there can be too much of a good thing after all.
For online investors looking to open an online brokerage account, February is the last month to be able to take advantage of the selection of offers. Most of the promotions in the cash-back or commission-free trade categories end at the beginning of March.
The current offers in the most enticing category for investors show that competition between the big five bank-owned online brokerages is fierce, with all of these discount brokerages putting forward competitive cash-back offers. Joining the bank-owned online brokerages in this category are Qtrade Investor and Questrade.
Curiously, mid-tier and newer online brokerages do not currently have a cash-back or commission-free trading offer, a signal that these providers might either be more strained by the substantial interest in investors coming to market or be pursuing a different strategy to attract new clients.
While deals and promotions are an effective strategy to attract DIY investors, another interesting way in which Canadian online brokers attempt to connect with new clients is via advertising – specifically on the world’s biggest search engine, Google.
As part of our proprietary research, we’ve reviewed recent search engine marketing tactics of Canadian online brokerages and found some fascinating results. One of the important findings is that there are fierce battles taking place between a small number of online brokerages on Google.
For example, it appears that Wealthsimple Trade is spending advertising directly on names such as Interactive Brokers, Qtrade Investor, Questrade, and TD Direct Investing. Alternatively, Interactive Brokers is advertising directly on Questrade, Wealthsimple Trade, and Virtual Brokers. It is especially interesting considering Wealthsimple Trade and Interactive Brokers couldn’t be more different in terms of user experience and intent.
Interactive Brokers is built, intentionally, for active traders. In contrast, when Wealthsimple Trade launched, it was built deliberately to support some trading, but active trading – and day trading in particular – was explicitly viewed as undesirable and something they stated they could intervene on if the trading activity would be deemed “inappropriate.”
It is therefore interesting to line up the sentiment expressed in the messaging of Wealthsimple Trade’s help page on day trading with their advertising targeting investors interested in Interactive Brokers and Questrade.
With just three weeks to go until the RRSP deadline, Canadian online brokerages are likely to ramp up their efforts to win over investors, and the most likely place this will happen is with heightened “promotion” via online advertising – and yes, even during the Super Bowl.
In the February edition of the deals and promotions section, the big five Canadian bank-owned online brokerages are well represented, along with Questrade and Qtrade Investor. Of the online brokerages not on the current list of promotions, however, it appears that two popular names, Interactive Brokers and Wealthsimple Trade, are instead fiercely battling it out with one another on Google search advertising and likely other channels, such as Facebooks, as well.
That two very different brands are battling it out directly with each other is telling of the competitive dynamics in the current online brokerage market in Canada. It does raise the question, however, of when that competition will materialize into something more value-added to a client than a convenient link on Google.
GameStop(ped) Out
Oh, what a difference a fortnight makes in the stock market of 2021.
Just over two weeks ago, Elon Musk wasn’t just talking about launching rockets into space, he was also weighing in on the meteoric rise of “GameStonks.” Same with Mark Cuban, AOC, and so many more people who normally give commenting on the stock market a pass. What has been happening in the stock markets over these past few weeks, however, has been almost impossible to ignore.
The sheer weight of the interest in the “meme stock” phenom was fuelled by a combination of FOMO and a strange quirk of market physics. Since the surge in the stock price of GameStop (ticker symbol GME) and subsequent restrictions on trading it by online brokerages, there have been countless commentaries on exactly what happened and what underpinned the stunning move up and back down in the price.
To be totally transparent, this section is going to add one more commentary to the pile; however, we’re going to sidestep most of what has already been said about short squeezes, Reddit threads, and a cabal of powerful financiers and instead focus on some very important elements that look at the consequences and lessons learned for online brokerages as a result of this recent anomaly.
One of the first things worth stating, especially from our perch here in Canada, is that so much of this story is driven by what happened in the US stock markets. For Canadian DIY investors and Canadian online brokerages, however, the opportunity to make fast money was still just as tempting. What ultimately ended up getting in the way for Canadian investors were the numerous friction points, such as commissions for trades, lack of fractional trading, or time required to fund a new account, to name just a few. Which, all told, probably saved some heartache for some investors.
Nevertheless, in the cast of stock market characters surrounding the great short squeeze of 2021, perhaps the most interesting question that stands out is why, of all the online brokerages in the US that restricted trading in GameStop (and other stocks), did Robinhood find itself cast as the villain?
Data gathered from a variety of sources indicate that other online brokerages in the US restricted buying in GME shares, including Interactive Brokers, Webull, and E-Trade. TD Ameritrade (and Schwab) raised margin requirements. Even so, media mentions and social media conversations (and memes) have overwhelmingly been dominated by Robinhood and the fact that they instituted a temporary restriction on purchasing certain stocks.
