Month: September 2021

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Discount Brokerage Weekly Roundup – September 27, 2021

Now that the Canadian federal election is (finally) behind us, there’s little to distract us from the fact that the RSP season ramp up is just around the corner. If there is one thing that is synonymous with elections, however, it’s constant polling – something that has interestingly become a focal point in the online brokerage space as well.

In this edition of the Roundup, we review the launch of a new investor sentiment index developed by one of Canada’s largest online brokerages and explore where the upside of sentiment tracking may lie. Next, we take a look at some important updates on the zero-commission trading file, including a big name entering the US and an update to what’s unfolding here in Canada. Finally, there’s lots of new-feature buzz in the forums – from crypto to new mobile apps.

Tracking the Pulse of Investors: TD Direct Investing Index

Regular readers of SparxTrading.com know that we’re bullish about bulls and bears – and measuring self-directed investor sentiment. So, we were delighted to see one of Canada’s largest online brokerages, TD Direct Investing, announce this past week, the official launch of a new tool that measures investor sentiment.

The TD Direct Investing Index is a compilation of metrics that reflect the optimism (bullish) or pessimism (bearish) of self-directed investors based on trading behaviour from the prior month. The four key areas that comprise the index measure whether investors were:

  • Buying or selling more
  • Buying (or selling) more on a rising market
  • Buying more at the top of a market
  • Retreating to less risky investments

Like all indices, however, the details on the underlying methodology matter.

The specific definitions of these parameters are detailed on the TD Direct Investing Index help page as is information on the frequency of publication of this data (monthly) and information that is on the index web page.

There is lots of interesting data for self-directed investors to poke around, most notably historical data on the overall sentiment score. Historic data exploration comes in two views: the past 13 months or the previous two years. What is especially appealing to the data enthusiasts is the filter function which enables users to analyze age, regional, trading style, and sector data in fairly granular fashion. Data can be filtered across stocks being bought, sold, or held.

Ultimately, how useful this index is will come down to what individuals can do with this information. For example, will DIY investors make decisions about investing based on what they’re seeing other investors do, especially given the lag time? Will it help them (reliably) identify a good time to buy or sell? Potentially identify names of interest to invest in? Or is it just “nice to know” information that will add to the noise of numbers and stats to sift through?

Regardless of the usefulness this tool ends up having for self-directed investors, for TD Direct Investing, the creation of a sentiment index provides a rich source of content to be able to talk about.

The TD Direct Investing Index web page contains a lot of data and is coupled with a video segment that reviews that data as well. While this tool takes things to a new level of depth and complexity, TD Direct Investing is not alone in reporting the activity of their user base for a source of content.

Among Canadian online brokerages, Wealthsimple Trade, Questrade and RBC Direct Investing, for example, all have reported on what investors on their respective platforms have traded. None, however, have taken it to level that TD Direct Investing has. And, in the US, there are several examples of online brokerages taking a similar approach to reporting. TD Ameritrade has its Investor Movement Index and E*TRADE regularly reports data on investor sentiment as well.  

Robinhood was infamously the source of investor trading data. That data was available via API and sites, such as Robintrack, reported on the trading activity of Robinhood investors, which, in turn, enabled other investors to trade alongside (or against) that activity (before Robinhood shut down their API in August 2020).

The amount of work put into the TD Direct Investing Index is sizeable, which also means that it is likely going to take considerable effort to maintain. So, while other online brokerages might be able to put something like the index or another sentiment-like indicator together, sustaining it will require considerable resources.

For now, it seems like return on investment for the TD Direct Investing Index will be in marketing value. The fact that the index data is available on the public facing website (versus being made available only to existing clients) offers a reason to keep coming back to that site for anyone interested in the data it contains.

Ironically, the complexity and detail that make the index useful for analysis might also be its biggest limitation.

There is a clear trend in design among online brokerages and fintech firms towards simplicity and reducing information. The TD Direct Investing Index, however, has so much data that only investors who are highly invested (pun intended) in learning about DIY investor sentiment would really keep coming back to this tool on a regular basis. Despite the strong pun game and occasional Drake lyric references in the write-ups (shout out to the compliance folks for letting the mullet references through), there’s a lot of information to process, which might lead some readers to say…I can’t even. (Not us though.)

Zero-Commission Revolut-ion Continues

With zero-commission trading now table stakes among the largest online brokerages in the US, and despite the chatter about clamping down on payment for order flow by the SEC, there are still fintech companies taking a shot at entering the online investing space.

