Spring is in the air. And coinciding with the appearance of new leaves, flowers, and Elon Musk on SNL is another seasonal feature: data on DIY investors.
In this edition of the Roundup, we continue to explore data on self-directed investors from the US and beyond that has sprouted up over the past few weeks, and how that data can help to inform where Canadian online brokerages need to prepare to head next. Also, forum chatter around the big Wealthsimple investment, as well as online brokerage service, find their way into the spotlight this week.
Self-directed Investor Snapshot: Two Different Studies Highlight Emerging DIY Investor Needs
Last week, we dug deep into a significant report on self-directed investors that the Ontario Securities Commission (OSC) released in April. This week, we explore two more online investor studies that crossed our radar recently – one from Refinitiv which looked at DIY investors across the world, and another from J.D. Power, which released findings from their US edition of the Investor Satisfaction Study.
Before diving into the key findings and takeaways from each of these different data sources, it is important to reflect on the details in the methodology of each of these resources. Often times, there are some fairly important claims that are made about online investors from research reports that can heavily influence what we think (and then do) about online investing.
Who These Reports Studied
The Refinitiv report, entitled “The Digital Wealth Agenda: Advancing the Self-Directed Investor Experience” explored the perspectives of just over 600 self-directed investors from 9 countries: Australia, Canada, China, Hong Kong, Japan, Singapore, Switzerland, the UK, and the US.
While there was no formal “methodology” section provided in the Refinitiv report (which was 12 pages long, including title and back covers), there were a few different figures and references that enabled a breakdown of the demographic data to be compiled.
Table 1: Regional Breakdown of Refinitiv Study Respondents
| Region | Count | % of Total |
| APAC | 269 | 45% |
| Europe Region | 126 | 21% |
| North America | 198 | 33% |
Table 2: Age Breakdown of Refinitiv Study Respondents
| Age Bracket | Count | % of Total |
| Millennials | 98 | 16% |
| Gen X | 176 | 29% |
| Over 55 | 327 | 54% |
By comparison, the latest Investor Satisfaction Study from J.D. Power references data collected from surveying 4,895 investors in the US between December 2020 and February 2021, who “make all their investment decisions without the counsel of a full-service dedicated financial advisor.”
The Investor Satisfaction Study by J.D. Power is in its 19th year, and for this edition the definition of “Investor Satisfaction” was redesigned to be comprised of the following seven factors, listed here in order of importance:
- trust
- digital channels
- ability to manage wealth (how and where I want it)
- products and services
- value for fees
- people
- problem resolution
From the study of investors, the Investor Satisfaction Study scores the satisfaction with online brokerages measured in the study on a 1,000 point scale. This year, data was shared on the following eight online brokerages:
- Vanguard
- Charles Schwab
- T. Rowe Price
- Robinhood
- Fidelity
- TD Ameritrade
- E*TRADE
- Merrill Edge
Caveats and Comments on Methodology
In comparing the two different data sets, it’s important to note that not only do they measure different populations of self-directed investors, but they’re also measuring them differently.
Refinitiv’s report describes statistics about certain facets of the online investing experience, whereas the J.D. Power Investor Satisfaction Study looks at “investor satisfaction” as defined by the components stated above. The definition of what constitutes satisfaction has evolved over time, and so too have the components that it is comprised of as part of the Investor Satisfaction Study.
Why these differences matter is because both reports are measuring self-directed investors, and the way in which those measurements are made matter when accurately stating the findings of these inquiries.
For readers of these reports, it is important to understand that self-directed investors are not a homogenous group. In the case of the Refinitiv report, for example, more than half (54%) of respondents were 55 or older, while only 16% were “Millennials.” This strong demographic skew heavily colours who the findings and insights apply to.
In contrast, detailed data from the J.D. Power Investor Satisfaction Study regarding demographics was not released in their public news release. This means without knowing details about the group of study participants, it is difficult to state which segment of investors the claims about satisfaction most apply to (e.g. younger or older investors).