One possible reason why Robinhood has been singled out is that it became somewhat of a rising star across 2020, attracting more accounts in the early portion of the year than most of its competitors combined. And, although most of its US online brokerage competitors offer zero-commission trading now as well, Robinhood is often associated with making trading more accessible – or, in their words, “democratizing” finance. For years, Robinhood has positioned itself as “anti-Wall Street” and cultivated the narrative of Robinhood as the champion of the small investor in a way that incumbent online brokerages did not. Scandal definitely makes for good TV, and in a world where entertainment options are limited, seeing a rising star have a fall from grace sounds like the plot of another enticing movie about stock markets.
When the carefully curated identity of Robinhood is juxtaposed against the expectations of retail investors that Robinhood is an online brokerage “for the people,” it is understandable that when those same people were not allowed to trade what they wanted to trade when they wanted to trade it, they believed that something was afoul. After all, retail investors believe – and are led by a number of sources to believe – that markets are free from interference by outside forces or entities.
And, while the broader market of investors was willing to give Robinhood a pass on payment for order flow in order to get commission-free trades, the optics of relationships between Robinhood and the very institutions that meme stock proponents sought to profit from (e.g. Melvin Capital and Citadel) cast Robinhood as pro-establishment, essentially violating their brand promise.
Perhaps the greatest insight into this situation can be illustrated in the descriptions of “what happened” by the current head of Robinhood, Vlad Tenev, and the founder and former CEO of Interactive Brokers, Thomas Peterffy.
In the immediate aftermath of the decision to restrict trading in GME, it didn’t help matters that the CEO of Robinhood could not articulate clearly why certain shares were frozen. That lack of clear explanation in the heat of a volatile market meant that retail investors were forced to jump to their own conclusions.
By contrast, it is worth noting a Bloomberg interview with Peterffy in which he clearly alludes to something that goes beyond a freeze on the trading of volatile stocks. Specifically, Peterffy positions as “illegal” the fact that individuals were piling into a name (like GME) to perpetuate and accelerate a short squeeze.
Putting the continuity of the business first and catering to clearing and settlement requirements are prudent activities, and it seems reasonable for people to assert that Robinhood and Interactive Brokers, as companies, would need to stay in business.
That said, younger investors or investors who sought to drive systemic change via “sticking it to the shorts” found themselves on the wrong end of a lock on buying, and the short squeeze that was taking shape ended up fizzling out.
Robinhood has made no secret of their intentional pursuit of younger investors. What seems to be clear, however, is that these “younger investors” have a very different view of wealth creation and investing (trading) than “boomers” do.
And herein lies the issue for all online brokerages. Currently, there are different audience segments that have very different views on financial services and the roles that online brokerages ought to play when it comes to facilitating participation in the stock market.
Aside from mobile app or website design, another important attribute of younger investors is where they go to learn about investing (Reddit or forums). Also, they seek out highly volatile (high risk, high reward) stocks, for a mix of excitement and wealth creation. When combined with the gamification of user experience and a reduction in commissions, the result is a powder keg that, given the right environment, will explode.
Younger investors also bring with them the beliefs and capacity to call out “injustice” or perceived hypocrisy on very public channels. While older investors did use forums to learn from and engage with one another, and occasionally to voice their discontent, it was rare to find social justice narratives or “greater good” themes driving investor choices. The recent events have shown that social media channels, including Twitter and Reddit, move exponentially faster than anything before and include sections like “tl;dr” to cut through the “boring analysis.”
Unlike their US counterparts, Canadian online brokerages did not suffer as significant a backlash from DIY investors, in part because they did not explicitly prevent buying or trading in the meme stock frenzy. That said, Canadian online brokers were not unscathed either.
Platform outages or delays in executing trades from a number of brokerages – along with popular online broker Wealthsimple Trade taking the unusual step of specifically labelling certain stocks very risky, such as GameStop and BlackBerry – did set off a smaller firestorm here in Canada. In particular, investors were upset that an online brokerage would take the position to designate any stock as “too risky” to trade, especially if it met listings requirements on a supported stock exchange.
It is still too soon to say how things will ultimately pan out for online brokerages as a whole. There are, however, some immediate lessons for the online brokerage industry to take heed of.
Regardless of being either an established name in finance or the latest fintech, financial services at their core are predicated on trust and confidence. Among the “older” generation of retail investors, that trust was established in the form of size and stature. Bigger equalled better. Among the “newer” cohort of investors, it could be argued that faster is better.
What is common to all investors, however, is that reliability matters when choosing an online brokerage, if for no other reason than to know what to expect. Nobody likes uncertainty, especially Canadian DIY investors. The events over the past few weeks have made it clear that newer online brokerages will have a much harder time making up for the fact that they don’t have anything to offer other than the promise of a brighter future. At least the established online brokerage brands have either the reputation of their parent brand or their history in the space to point to as a signal that they are stable.
Another really important takeaway from the events of the past few weeks is that the conversation that takes place online, in particular in forums and on Twitter, cannot be and should not be dismissed. Whether it is regulators or other entities who do this monitoring, the fact that retail investors could take a coordinated action on trading specific stocks is remarkable.
