Another week, another record high on the stock market. Despite the gloomy news on COVID-19 numbers here in Canada and in many parts of the world, stock markets are pricing in brighter days ahead as major economies continue their path to reopening…
In this week’s Roundup, we take an in-depth look into some interesting data which reflects the challenges and opportunities confronting commission-free trading in Canada. Also, we’ll tee up some interesting discussions about online investing we spotted on investor forums.
What’s Wrong with Wealthsimple Trade?
If you were to ask most Canadian online investors what their number one gripe about trading online would be, trading commissions would almost certainly be at or near the top of the list.
What would happen if you removed commissions from the equation, though? Would investors still find reasons to be unhappy with the fact that they don’t pay any trading commissions? The answer, according to some surprising data gathered from reddit, is apparently yes.
Even though zero-dollar commission trading hasn’t yet fully taken over the online brokerage industry in Canada, Wealthsimple Trade has emerged as the clear first mover with this pricing model. With the rest of the Canadian online brokerages still charging up to $9.99 per trade, an interesting consumer preference experiment is playing out in real time.
Consumers and industry alike are witnessing that going commission-free isn’t without costs.
In the race to bring zero-dollar trading commissions to the Canadian online investing market, it appears that Wealthsimple Trade had to choose between features they were going to make available to online investors right away, and features that would have to wait. The result is that Wealthsimple Trade does not offer many of the features that other online brokerages do. And this has generated mixed feelings about the low-cost provider.
On one hand, the price of zero dollars for some trades is right for DIY investors. On the other, there are fees, such as foreign currency conversion, that some other online brokerages don’t charge. In addition, there are also many features being offered by competing brokerages that Wealthsimple Trade does not (yet).
Last month, there was a rather fascinating reddit post that posed the following question: What’s the biggest problem with Wealthsimple?
While polls about other Canadian online brokerages exist in forums – including across reddit – this poll was unusual in a few respects.
First, it was a poll posted in the Wealthsimple Trade subreddit. That Wealthsimple Trade has its own subreddit is perhaps not surprising given their target demographic, however, it is unusual among Canadian online brokerages. They are not the only Canadian online brokerage to be on reddit, but they are the most popular.
Questrade has had its own subreddit since 2014, and has amassed a following of 11K. Wealthsimple Trade joined reddit in 2019 and has 14.8K members.
Seeing a poll about what users were unhappy with on the actual subreddit of the online brokerage in question is unusual. It would be hard to imagine, for example, an analogous situation arising at larger Canadian bank-owned online brokerages who elected to open themselves up to the unchecked reaction of the reddit crowd.
Another unusual aspect to this poll was the sheer scale of participation.
Almost two thousand respondents weighed in on the poll. While questions of what individuals are not happy with periodically surface in forums and social media, this poll clearly struck a nerve with the community of Wealthsimple Trade users on reddit.
As a result of having so many responses, and assuming no nefarious voting, data such as this offers a unique glimpse into the sentiment around user experience with Wealthsimple Trade.
The leading pain point for individuals polled was clearly dissatisfaction with transfer times for funding accounts, which are currently pegged at three to five days. Despite Wealthsimple Trade implementing near-instant deposits of $250 for users, the reality is that trading accounts require larger amounts of funds be available faster for most users.
The next issue poll respondents were unhappy with was delayed stock price quotes. Currently, prices shown on Wealthsimple Trade are delayed by 15 minutes, a real disadvantage to anyone who actively trades. This time delay requires users who want more accurate views of pricing to find another service that provides real time information (including other brokerages), or to simply guess at pricing and use limit orders.
Following the delayed quote data, lack of options trading was also flagged by respondents as a reason Wealthsimple Trade was falling short. Options trading has skyrocketed in popularity over the past year, especially within reddit investment circles, so for Wealthsimple Trade to not offer this feature is a significant limitation to DIY investors on reddit who are eager to trade options.
Perhaps the least surprising data point was that user interface was the last on the list of things that users were unhappy with, an indicator that Wealthsimple Trade is probably doing quite a bit right in this department.