This past week, another big fintech name, Revolut, signalled their intent to offer commission-free stock trading in the US. Last month, PayPal was in the spotlight after they too were reportedly making progress towards launching a stock trading platform, and while it wasn’t specified as to whether or not they too would be a commission-free trading platform, it is almost a given at this point considering rival Square’s Cash App provides commission-free trading.

Despite the extensive regulatory hurdles to entering the Canadian online brokerage market, it seems that Freetrade, the UK-based zero-commission online brokerage we first reported on in August, is continuing to add to its search for Canadian talent to help expand here.

Earlier this month, Mogo Inc, who announced earlier this year that they, too, would be entering the commission-free online trading space, completed the acquisition of Fortification Capital, which is being renamed to MogoTrade Inc. According to the press release, Mogo’s founder and CEO, David Feller stated “The acquisition of Fortification represents an important milestone towards the launch of our new commission-free stock trading platform, providing necessary components on the regulatory and technology side to complement our existing capabilities.”

After the launch of commission-free trading by National Bank Direct Brokerage, there has been a lot of discussion among Canadian self-directed investors, as well as online brokers, as to what will happen next. While we’re generally reluctant to report on rumours, there is chatter of a large bank-owned online brokerage prepared to roll out commission-free buying of stocks and ETFs, which if true, would almost certainly trigger others to match. Rumours are also swirling about a “digital” bank in Canada also.

Internationally, it appears that zero-commission trading is continuing to gain traction, so it’s now a matter of when, and perhaps how, not if Canadian online brokerages follow suit. The trend emerging is that fintech firms view stock trading as one of series of financial services that they can offer, which sounds like a familiar value proposition to the traditional message pitched by big bank-owned brokerages.

That said, even in the case of Revolut stepping into commission-free stock trading in the US required a significant runway (almost a year) of discussion with regulators before getting the green light to proceed. For firms looking to enter Canada, that runway could be substantially longer and barring any big name jumping into the Canadian space (like a certain well-known US financial institution), the existing online brokerage providers have a bit of time to position themselves accordingly.

From the Forums

App Quest

Fall leaves aren’t the only things changing colours this season. Big changes are coming soon at Questrade, as mentioned in this post on reddit. Find out the reactions from self-directed investors to recent news of a new mobile trading app and changes to the web interface.

Tales from the Crypto

It appears the crypto trading experiment at Wealthsimple Trade is gaining traction. In this post on reddit, investors weigh in on the pros and cons of being able to deposit more crypto into their Wealthsimple trading accounts.

Into the Close

With the end of September now almost here, it is important to recognize a couple of important upcoming events. First, the National Day for Truth and Reconciliation offers a chance for all Canadians to learn about, reflect, and engage in dialogue about the harrowing chapter in our history related to residential schools. September 30th 2021 will also mark the second “Make the World Better Day” at Sparx, where our team will be taking on the challenge of using our time and talents to positively impact the world around us. Anyone curious about the day can follow the Sparx Publishing Group on Instagram for updates.  

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Discount Brokerage Weekly Roundup – September 20, 2021

With the Canadian federal election finish line in sight, whatever the decision, there’s likely to be a shakeup for self-directed investors and wealth management in general. It’s a toss-up, though, on whether any candidate will get more votes than Ted Lasso at the Emmys.

In this edition of the Roundup, we kick things off with one US online brokerage that continues to gain traction by listening to clients and is poised to grow with the launch of a new feature that is the envy of other brokerages. Next, we look at one Canadian online brokerage poised for a name change and potentially much more heading into the fall. Finally, we close out with some interesting chatter from self-directed investors about US-themed topics.

Interactive Brokers Positioned for Growth

Earlier this month, Interactive Brokers reported their activity metrics for August, and though they continue to show strengthening core performance stats, one figure in particular caught our attention: continued growth in new accounts.

Given that Interactive Brokers typically targets and appeals to active traders, the continued growth in new accounts despite month/month declining volume of trades presents an interesting picture. There is clearly an appeal to individuals seeking out Interactive Brokers despite them having a paid commission structure. To be clear, Interactive Brokers also has a zero-commission option called IBKR Lite; however, the majority of their trading accounts come from their paid commission structure.

As Canadian online brokerages contemplate the shift towards zero-commission trading, there might be a clear lesson to being able to provide clients with a quality trading experience that they would be willing to pay for.

New Account Growth Momentum Continues

As the chart below clearly illustrates, new account growth at Interactive Brokers has been on a bit of an upswing after bottoming out in May.

One of the reasons that traders might be turning to Interactive Brokers is because of market volatility. When markets are volatile, it tends to attract in active traders and “fast money” seekers. While it may not be predictive of a volatile turn in the market (especially since the data was from August), there’s a sense that some kind of big market downturn is nearing. Recent comments by founder of Interactive Brokers Thomas Peterffy about upcoming “compression” in the markets is also a sign that certain online brokerages are thinking about a market downturn as well.