The consequences to the industry were made clear: Ignore the crowd at your peril.
We live in a world where individuals such as Elon Musk can become incredibly influential, and based on their whims and caprices on Twitter or Reddit, there can be massive investor behaviour shifts. The events of the past few weeks highlight that, going forward, the online investing industry will have a massive PR problem.
Even here in Canada, where much of the negative press around the events of the past two weeks focuses on platforms and connectivity, online brokerages are going to have to do better because of the circumstances in the US. More advertising is not going to do it, nor will telephone meetings. The bottom line is that investors now look to Robinhood with a suspicion it has never had to meaningfully contend with before. That’s something for Canadian online brokerages to think about as they race to design new interfaces and experiences to connect with investors.
In this post, an investor wonders if the recent mania in the stock market perhaps signals the end of an epic bull market, which leads to a lengthy discussion that touches on corrections, crashes, business cycles, and much more.
Preaching to the Converted
The devil is usually in the details, and for DIY investors looking to avoid getting dinged with trading commissions, this post about “the catch” when it comes to using commission-free online brokerage Wealthsimple Trade offers up an important lesson.
Into the Close
With yet another Super Bowl win to add to his record, there’s no denying that Tom Brady has been defying physics in the NFL. Credit where credit is due, though (and no, not a margin call pun), there’s definitely something to be said for putting in the effort and seeing the results. As the shine comes off the short squeeze trade, it will be interesting to see how traders fare without wanting to put in the work. Valentine’s Day is just around the corner, and so too is Lunar New Year, so the good news is that this month is filled with even more reasons to celebrate.
What can beginner investors expect from your firm? Helping Canadians become confident investors is what we do every day. And it’s important not only to serve their needs today but also to teach them more about the markets as things happen.
When COVID-19 hit, we sent out resources to help customers make sense of the markets. This investing series was focused on how markets historically rebound after pullbacks, to help arm our customers with knowledge to navigate through the uncertainty. We regularly communicated with customers throughout the pandemic, giving updates on our operations and the market, so they can feel confident that we are here for them and they are not alone.
We have also partnered with Passiv, a portfolio-rebalancing tool, to make it even easier for customers to manage their investments. Anyone with a Questrade account receives a free subscription to Passiv Elite, their highest-tier plan.
All customers have access to real-time quotes and fast trade executions.
And, of course, new investors can enjoy all this knowing that they can reach out to our award-winning customer service if they ever have any questions.
What can active investors expect from your firm? Unlike at many other brokers, all Questrade customers can access all of our platforms absolutely free, whether you’re trading on a web-based browser, on a mobile app or using IQ Edge, our advanced desktop platform.
Every year we’re adding more and more features focused on more-active investors, and 2020 was no exception.
This year we completely upgraded the market data on the platform by partnering with Benzinga, to give investors an abundance of news and analyst commentary on the stocks they’re following.
Along with Benzinga, we added an entirely new events calendar, so investors can easily look up key dates that may affect their securities. Earnings releases, dividend dates and analyst upgrades can all be easily searched on the event calendar.
As always, all Questrade accounts are dual-currency accounts, so you can hold Canadian and US cash in your account (some competitors don’t give their customers this ability). With Questrade, you won’t get charged unnecessary currency-conversion fees when doing US trades.
2021 will continue to bring exciting new features for IQ Edge, with upcoming releases that will make it even more powerful.
What online investing trends do you expect to matter to DIY investors? We anticipate an increase in desire for knowledge, greater engagement with educational content for investors of all levels, increased participation in investing-related social media and, ultimately, a more informed, educated and successful DIY investor.
What does user experience mean at your firm? User experience at Questrade is about making investing easy for customers. At any given time, a user should be able to feel confident that they can access, read and understand all their portfolio information, that they can easily make trades using their platform of choice and that they know where to turn if they need help at any time.
What sets your firm apart from your peers? At Questrade, we care about Canadians becoming financially successful and secure. As an independently owned online brokerage in Canada, we’re in the unique position of being accountable to our customers, not to shareholders. Our success is measured by our customers’ success, and we are always doing everything in our power to ensure that our investors have access to the knowledge, tools and resources they need to reach their investment goals. This means that every decision is made with Canadians’ best interests in mind.
And others have recognized this effort, as our list of awards grows:
#1 rank in investor satisfaction among self-directed brokerages by J.D. Power, as well as #1 for commission and fees and #1 for account information (for J.D. Power 2020 award information, visit jdpower.com/awards)
Canada’s fastest-growing online broker
8X winner of Canada’s Best Managed Companies
$18 billion in assets under administration
Over 100,000 new accounts opened annually
Award-winning #1 ranked customer service
This customer-first approach is a major driver of innovation at Questrade. We’re constantly searching for new ways to make investing easier for our customers, be it through the elimination of fees, the support of educational resources or one of the exciting programs and initiatives that we have planned for 2021.