Finally, it is also worth mentioning something about the commercial intent behind the release of the data.
In the OSC report, for example, a comprehensive set of data was released, in all likelihood because the institution is a public one with a mandate to help educate the public on matters relating to investors. There is clear public good to be served by sharing information about the composition of the Canadian retail investor base surveyed as part of their study.
On the other hand, the study by Refinitiv was part of a lead-capture program in which information about individuals was collected in exchange for access to the findings of the report. This is a common marketing tactic to better understand who is accessing data, and therefore determine whether this a possibility for a commercial relationship.
Similarly, the Investor Satisfaction Study is a proprietary report conducted annually by J.D. Power, and measures the “voice of customer” across multiple online brokerages. By publishing the limited amount of data on the analyzed firms and key findings of the study, the hope is that online brokerages or industry stakeholders will purchase the full report and data set.
Those points stated, it was nonetheless valuable to explore the key findings from each report and situate them against the online brokerage market here in Canada.
Interesting Data About Self-Directed Investors
A key theme of the data in the Refinitiv report centered around how self-directed investors seek out or want to use data as part of their online investing experience.
One of the most important findings from the report was that DIY investors still believe that price for commissions is an important factor. However, there are other components to the online trading experience that online brokerages the world over have to get right in order to retain or delight their clients.
The portrait of the online investor shown in the Refinitiv report is one in which there is little to no loyalty when it comes to staying with specific online brokerages.
In particular, an important finding of this report is that 47% of investors polled had a neutral Net Promoter Score (NPS) and 20% are “Detractors,” which implies that many investors view the relationship with their self-directed brokerage as transactional, and for a minority, as a negative. According to the survey, 33% of respondents would be considered Promoters – or individuals who would actively recommend their online brokerage (platform) to family, friends or associates.
Another interesting observation of the reported data is that different age groups have different needs and preferences when it comes to online investing information sources. In particular, younger investors appear to be more willing than older ones to seek out and use investment information on social media channels and forums.
Four key findings from the J.D. Power Investor Satisfaction Study were shared and included:
- Frequent glitches sap customer satisfaction
- Robinhood leads in new accounts but struggles to build trust
- Investor education remains the best resource, but brokerages not delivering
- Meeting clients’ holistic financial needs
There’s a lot to unpack in these four points, however, the first two points highlight that even in the face of record online account openings and customer growth in the US online brokerage space, brokerages have to prioritize stability and market accessibility in order to garner satisfaction (and potentially loyalty) from their clients.
The reality of the stock market is that it tends to work efficiently “most” of the time. However, at times of extreme volatility and emotion, that efficiency breaks down and opportunities for traders to capitalize on that efficiency gap present themselves.
For online investors brave enough to step into the volatility, especially in the US online trading space, it was evidently infuriating to encounter situations where trading platforms were down or trading was interrupted during the trading sessions when stock prices were moving around substantially. Similarly, when GameStop’s share price shot higher, the restrictions placed on trading those shares alienated significant pools of Robinhood’s audience and client base.
Arguably, one of the most interesting developments from the 2021 Investor Satisfaction Study is that the definition of “Investor Satisfaction” has now evolved to place trust at the top of the set of factors that determine whether an experience with an online broker is satisfactory.
What trust means, however, appears to be driven by accessibility and reliability of trading platforms.
The evolution of the investor satisfaction criteria, in particular the continued drop in prominence of price or value of fees, is fascinating in the context of the US online investing marketplace, where zero-commission trading has become the new normal.
For Canadian online brokerages, there is still a long way to go in terms of price drops before we reach full zero-commission trading, which means expectations for the online investor are likely high. As a result, the consequences of outages, trading interruptions, or anything that impairs accessing market opportunities quickly will be much worse for brokerages charging commissions per trade than those who do not.
People being charged what they believe to be high commissions per trade are going to be wary, if not resentful, of having to pay for trading online. The criteria from the J.D. Power Investor Satisfaction Study make it clear that when price is removed as a factor, service and the brand experience matter much more prominently.