Another factor driving new account growth could be driven by Interactive Brokers eliminating inactivity fees in July.  By preventing clients from leaving, the hurdle to positively impact net new accounts is lowered. Though Canada makes up a very small portion of the Interactive Brokers business, chatter from online investors in Canada nonetheless shows that bringing over less active accounts, such as TFSAs and RRSPs, makes more sense now that those additional accounts won’t incur inactivity fees. This fits with the view that accounts are continuing to be opened despite trading activity falling.

Cryptocurrency Trading a Catalyst for Customer Growth

Another catalyst for account growth at Interactive Brokers will likely come from their latest decision to launch cryptocurrency trading.

As we reported two weeks ago, the roll out was interestingly quiet. However, this past week, the PR machinery kicked off with the official announcement and appearance by Peterffy on CNBC.

The shift in messaging by Interactive Brokers regarding cryptocurrency trading has been interesting to watch. For quite some time, there was a notable skepticism about digital “currencies,” however, it seems that now there is a different thesis emerging: a small but important risk associated with individuals losing faith in traditional currencies.

While a billionaire is hardly representative of the mass market, it seems that he, like the clients of advisors using Interactive Brokers, wanted direct exposure to cryptocurrencies. Despite Peterffy’s deep skepticism on digital currencies, he’s savvy enough to recognize that some exposure to them is now a requirement to hedge against the scenario that confidence in traditional currencies falters. Intriguingly, Peterffy admitted that he’s been a holder of bitcoin in his portfolio for at least three years.

Interactive Brokers launching cryptocurrency trading is a very big deal for the online brokerage space.

While regulatory uncertainty may still prevent other brokerages from following suit right away, that Interactive Brokers figured out a way forward will expedite other brokerages wanting to seriously figure out how to deliver this as well. Robinhood already does; however, they have not yet figured out how to grow without attracting significant regulatory scrutiny. The experience in navigating regulatory hurdles, however, is something that may work in favour of larger and more established brokerages.

The source of interest in cryptocurrency has now gone beyond the “fast money” and extends to the “smart money” that is using exposure to cryptocurrency as a hedge. And, if Peterffy is an indicator of “smart money” then he has already validated the thesis on crypto.  

For Canadian online brokerages looking at the US market is a little bit like peering into the future. Now that the zero-commission trading trend, which emerged in meaningful way in the US in 2019, has arrived in Canada, figuring out how to generate revenues outside of commissions on equities trading will be a priority. While the focus for revenue drivers from active traders will likely still be options trading (for those brokerages that offer them) in the near term, the convenience (and temptation) of crypto exposure and trading is on the horizon.

It will likely be some time before Wealthsimple Trade, the only online brokerage in Canada that has an associated product to trade cryptocurrency, faces competition from other online brokerages on the crypto trading front. Exactly how long, however, will be tough to tell. As was the case with National Bank Direct Brokerage launching commission-free trading, competition for online brokerage market share can come from unexpected places.

Looking at the latest stats for Interactive Brokers and the launch of cryptocurrency trading as well, we anticipate there to be continued strength in new accounts heading into the end of the year. Any kind of spike in cryptocurrency prices or volatility will. The lesson to Canadian online brokerages is clear on a few fronts. Despite what personal feelings executives may harbour about crypto, the reality is clients from entry level retail investors to sophisticated ultra-wealthy clients are looking for access to cryptocurrency. And, as Interactive Brokers has shown, listening to and delivering on what clients want is a great way to keep them.

Virtual Brokers Rebranding Moving Ahead

This past week Virtual Brokers sent out a notice to clients that they will be updating their branding…soon. It’s been in the works for a while but back in May of 2020, we reported that the parent of Virtual Brokers, CI Financial, announced that they would be consolidating brands they owned (including Virtual Brokers) to a streamlined CI-containing name: CI Direct Investing. When it comes to branding, the “direct investing” label has grown in popularity, replacing terms like “discount brokerage” and “online brokerage.”

Since the mention of the rebranding in 2020, advertising and marketing from Virtual Brokers has been notably quiet. Prior to their acquisition by CI Financial, Virtual Brokers was a visible presence online and especially in the Globe and Mail online brokerage rankings.

Now that a new moniker seems imminent, we expect that regaining the spotlight will also be a part of the plan.