And, as always, all with the low fees that Canadians have come to expect from us:
Trade stocks from 1¢/share (min. $4.95 to max. $9.95)
Buy ETFs commission-free
No annual account fees
No account opening or closing fees
All accounts are dual-currency accounts
Free to transfer in an account from another financial institution
Just because the month is short, doesn’t mean we can’t be long on fun! From Lunar New Year to Valentine’s Day to Family Day, there is much cause for celebration – with safe social distancing in mind, of course. Another reason for DIY investors to rejoice: there’s still time to meet the RRSP contribution deadline for 2020!
Amidst the recent stock market volatility, there is one constant to look forward to at this time of year: a steady stream of promotions from online brokerages ahead of the RRSP contribution deadline. With over 30 kinds of promotional offers in the mix, there’s bound to be something available from most Canadian brokerages.
For all those looking for sweet deals during this rosy month, be sure to keep reading for all the latest promotions from Canadian online brokerages for February. We forward to a month filled with new surprises, and we will continue to monitor and provide updates on new online brokerage deals throughout the month.
In the spirit of Lunar New Year, we wish everyone an upcoming year filled with good luck and great prosperity – we’re hoping it will start with finding your perfect online brokerage deal here!
Open a new RBC Direct Investing account by March 31, 2021 and fund it with at least A) $5,000; B) $25,000; C) $50,000; D) $100,000; E) $250,000; F) $500,000 or G) $1M+ by May 31, 2021 and you may receive a cash back of A) $50; B) $100; C) $200; D) $300; E) $500; F) $1,000 or G) $2,000; plus 10 free trades to be used by August 31, 2021. The fund must be from a non-RBC investment account.
Use promo code WCMP2 during account opening and be sure to review the full Terms and Conditions.
A) $5,000
B) $25,000
C) $50,000
D) $100,000
E) $250,000
F) $500,000
G) $1M+
Cash Back:
A) $50
B) $100
C) $200
D) $300
E) $500
F) $1,000
G) $2,000
Plus 10 free trades
Scotia iTRADE is offering two choices for new investors who open accounts before March 1, 2021 and fund it with at least A) $5,000; B) $10,000; C) $25,000; D) $50,000; E) $100,000; F) $250,000; G) $500,000 or H) $1M+:
Option 1: you can use promo code C21 to receive cash reward of A) $25; B) $50; C) $100; D) $200; E) $400; F) $750; G) $1,000 or H) $1,500; plus a discounted commission of $6.99 per trade until June 30, 2021.
Option 2: Use promo code FT21 and you may be eligible for A) 10; B) 20; C) 50; D) 100; E) 200; F) 300; G) 400 or H) 500 free trades to use for 90 days after the account is funded.
See terms and conditions for full details.
A) $5,000
B) $10,000
C) $25,000
D) $50,000
E) $100,000
F) $250,000
G) $500,000
H) $1M+
Cash Back:
A) $25
B) $50
C) $100
D) $200
E) $400
F) $750
G) $1,000
H) $1,500
or Free Trades:
A) 10
B) 20
C) 50
D) 100
E) 200
F) 300
G) 400
H) 500
Fund your new or existing CIBC Investor’s Edge account before March 2, 2021 with at least A) $10,000; B) 25,000; C) $50,000; D) $100,000; E) $500,000 or F) $1M+ and you may be eligible to receive a cash back reward of up to A) $50; B) $100; C) $200; D) $500; E) $1,000 or F) $2,000. To qualify, the fund must be from outside CIBC. No promo code required. See terms and conditions for full details.
A) $10,000
B) 25,000
C) $50,000
D) $100,000
E) $500,000
F) $1M+
Cash Back:
A) $50
B) $100
C) $200
D) $500
E) $1,000
F) $2,000
Open a new qualifying account at BMO InvestorLine with new assets worth at least A) $15,000; B) $50,000; C) $100,000; D) $250,000; E) $500,000 or F)$1M+, and you may be eligible to receive a cash back reward of up to A) $150; B) $250; C) $500; D) $800; E) $1,000 or F) $2,000. Use promo code SPARXCASH when registering to qualify. Be sure to read full terms and conditions.
A) $15,000
B) $50,000
C) $100,000
D) $250,000
E) $500,000
F) $1M+
Cash Back:
A) $150
B) $250
C) $500
D) $800
E) $1,000
F) $2,000
Open a new TD Direct Investing account by March 1, 2021 with promo code INVESTNOW and fund it with new assets worth at least A) $15,000; B) $25,000; C) $100,000; D) $250,000 or E) $500,000, and you may be eligible to receive a cash back reward of up to A) $100; B) $200; C) $300; D) $500 or E) $1,000. The fund must be deposited to the account by April 30, 2021 and at least one trade is placed by June 30, 2021.