While the data provided by this poll does shed light on what the limitations of Wealthsimple Trade are, the poll doesn’t tell the whole story. Venturing deeper into the post reveals more pain points that didn’t get included in the poll, such as US dollar account costs and the lack of availability of certain stocks to trade.
Despite the critical tone of the comments, it was fascinating to observe the number of comments in which users indicate they are supportive of Wealthsimple Trade. There is a very active community of Wealthsimple Trade users who believe in the model, and who are willing to step up to defend against or challenge statements that are overly negative.
Users of Wealthsimple Trade won’t have to wait much longer to have some of their biggest pain points addressed, however.
This past week, Wealthsimple Trade launched a premium service offering that charges a monthly subscription of $3 for access to real-time snap quotes and instant transfers of $1,000. These two items address, in part, two of the most significant pain points raised in the reddit poll. While it might be a good start, there is still lots of ground to make up compared to what other online brokerages offer.
For example, real-time snap quotes, while unquestionably better than delayed data, are not as good as real-time streaming quotes which would automatically update without users having to constantly hit refresh. Though this feature is likely more appealing to an active trader, it is hard to imagine the core client of Wealthsimple Trade enjoying having to manually query stock prices.
Further, transfer amounts of $1,000 being available instantly is better than $250. But for larger trades, this cap is still a limitation to accessing bigger opportunities.
Deploying a “premium” version of Wealthsimple Trade is similar to what US online brokerage Robinhood has done with their Robinhood Gold premium version. Interestingly, the dollar amount Robinhood Gold users can instantly deposit depends on their account balance, with deposit amounts ranging between $5,000 and $50,000. Robinhood does not charge for real-time quotes, but does include level 2 data as part of the Robinhood Gold program.
The timing of the reddit poll launched last month and the release of these new features at Wealthsimple Trade seem fortuitous. Coincidence aside, Wealthsimple Trade launching new features signals to its users that it is working to address the gaps that it knows its users are aware of.
Still, it may not be good enough. Other Canadian online brokerages may charge more for commissions per trade, however, they do have the features that Wealthsimple Trade is playing catch-up on.
This theme is clear throughout the comments from users on reddit who, despite liking what Wealthsimple Trade is trying to do, still have accounts with competitors because those features keep them there. It seems likely, then, to be a question of when rather than if other Canadian online brokerages bring their commission rates down to a point where the cost per trade is negligible in the face of other features that are available.
Perhaps in a twist of irony, the new subscription model being launched by Wealthsimple Trade might accelerate other Canadian online brokerages to offer zero-commission trading (or drop commission prices significantly).
If the experiment at Wealthsimple Trade proves to be a success, other Canadian online brokerages can explore “unbundling” the online investing experience and charging customers for the kinds of features that best suit their usage habits and patterns.
The numbers speak for themselves at Wealthsimple Trade when it comes to their customer growth over the past year. That said, there are clearly hurdles for clients of other online brokerages hoping to get the full set of features available at Wealthsimple Trade similar to what they currently have at their existing brokerage.
The data from the reddit poll offers online brokers in Canada an opportunity to highlight their advantages relative to Wealthsimple Trade and to make strategic improvements to their own offering. Whether that means lowering prices, or enhancing features, or both, it would serve to keep existing clients happy enough to stay, and perhaps encourage online investors to see that zero-commission trading, while possible, isn’t without its tradeoffs.
From the Forums
One Day(trade) at a Time
Trading stocks has seen a resurgence in interest over the past year. But how much trading is too much? When it comes to defining what a day trader is, the answers aren’t so clear. Find out what redditors offered one DIY investor in terms of advice in this post here.
Dues and Don’ts
When it comes to investing in the markets, there are no shortcuts. At least that’s the point of view from one redditor who laid out a lengthy but informative post on the merits of due diligence before jumping into an investment. Read more here.
Into the Close
That’s a wrap on another week. There are a few big stories in the works this month, so enjoy the reprieve for the moment. One big story that did drop this past week was a monkey being able to control a video game using only its mind. While we might be trading stocks with our minds one day, until then, you’ll have to click on the link below the old-fashioned way. Have a profitable week!