What the CI-branded online brokerage has in store for a big splash could be interesting, especially given the timing. While traditional advertising and marketing might generate some curiosity, in a marketplace where zero-commission trading is now a reality at National Bank Direct Brokerage and Desjardins Online Brokerage and, to some extent, Wealthsimple Trade, getting noticed is going to have to come along with a hefty promotional offer and/or lower commission pricing.

In terms of timing, CI will not want to miss the opportunity to challenge other online brokerages this RSP season, the marketing ramp up to which typically starts in October and November. Already it’s shaping up to be a busy season.

Earlier this year, Qtrade Direct Investing also launched a significant rebranding effort and heading into RSP season they will likely be looking to make a bolder move to advertise to Canadian investors. We noted in an interesting reference to Qtrade Direct Investing’s new marketing strategy that their new agency, King Ursa, has a campaign scheduled for launch in November.

And, on the deals and promotions front, Wealthsimple Trade recently announced that they’re not doubling but tripling down on their referral program, offering triple the stock rewards to encourage new accounts to sign up.

While Virtual Brokers was a well-known name to the investors and traders, CI Financial’s move to rebrand under the parent entity makes a lot of sense for the long run. For their part, CI has been aggressively growing and it’s clear they’re not afraid to think big or punch heavy. With $320 billion dollars of assets under management and annualized revenues of $2 billion dollars, the CI brand brings with it much more financial horsepower than the Virtual Brokers brand alone ever could have.

There’s also another picture emerging too, based on the strategy to globalize their brand, which could see CI setting itself up to take some of its digital and direct investing/trading capabilities further than just Canada. Their aggressive moves to acquire US wealth management firms could be setting the stage for a wider push beyond Canada, and the digital platform could set CI Financial up to challenge online brokerages there too. After all, PayPal recently reaffirmed its commitment to roll out stock trading to its clients in the US, so there are still financial services providers willing to bet on direct investing as a way to gain or keep market share.

It won’t be too long before we see what the formal roll out for the new Virtual Brokers will be. Based on the recent developments across the self-directed investing space in Canada, we’re betting we won’t be able to miss the launch, and neither will Canadian online brokerages.

From the Forums

Taste Tested

The rumour mill keeps swirling around US-based online brokerage Tastyworks coming to Canada. In this post on reddit, find out what investors had to say about the potential arrival and the long wait.

Wealthsimple Trade USD…Coming Soon?

Also from the rumour pile, this post from reddit caught our attention regarding a highly sought-after feature from Wealthsimple Trade: USD accounts. Along with a potential update on the timeframe, the fact that the post was written by someone already transferring away from Wealthsimple was fascinating – especially in seeing what Wealthsimple is doing to get people to stay.

Into the Close

That’s a wrap on another eventful week. Technically this past week did feature an official announcement from Desjardins Online Brokerage lowering their commissions to zero, so the conversation around prices dropping for self-directed investors continues. It’s going to be a wild week of earnings announcements and now that the dominoes have started to fall with regards to commission pricing, it’s going to be anybody’s guess as to what online brokerages in Canada start doing heading into the end of the month. Hold on tight.

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Discount Brokerage Weekly Roundup – September 13, 2021

During the pandemic, it’s understandable to lose track of time. Yet, there are some dates that stand out, such as September 11th, that are forever etched into the minds of those who lived through the terrible tragedies of that day. Despite 20 years going by, it is still a vivid memory for many, and though painful to reflect on, the lessons learned from that day show that hope can ultimately triumph over hate.

In this edition of the Roundup, we kick things off with a look at the new features that launched on SparxTrading.com to help self-directed investors and industry enthusiasts track and research the latest developments in the online brokerage space. Next, we report on the latest zero-commission trading chatter, with a potential big move by one brokerage and another big brokerage potentially not moving. As always, we have some interesting commentary from the forums, including the launch of cryptocurrency trading at one brokerage that rolled out abnormally quietly.

New Features at Sparx Trading

It’s been a big year of changes across the Canadian online brokerage industry as well as at Sparx Trading. In addition to recently crossing the 10-year mark, earlier this year we launched a new website, affectionately named SparxTrading 2.0, given that it had been around pretty much from the time that Sparx launched in 2011.

Suffice to say, we felt it needed a makeover to keep pace with the new world of online investing. Little did we know at the time, 2021 would also be the year in which so much would change in the world of online investing. It seems like our timing was about right when it came to prepping a new look and feel for a brave new world filled with new trading platform features, zero commission pricing, and new providers (coming soon).

This past week, we rolled out some important updates to the website which we think will help self-directed investors (as well as industry observers who want to keep up with what’s going on in the space) stay on top of the big changes heading into RSP season.

Investor Feedback Added to Online Brokerage Reviews

When it comes to researching online brokerages, one of the biggest questions online investors have is what other online investors have to say. Community is a huge part of the self-directed investor experience, however, navigating the different online sources and forums can be a bit daunting.