In addition, you may also be eligible for another $100 cash reward by setting up a Monthly Contribution Plan (min. $100 per month) with the first contribution occur before April 30, 2021.
The maximum reward one could receive is $1,100. See terms and conditions for full details.
A) $15,000
B) $25,000
C) $100,000
D) $250,000
E) $500,000
Cash Back:
A) $100
B) $200
C) $300
D) $500
E) $1,000
New clients who open and fund a new Qtrade Investor account before March 01, 2021 with at least A) $25,000; B) 50,000; C) $100,000; D) $500,000; E) $1M or F) $2M+ may be eligible to receive a pre-paid Visa gift card of up to A) $50; B) $100; C) $250; D) $800; E) $1,500 or F) $2,000. Only the first 500 customers are eligible. Please use promo code VISA2K. See terms and conditions for full details.
A) $25,000
B) $50,000
C) $100,000
D) $500,000
E) $1M
F) $2M+
Cash Reward:
A) $50
B) $100
C) $250
D) $800
E) $1,500
F) $2,000
New accounts opened between Jun 22 and Dec 31, 2020 will be awarded 100 free online trades in one year. This promotion applies to new and existing NBDB clients who use the code “FREE2020” to open new accounts. There’s no minimum funding requirement, however some other restrictions may apply.
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.
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.
Open a new RBC Direct Investing account by December 31, 2020 and fund it with at least $5,000 by March 5, 2021 and you will receive commission rebates for 25 trades that occur within 1 year of account opening. Be sure to use promo code NTBW2 during account opening. You will be charged regular commissions on the trading date, and the rebate will be deposited back into your account after 3-5 business days. If you are an existing customer to RBC DI, the type of the new account being opened must be different from the account types that you current have.
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.
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)
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)
You may receive $10 cash incentive for each new client that you refer to Wealthsimple Trade. They must use your unique referral link during account opening and make a trade value of at least $100. The referred friend will also get $10.
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
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).
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.
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
Transfer Fee Promo
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
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
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 $10,000 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.
The minimum commission per equity trade ($1.99) is waived for new accounts from account opening till December 31, 2020. As a result, your commission is just 1¢/share (max $7.99). However, this offer does not apply to Odd Lot orders (i.e. orders with quantity less than 100 shares if price >= $1 or price < $0.10; or less than 500 shares if price in the $0.10 – $0.99 range).
Please be reminded that at Virtual Brokers ETFs are always free to buy.
Submit your information via the Hardbacon website to be referred to National Bank Direct Brokerage. Open and fund a qualifying account and you may receive up to 200 commission-free trades and discounted trading commissions. Be sure to read full terms and conditions.
Open a new Non-Registered trading account and fund it with at least $100 by December 18, 2020 and you may receive a random cash bonus ranging from $1 to $4,500. The cash bonus amount will be equivalent to the value of one of the fifteen stocks that have been selected by Wealthsimple Trade for this program. Please refer to the Terms and Conditions for more details.
Desjardins Online Brokerage is offering 5 commission-free trades for new 18-30 years-old Disnat Classic clients depositing at least $1,000. See terms and conditions for full details.
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.
Be one of the first 100 clients to open and fund an account with a minimum of $10,000 at Qtrade Investor using the promo code TRADE695 and you may be eligible for 100 trades at a preferred commission rate of $6.95 for 6 months. See terms and conditions for more details.
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.
Open a new SmartFolio account and fund it with at least $1,000 and you could receive 0.5% cash back up to $1,000. Use promo code SFJAN1000 when opening a new account. See terms and conditions for full details. This offer is limited to new SmartFolio clients only, and can be combined with the refer-a-friend promotion.
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.
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.
Professionals and students in the below fields can benefit from a reduced pricing structure:
* Engineering students
* Legal, accounting and business students
* Healthcare students
* Health sciences students
* Nursing students
Benefits:
* $5.95 commission on equities
* $0 commission on ETFs
* $0 annual administration fee
Accounts holders who are 30 years old or younger are offered 10 free trades each year. After the free transactions, a commission rate of $4.95 per transaction will be applied (which is just half of the regular price).
So. Much. To. Unpack. Unlike most pundits this week, we’re not going to talk about GameStonks, at least not in the kind of depth we normally would. No, for the moment we’ll save the commentary for the forum chatter and DIY investor feedback from Twitter.
There’s plenty on the menu for this edition of the Roundup. In fact, there’s so much to say about the latest online brokerage rankings from Rob Carrick at The Globe and Mail that we’ve decided to focus this edition on the wealth of data and insights the latest edition has delivered. To keep things on point with the conversations happening online, we’ve also included highlights from the forums and on Twitter. Get comfy – this is going to be a long (but fun) ride.
The Unsettled Elephant in the Room
We can safely say this up front: This current market is unlike anything we’ve ever seen before.