It is on this latter point that both the Refinitiv study and the Investor Satisfaction Study by J.D. Power converge on a common issue: what is really special about an online brokerage?
When brokerages compete with one other on price, it becomes easier for consumers to set them apart on one of the most important metrics (price). But, when commission prices get to zero, it really does beg the question: What are you buying when you sign up for an online brokerage?
Features such as how easy or hard it is to get started, tracking transactions, access to reporting, data on portfolio/trade performance, and so much more than just the ability to place an order all make up important parts of the online investing experience (just ask any DIY investor at tax time).
In the case of the Refinitiv report, it’s also the data for trading ideas and opportunities that matters to investors. And, based on the J.D. Power study, it’s educating investors on the online trading experience.
Regardless of the study, it was fascinating that international investors and those closer to home share a view that most relationships with an online brokerage are “meh.” They are or appear to be transactional (thus their poor NPS ratings), and the online brokerage that has the best pricing or set of features wins.
With zero-commission trading, however, it is abundantly clear that features and client experience rise in prominence and highlight the need for online brokerages to focus on branding and defining what makes them special in the sea of sameness that is online investing.
Important Takeaways
COVID-19 has had a major impact on the online brokerage industry here in Canada as well as around the world. The data generated by several interesting research studies of the online investing space reveal that DIY investors are increasingly seeking out and demanding stronger digital experiences and features that provide either insights about investing or more efficient ways to manage and measure their own investment performance.
There are still a few more data reports set to be released about the Canadian online brokerage marketplace specifically over the next few months. However, this latest set of data about online investors provides great context for an industry in Canada that is seeing consumer sentiment and expectations be shaped by forces out of the US. It appears the same is true around the world, where the zero-commission trading option continues to spread.
When commission price does disappear, however, the lesson emerging from the different data points is for online brokerages to focus on the different components of the online investing experience with an eye towards improving the client journey to an online brokerage account, as well as what it feels like to be a customer.
And, despite some of the unknowns and limitations of the two data sets we examined, these reports provide valuable context and a pulse check on different demographics of DIY investors. This being the season of change, it seems entirely fitting that these reports are helping to understand what changes are starting to appear in the online investing landscape.
From the Forums
Out of Sight, Out of Kind
When it comes to resolving an issue with your online trading account, being seen or heard by your online brokerage is so important. In this post, however, one redditor has the unenviable moment where they have to get creative in order to be noticed by customer service.
Investment in Wealthsimple Attracts Attention
It wasn’t just the mainstream media coverage of the huge investment stake in Wealthsimple that was generating buzz. If ever there was an indicator of the popularity of Wealthsimple with younger, more digitally savvy investors, the buzz this news created on reddit is it.
Having reviewed thousands of online forum posts from DIY investors, seldom has a story generated so much engagement and interest as the news that Wealthsimple received a $750 million investment and valuation of $5 billion dollars. With over 900 upvotes and 400+ comments, there were a lot of opinions about what the investment means for Wealthsimple and in particular, Wealthsimple Trade. And these engagement numbers were on just one of the several posts about this topic that were generated this past week.
Suffice it to say that it wasn’t only online investors chatting about this development, there’s a good chance that many, if not all, online brokerages in Canada were also trying to digest how this massive infusion of capital into Wealthsimple is going to play out. We’ll cover more on this in an upcoming Roundup but for now, the sentiment in this post is telling.
Into the Close
It’s 2021 and things are a different kind of interesting. It’s fair to say that Elon Musk’s act on SNL is harder to follow than his explanation of what Dogecoin is. And yet, by announcing that Dogecoin is simultaneously a hustle and a method of payment for a mission to the moon, well, it seems like only Musk can top (or topple) Musk. For now though, here’s hoping that there’s more positive news on the vaccination front to look forward to this upcoming week. Have a profitable week ahead!