To help make accessing user feedback easier, we have now integrated comments made about each online brokerage on channels like reddit and Twitter and directly connected them to each online brokerage review. So, for example, the latest comments made by online investors about Questrade or Wealthsimple Trade on reddit appear at the bottom of each of these respective online brokerage reviews.

Given that some of these brokerages generate a lot of conversation online, we added the ability to filter by channel, so readers can focus on the conversation taking place on reddit or on Twitter. To help combat spam and other nefarious activities, we also have developed a filtering system, so users also don’t have to scan through the questionable materials to find the good stuff.

Finally, to make things easy to verify, we’ve hyperlinked each of the comments so anyone researching investor comments from our website can go directly to the reddit or Twitter post to see what the rest of the conversation contains.

Our system is designed to evolve and learn over time so while it is not perfect at filtering out or capturing all of what we’d like, it’s a great advancement and beats having to sift through everything about a single brokerage manually. It’s something we’re going to continue to tinker with to improve, but we’re really excited to see this feature now in action.

Deals and Promotions Section Gets Reorganized

When we first launched the deals and promotions coverage on SparxTrading.com, we were able to capture most of the information in an “at a glance” format using tables.

Unfortunately, even though our website was responsive (a big deal circa 2011-2015), the tables that powered our comparisons and the deals and promotions were not. Despite that being the case, these tables were really popular because they provided a birds-eye view of the different offers and promotions out there – a great feature for people who were browsing and for online brokerage staff who wanted a handy reference when comparing offers across the industry.

It was a big decision (and a huge amount of work) to completely refactor the deals and promotions section, but we felt it was worth it to deliver a more relevant user experience and make it more accessible to users on mobile devices. In the new format, self-directed investors can efficiently compare online brokerage promotions and offers using filters to pick what attributes are most relevant, whether that be minimum deposit amounts, account types, or offers from specific online brokerages.

In terms of the latest updates, one of the first things users will notice on the deals index page is that we’ve tidied up the design and user experience on the filter to perform more efficiently. Users can filter deals by deposit amount, online broker, account type, and deal type. Those interested in browsing can also view all deals by selecting all.

To keep advertising to a minimum on the website in what is sure to be an increasingly crowded advertising market, we wanted to find an alternative way to feature offers. There are now two spots at the top of the deals index results list for specific deals to be highlighted. These are offers that we might be compensated for either through affiliate revenue and/or via paid placement by online brokerages.

Featured Deals Snapshot

Finally, we’ve adjusted the design of the deals cards themselves to display promotions and essential information more clearly. Data about the deal, such as the minimum deposit, expiry date, and promo code, are readily visible at a glance and the details about an offer are easily expanded when needed.

We anticipate deals and promotions to play an even greater strategic role in how Canadian online brokerages navigate the new reality of a bank-owned online brokerage offering zero commission trading.

Case in point, we’ve seen a big bank competitor to National Bank Direct Brokerage, RBC Direct Investing, offer a 100% increase in the number of commission-free trades and the duration in which to use them compared to their previous offer. Specifically, new accounts at RBC Direct Investing can qualify for 50 commission-free trades for up to two years. Most passive investors will be challenged to use that up within the time frame, so those self-directed investors looking for the features of a bank-owned brokerage like RBC Direct Investing and don’t mind the premium commission price, will find a promo that can be used for up to two years compelling.

Also, there’s a lot that can happen within two years now that commission-free trading is starting to surface (see article below) and innovation among online brokerages is accelerating. Using deals and promotions strategically enables online brokerages in Canada to effectively delay the switch over to full zero-commission trading.

More Zero-Commission Trading Chatter

Another week, another big development in the zero-commission trading [storm] and another week in which other stories get bumped because zero-commission trading in Canada is kind of a big deal.

In a piece published this weekend by the French-language newspaper, Le Devoir, Desjardins Online Brokerage was reported to be waiving commission fees for clients last week. And comments in this reddit thread also seem to corroborate the reporting as well.

While we generally don’t report on rumoured activity, in our in-depth analysis of the launch of commission-free trading by National Bank Direct Brokerage, it was clear that the closest rival to NBDB would not have much choice but to either match the offer or make a substantial cut to pricing to defend its business.

There are few details to report on at this point, however, what has come through online investor chatter has been reports of clients contacting Desjardins Online Brokerage directly and having commission-fees waived. Until a formal announcement is made, there is likely to be a flood of calls and emails from clients requesting the same, which is why we expect to see a definitive (and formal) response rather quickly.