Specifically, the mobilization of massive waves of investors pouring into stocks that are heavily shorted and being able to generate shockwaves through the capital markets. Never before, or at least not in recent memory, have so many people learned so much about shorting, squeezing, margin, clearing, and settlement as they have in this past week.
Moreover, the lesson in what matters most to online investors – content and community – came courtesy of Reddit, a website that eschews modern aesthetics.
An almost incalculable number of lessons are to be learned from the time we’re living through (especially as DIY investors), so we won’t be covering these in this edition of the Roundup because there’s simply not enough time and space this week for all of it. In fact, in compiling the reactions online to the Canadian discount brokerages via Twitter, the software we use crumbled under the sheer volume of the conversation, taking with it hours of work sifting through visceral and convulsive reactions by online investors (traders) to the trading of GameStop, AMC, Blackberry, and others.
For now, it’s sufficient to leave this video as a tongue-in-cheek summation of events.
Rest assured, as the dust settles (probably faster than trades from Robinhood – had to do it), the spotlight will move to the seismic shift in trading behaviour we’re witnessing right now.
ICYMI: Robinhood CEO Vlad Tenev spoke out yesterday after the company decided to restrict trading in GameStop and other stocks. “In order to protect the firm and protect our customers we had to limit buying in these stocks,” he told @andrewrsorkin. https://t.co/LsJ5iNjJABpic.twitter.com/XutnOQn9YN
2021 Canadian Online Brokerage Rankings: Spotlight on Service
Now in its 22nd edition, The Globe and Mail online brokerage rankings, authored by Rob Carrick, are one of the most popular rankings available for Canadians who are shopping around for a new online brokerage or are simply interested in making sense of trends in the DIY investing space.
This past week, the latest edition of the rankings was published, and this one is by far one of the most interesting editions yet.
Fair warning, this post is going to be a long one, in part given the historic nature of current market conditions but also because of additional data added to this year’s review that doesn’t ordinarily appear in it.
What Goes Into the Online Brokerage Rankings?
Over the past two decades, there have been numerous changes to the review, ranging from what time of year it gets published, to the criteria used to evaluate brokerages, to the accessibility of the reviews themselves. These small changes make comparing absolute performance from year to year a challenge, so as a result, one of the best ways to understand the meaning of these reviews is on a relative basis. Contextually, there are important changes or factors that arise over time that make up part of how online brokerages get evaluated.
An important factor to note in the assembly of the rankings is that this review is based on data from the prior year. Or at least that’s how things used to operate. While the bulk of the 2021 online brokerage rankings are based on data from 2020, there is a significant addition to this year’s results: telephone customer service wait times that were collected in mid- to late-January of 2021. The data, which was supplied by financial research firm DALBAR Canada, tested the telephone wait times at all Canadian online brokerages.
It bears mentioning that the likely reason behind including telephone customer service experience stems from the many (many) complaints from online investors over the past year and especially in the latter portion of 2020 (and early 2021) concerning reaching an online brokerage by phone. If there is one thing that Rob Carrick’s reviews and commentary on the online brokerage space in Canada have evolved into, it’s a barometer for some of the most salient issues (and frustrations) faced by DIY investors.
With some important context out of the way, let’s dive into the results themselves to see what the scores looked like across the board this year, who was included (and who was not), as well as some of the important drivers of success in this year’s rankings.
Results from the 2021 Canadian Online Brokerage Rankings
To help put this year’s results into context, the table below compares the most recent set of scores to those of the past two years (2020 and 2019).
One of the first things that jumps out is in relation to first place in these rankings and which online brokerage scored the best: Qtrade Investor.
For the past three years, Qtrade Investor has achieved the highest score in this ranking and, in 2019, had to share that accolade with Virtual Brokers and TD Direct Investing. Since 2019, however, Qtrade Investor has handily outscored its rivals – including last year, when it scored an A+ rating. This year, Qtrade did earn the highest mark, an A, but it was a lower score than last year. No stranger to the podium, Qtrade Investor has been voted best online brokerage by The Globe and Mail 12 times in the 22-year history of the rankings.
Coming in second this year was TD Direct Investing, which is one of Canada’s largest and most popular online brokerages. As with Qtrade Investor, TD Direct Investing saw their score in 2021 drop from 2020, in this case falling to an A- from an A.
Third place, interestingly, was a tie between Interactive Brokers and Questrade, both of whom received grades of B+. One of the reasons this is an interesting result is because Interactive Brokers was, for many years, not included in The Globe and Mail rankings since they primarily catered to more active investors and traders (as opposed to the “everyday investor”) and they lacked an RRSP offering, which they now currently do offer. Since 2019, Interactive Brokers’ score has remained fairly level at B+, but Questrade has seen their score slip slightly, from an A- in 2019 to B+ in both 2020 and 2021. This year, however, that B+ was good enough to tie for third place.