Currently, the standard commission at Desjardins Online Brokerage (aka Disnat) is $6.95 for the “Classic” option and as low as $0.75 per trade for the “Direct” option – typically the choice for active traders (defined as making more than 30 trades per month).

If confirmed to be true, the roll out taking place in this fashion is evidence that Desjardins Online Brokerage is being forced to respond quickly, and likely, reluctantly.

Unlike other online brokerages outside of Quebec, the local competition between National Bank Direct Brokerage and Desjardins Online Brokerage is extremely fierce. National Bank Direct Brokerage has set its sights on expanding nationally, which then justifies its move to zero-commissions because it can win the volume of business required to make commission-free online investing. For Desjardins, however, it does not seem like they have the same growth path in mind. With their stake in Aviso wealth, they can simultaneously cater to their core market in Quebec while continuing to benefit from higher commission pricing being charged by Qtrade Direct Investing outside of Quebec for however long that can be continued.  

Though clearly an important development, Desjardins Online Brokerage potentially being the next online brokerage after National Bank Direct Brokerage to eliminate trading commissions on equities and ETFs is still something the whole landscape of Canadian online brokerages can absorb. TD Direct Investing going to zero, on the other hand, would be a game changer.

This past week at the Scotiabank Financial Summit, comments by outgoing TD CEO, Bharat Masrani, revealed the executive view of going to zero commissions. Below is an excerpt from a discussion with Meny Grauman, Managing Director at Scotiabank, host of the virtual summit.

Meny Grauman

You talked about TD’s Direct Investing business, definitely yes, very topical. So I thought to just touch on that. National Bank and Wealthsimple going to $0 commissions and the question is, will TD match that offer? What’s the competitive response? How do you see this all playing out in the market?

Bharat Masrani

You know, Meny, we’ve been in this business I think we were the first bank in Canada to get into it in the mid ’80s I think. And, we’ve seen price compression come and go. We’ve seen lot of different sort of business models emerge out of it, and we’ve been able to manage it very well. So, is this a shocker? Absolutely not. Ours is a very large business, fully segmented and very integrated to the rest of the TD offerings. In fact, 80% of our direct investing clients have other TD products and TD relationships as well, so tells you how integrated we are.

Secondly, the offerings we have, from a very sophisticated options trading to a offerings for active traders, for offering for long-term investors, so you know there are offerings, there are specialized products available in each of these segments. And is it, I mean, you should, this should not come as a shock, but based on certain types of traders, we have special arrangements based on their needs and their offerings, and what value they need. And so, when we look at our trading commissions are taxed well, the reality is, depending on which segment you’re looking at, it could be less than that.

So I think it’s important to keep that in mind. So we feel very comfortable with our position, the offerings we have integrated with retail, the products that we offer, the services, if you look at thinkorswim platform, there’s nothing like that in the options trading business. And if a client needs that, that’s where they’re going to go.

And finally, I mean, there’s a lot of sort of, write-ups on this, but the overall commissions in this business represents about 1% of total revenues at TD. So we’ve got to keep this in perspective as to what it does to the bank, than to think that oh, my God, this is a major, major, I’m not undermining anything, every part of our business, I love every part of our business and the business model around it. But our job is to adapt to the environment we find ourselves in rather than hoping, wishing and praying that we go back to the good old days, that does not happen. And we have shown consistently that we will adapt, and we will adapt faster than others and I have no doubt that we will do so.

And another point I’d make, we just introduced TD GoalAssist, that’s a new offering there that competes very well, if a client is just requiring vanilla type of trading and services and then not the other value-added services that I just talked about. So important point is event that has occurred don’t want to underestimate as to what it means, but we feel very comfortable with the business model we have and the value proposition we provide to our customers.

There’s clearly lots to unpack from that statement, however, there are three specific data points of interest.

First, 80% of TD Direct Investing clients are also clients of other TD products and services. If this is true for TD, then it is likely comparable at other big-bank-owned online brokerages as well. The notion that Canadian self-directed investors would prefer to have the convenience of keeping all of their financial affairs at one firm is evident in that data point. The move by National Bank Direct Brokerage, therefore, is likely a play to acquire new customers that will then also want to simplify the management of their financial affairs by housing other financial relationships under the same digital roof.

The second point of interest is that revenues from commissions at TD represent about 1% of total revenue. For a finer point, as referenced in their last earnings call, the amount would be 50% of the broker dealer fees and commissions which last year brought in $860 million dollars and year to date have generated $849 million dollars. The “hit” that TD would incur, therefore, would be something that could be absorbed by the bank as a whole. For reference, TD generated $42 billion dollars in revenue in 2020 and almost $32 billion dollars year to date.

Third, and perhaps most instructive to those holding out for the big banks to make a move similar to National Bank Direct Brokerage and potentially Desjardins Online Brokerage, is that TD feels confident enough in their value proposition, in particular with their options trading platform and other elements, that they don’t need to rush to lower their commissions to zero. On this front, they’re happy to let others go first, which likely mirrors what at least one or two of the big bank online brokerages are thinking as well.

While TD is clearly stating they are ready to adapt (read: respond) if a sizeable competitor or peer firm moved to reduce their commissions substantially, self-directed investors hoping for a quick response to National Bank Direct Brokerage shouldn’t hold their breath. Movements by Desjardins Online Brokerage and potentially other smaller online brokerages seem to be inevitable in order to preserve market share. TD Direct Investing doesn’t really have to worry about that.

The rate-limiting factor, it seems, is how aggressively National Bank Direct Brokerage is prepared to advertise against competing brokerages while those online brokers maintain high commission rates. With more discussion and conversation on zero-commission trading to be almost a given, National Bank Direct Brokerage will likely be heavily referenced in that discussion, earning them a big discount on the media exposure.

That said, picking a fight with all of the other Canadian online brokerages this far ahead of the RSP season still gives competitor firms a chance to respond. And they will.

Had National Bank Direct Brokerage dropped this news in October or November, other Canadian online brokerages would have been hard-pressed to pivot their campaigns and advertising buys quickly enough.

With a few extra weeks of lead time and a healthy fiscal year performance across the board, there just might be enough capital and circumstance to warrant some pretty interesting fireworks this year. And it seems the best place for that might just be the deals and promotions section. Here’s hoping.  

From the Forums

Interactive Brokers Crypto Trading Launch

After a lot of hype around cryptocurrency trading being available at Interactive Brokers around September of this year, the actual launch of this feature was abnormally quiet. No coverage (yet) on major media but in this reddit post, online investors took notice (and we did too). More to come on this story but check out the early reactions.  

Crunching the Numbers on Motley Fool

As a very visible source of information about different investing opportunities, Motley Fool is a recognizable name among online investors. In this interesting post on reddit, one individual shared their analysis of whether the forecasts from Motley Fool lived up to the reality when it came to portfolio performance.

Into the Close

Apparently, there is lots to say (and still more to come) when it comes to zero-commission trading. There are other fascinating stories unfolding across the online brokerage space, so we look forward to highlighting those as well. At a certain point we can probably defer the reporting to a DJ Khaled meme. Until then, however, there’s lots going on between the launch of football (NFL) and the final stretch of the Canadian federal election (where people toss political footballs and, occasionally, pebbles). Whatever you’re focusing on this week, we hope you find some reasons to stay positive!

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Discount Brokerage Weekly Roundup – September 7, 2021

If you find it hard to believe that it’s already September, you’re not alone. With so much taking place this year, especially in the online brokerage industry, the months have flown by, and we now find ourselves on the cusp of what is usually the “busy season.” Another reason that time flies: it’s because we’re having fun.

After a marathon edition of the Weekly Roundup last week, we now return to a more digestible edition of online brokerage industry coverage. First, we launch into the deals and promotions updates to start the month and look at the increased importance that promotions are poised to play in a commission-free world. Next, we recap some other important developments, including the 10-year anniversary (that’s X in Roman numerals!) of the launch of SparxTrading.com. Finally, we close out with commentary from the online investor forums.

Deals and Promotions Update

There are lots of different reasons people look forward to the start of a new month, but here at Sparx Trading, it’s a convenient time to review Canadian online brokerage deals and promotions.

In case you missed it, the big news this past month – perhaps this decade – is that National Bank Direct Brokerage eliminated commission fees for trading stocks and ETFs in August. This is still a very recent development, so while we have yet to witness any immediate reactions in pricing or promotional changes from Canada’s online brokers, we believe it will be a matter of time until we see other online brokers start to lower their pricing as well.

Given the lack of immediate reduction in pricing of commissions, online brokerage promotions and incentives are poised to take on an even more important role for Canadian online brokerages to secure existing accounts and even attract new ones.

Despite the immediate relevance that zero-commission trading provides to National Bank Direct Brokerage, one of the big challenges it faces is the “friction” that online investors who would rather not move. Another challenge is the fact that as an online brokerage, National Bank Direct Brokerage is relatively unknown compared to bigger bank-owned brokers or those that have been aggressively advertising, such as Questrade or Wealthsimple Trade.

Thus, Canadian online brokerages who aren’t yet ready to drop their commission prices to zero have a brief window of opportunity to show up big during the next few months. As such, we forecast that September through November will represent a very volatile period for Canadian online brokerages.