While the middle-of-the-pack experience has largely remained intact, HSBC InvestDirect has consistently remained at the bottom of the rankings for the past three years. Despite their low commission rates, international access, and award-winning client service, several factors that matter more to these ratings, such as mobile accessibility, impacted the scores.
Also of note this year, only two of the 12 Canadian online brokerages covered this year improved in their scores relative to last year. BMO InvestorLine raised their score from a B- to a B, and CIBC Investor’s Edge improved from a C to a C+. In contrast, five online brokerages dropped in scoring compared to last year, the most notable among them being Scotia iTrade, which went from an A- to a B. Another interesting negative trend showed up for Virtual Brokers. In 2019 they tied for the highest score, an A that year, with Qtrade Investor and TD Direct Investing. In 2020, however, they slipped to a B+, and in 2021 they scored a B.
Not on the list of Canadian online brokerages reviewed for this ranking was Wealthsimple Trade – a notable absence given both the visibility and the popularity with younger investors. This is not the first review that the newest kid on the online brokerage block has had to sit out. However, in the context of Wealthsimple Trade’s features, pricing, and volume of interest, not to mention sheer growth in numbers, DIY investors are likely curious about how the brokerage would fare in the rankings framework.
As far as grades go, a comparison to 2019 shows that performance across the board has, on a relative basis, worsened. The strongest drivers for scoring on The Globe and Mail brokerage rankings have always leaned toward the experiences of “everyday investors” rather than more-active traders. This year, the ranking criteria are based on:
Convenience and security
Cost
The investing experience
Tools
Importantly, a big part of the convenience and security component of this year’s results included phone access, something that has been a major pain point throughout 2020 but especially into the end of the year.
Call Options
To address this timely topic, in addition to relying on data generated from 2020, this year the online brokerage rankings included telephone wait time data supplied by financial services research firm DALBAR Canada – and those results were also fascinating.
One of the first, and most glaring, results from that snapshot is that wait times in January at online brokerages averaged out at 92 minutes, with a standard deviation of almost 52 minutes. The importance of reporting the standard deviation here is clear because, while an average wait time of 92 minutes is bad enough, it doesn’t accurately convey how bad things are right now for DIY investors trying to contact customer service.
For a more accurate view, there’s going to be a little bit more math required.
What the overall average of wait times doesn’t convey is that the data has a couple of very clear outliers at both the short and the long ends of wait times. To help put this into perspective, the shortest wait time average was 7 minutes (Virtual Brokers), and the longest was 179 minutes (Scotia iTrade). That works out to almost 26x more time spent waiting to speak to someone at Scotia iTrade than at Virtual Brokers.
These two extreme data points suggest they were outliers, and outliers tend to add noise or skew the more realistic picture. The next outlier in the data was Qtrade Investor, with an average wait time of 28 minutes – which is still long by most reasonable standards but is significantly lower than the next highest online broker, TD Direct Investing, where telephone wait times were 58 minutes on average.
Excluding the wait times of Virtual Brokers and Qtrade Investor as outliers, the average wait times at 83% of the Canadian online brokerages worked out to be 107 minutes, more than double what it would be if Virtual Brokers and Qtrade Investor were included in the analysis. Even more telling, the standard deviation drops to 42 minutes. At the upper end of the wait time range, if we exclude Scotia iTrade, with a wait time of 179 minutes, and Desjardins Online Brokerage, with a wait time of 170 minutes, a much more accurate view of wait times emerges.
The average wait time drops from 107 minutes to 91 minutes (about a 15% decrease), and the standard deviation drops from 42 minutes to 26 minutes (a 38% decrease). This represents 66% of the data, or eight out of 12 online brokerages.
Wait Times
Average (mins)
Standard Deviation (mins)
% of Brokers Represented
All Brokerages
92
52
100
Shortest Outliers Excluded
107
42
83
All Outliers Excluded
91
26
66
3 of Big 5 Banks (outliers excluded)
93
7
25
In light of the above data (that excludes outliers at the upper and lower extremes), and assuming a normal distribution, 68% of the time, calling an online brokerage in Canada in January would have resulted in a wait time of between 65 and 117 minutes. And 95% of the time, or 19 times out of 20, the wait time for a DIY investor would have been between 39 and 143 minutes. And 99.7% of the time, a Canadian DIY investor would have waited between 13 and 169 minutes. In other words, getting served quickly would be more because of good fortune than because of the system working as it should.
Let that sink in for a moment. These are private, profit-driven, million- or billion-dollar brands (in some cases) that are posting these kinds of numbers. For illustration, three out of the big five Canadian bank-owned online brokerages posted a remarkably consistent range of wait times: 93 minutes with a standard deviation of 7 minutes. On a peer-to-peer basis, this highlights how far ahead TD Direct Investing’s scores (with wait times of 58 minutes) would be relative to the others and how far behind Scotia iTrade sits. In either of these two cases, these would be considered so far outside of a statistical norm that it is not by accident that they’re achieving these numbers.
Imagine the frustration, dropped calls, and erosion in trust that occurs when an on-demand world meets a two- or three-hour wait time. And this doesn’t even factor in waiting by online chat.
It naturally raises the question: What are Virtual Brokers and Qtrade Investor doing so well, which causes them to be able to answer the phone so fast (relatively speaking), and what are Scotia iTrade and Desjardins Online Brokerage doing so poorly? One possible conclusion points to a capability of being ready to scale up, as pointed out in the Influencer Edition of the Look Back / Look Ahead series.
Now, to be clear, these numbers do not indicate whether or not issues were resolved, just how long it took for someone to answer the phone. Also, these are snapshots in time, and there is no comparable data taken from similar time periods to benchmark against. The fact that these tests added to the caller queue means they affected wait times, even if the impact was slight, so the numbers do need to be treated with some caution.
Even so, it is cause for concern for DIY investors to see that wait times can be meaningfully measured in hours instead of minutes. Coming into the peak season for RRSP contributions, it means that volume will only increase, as will frustration levels. If there are any outages, huge rallies or crashes in the market, or other market-moving events, then RRSP contributions via telephone are going to be nearly impossible at most Canadian online brokerages.
Of course, telephone service isn’t a major selling point for a lot of online investors. In fact, many will never have to deal with a client service rep on the phone, but there are some things that can happen only by talking to a representative. For a portion of the DIY investor population, that translates into being forced to wait.
That said, there are indications that this is clearly an issue of concern to certain online brokerages and that relief may be on the way.
Relief for Long Wait Times
First, in an interesting interview by Preet Banerjee with BMO InvestorLine’s president, Silvio Stroescu, there were some fascinating insights on the impact of the past year on this online brokerage. According to Stroescu, the huge influx of demand for online investing accounts, as well as from investors looking to “upgrade” their accounts, took customer service wait times from an average of five minutes in early 2020 to about 40 minutes in 2021.
The numbers reported by Stroescu for 2021 are still much higher than he was happy with, and in the interview he did explain a number of steps that BMO InvestorLine is undertaking to close the service gap. In fact, as early as this past summer, Stroescu mentioned that BMO InvestorLine undertook significant hiring and ramp-up to provide additional service support. Nevertheless, the observed results of DALBAR’s numbers and reported numbers of Stroescu all point to a significant wait time for online investors calling in.
Another interesting piece of news came from Questrade, in advance of the RSP season rush, in the form of a client email. In that email, they acknowledged that “longer wait times are the norm with all brokerages at this time,” that over the past year they have doubled the number of client service specialists, and that in the “coming weeks” they are slated to add over 100 customer service agents.
Putting the Pieces Together
Clearly, there’s much to digest from the data in this year’s edition of the Canadian online brokerage rankings by The Globe and Mail’s Rob Carrick.
So much of the story that started in March of 2020 was about the volume of activity as well as the influx of individuals who wanted to trade on the market. The impact on Canadian online brokerages, in terms of service as well as stability, has been clear. The statistics point to a systemic lack of capacity to be able to address the surge in interest in online investing coupled with technology and operational shortfalls.
What, as a DIY investor, is especially worrisome about the online brokerage experience is that it has taken so long to remedy the capacity issues. Markets rely on confidence, and confidence comes from certainty. The relative stability of scores in the Canadian online brokerage space points to a “business as usual” pace that was moving far too slowly, or did not plan adequately, for the kind of strain that ultimately emerged over the past year. That said, at certain online brokerages, the persistent wait times point to a much deeper issue and lack of prioritization of client service. Conversely, some other brokerages have clearly shown the capacity to keep up somewhat reasonable wait times.
The qualitative commentary this year was in line with previous years; however, one of the great features for investors trying to get a quick answer on comparing features is toggling comparisons for key items like commission-free ETFs, high-interest savings ETFs, and performance reporting.
As much as we have said about this year’s rankings, there’s also a lot that we haven’t yet covered, including the reactions of investors to this data. This year’s rankings generated almost immediate reactions by readers, with the dominant theme being wait times at various brokerages.
With the latest rankings data in hand, it won’t just be hedge funds feeling the squeeze this year. The online brokerages in Canada now have added pressure to solve the customer service wait time issue and win back the trust of investors. Failing to do so quickly would almost certainly, at this point, raise the prospect of additional regulation and compliance to mandate accessibility and accountability.
After so many years of the markets doing well and interest rates dropping, one investor wonders in this post if a market downturn is now unlikely, if not impossible. Other Redditors share their strong opinions on whether the stock market can stay up forever.
Into the Close
That’s a wrap on just one of the several big events that transpired this past week. Looking forward, there’s a new month, which means a deals update is on its way, and there will likely be no letup from the buying army of retail investors who’ve firmly locked into all sorts of shorted stocks, including silver. Buckle up for volatile times ahead.