In this month’s deals and promotions, there’s a lot to report on already. Starting with the special Sparx Trading exclusive promotion from Questrade. The now famous Sparx88 promo code for Questrade accounts is having its sunset at the end of September, after having a run of just over four years.

It has delivered exceptional value for online investors opening an account with Questrade as one of the best commission-free offers at that online brokerage and played an important role in the promotions space after Questrade largely pulled back from offering multiple promotional offers.  

There some important changes taking place behind the scenes at Questrade, so we were informed it would no longer be possible to run this offer. For anyone who signs up using the promo code before the expiry date of September 30, they have until the end of December of this year to use up their commission credit.

On the expiry front, there were a pair of deals that officially concluded at the end of August – one from Scotia iTRADE as well as one from BMO InvestorLine. In keeping with historical trends, however, BMO InvestorLine replaced their outgoing cash back offer with a new cash back incentive. Interestingly, BMO InvestorLine’s newest promotion runs until the beginning of November, which is about the point of time in which we expect to see a surge in launches of online brokerage promotions.

Also worth noting, the minimum deposit requirement for the InvestorLine offer has been raised from $15,000 to $25,000. Currently, BMO InvestorLine is the only Canadian bank-owned online brokerage advertising a cash back promotion. Intriguingly, the only other Canadian online brokerage offering a cash back is Wealthsimple Trade, whose “free stock” sign up bonus offers self-directed investors some cash when opening a new account. Questrade and Scotia iTRADE have cash bonuses available through referral codes.

Another interesting development that we first spotted being advertised online in August was a commission-free trading offer from RBC Direct Investing.

Unlike some of its previous commission-free trading offers, RBC Direct Investing’s promotion was both larger and longer in duration. This new offer, which runs until the end of September, is for 50 commission-free trades that are good for two years. Previously, RBC Direct Investing’s free trade offer was typically 25 trades for one year, so this new promotion effectively doubles that.

The move to increase the size and duration of the commission-free trade offer is likely to be something other Canadian online brokerages consider when planning similar commission promotions. As mentioned above, by providing a longer time horizon for investors to use commission-free trades, there is less immediate pressure to switch brokerages and less pressure to lower commission levels outright, especially for passive investors or those who are not yet ready to make the leap to a lesser-known brokerage.

While the beginning of the month started with a shockwave of news, the end of the month provides a natural jumping off point for several online brokerages. Qtrade Direct Investing and RBC Direct Investing both have campaigns that are scheduled to expire at the end of the month, so it will be interesting to see what, if any, offers show up to replace them.

The ramp up to the start of RSP season is also just around the corner, which, based on everything that has transpired these past few weeks, suggests prime time for some big incentives to start showing up. Larger online brokerages may just roll the dice and come to market with similar offers as they had last year, but smaller or less popular online brokers are at a pivotal moment where they will have to be launching exceptional new features or introduce offers that are going either buy time or clients (or both).

With the move by National Bank Direct Brokerage catching many industry observers (including us!) by surprise, these next few weeks and months will bring a host of pleasant surprises for Canadian self-directed investors. And we haven’t even mentioned the new online brokerages slated to enter the online trading scene soon. It seems entirely fitting that “fall” is the season in which we’ll now start to see commission costs for online investors meaningfully drop. Stay tuned.

Online Brokerage Quick Takes

After the marathon read that was last week’s Roundup, we wanted to give readers a bit of a break with some quick highlights of other news stories around the online brokerage space that didn’t get as much press or coverage.

Wealthsimple Trade Increases Fractional Shares & Instant Deposits

The launch of fractional shares at Wealthsimple Trade earlier this year was a very big deal. Despite the rollout only featuring a handful of Canadian and US stocks, a few weeks ago, a lot more were added to the list of stocks eligible for fractional trading. At the time of publication, that list has now grown almost ten-fold to 150 stocks. The vast majority (115) of those stocks are US-listed securities, which, given their popularity, availability, and profitability to Wealthsimple Trade, makes sense.

However, the list of Canadian stocks (35) has some additional names which are very familiar to Canadian investors. Interestingly, on the list of US securities, there are also a number of ETFs.

This much wider selection is going to be of much greater appeal to investors, however, unsurprisingly, the demand for more Canadian securities is likely a priority for self-directed investors (rather than traders) in Canada.

Complementing the launch of more securities eligible for fractional shares is the increase in the amounts that can be funded instantly to Wealthsimple Trade from $1,000 to $5,000. The monthly subscription to enhance features on Wealthsimple Trade is currently $3 which also provides real time snap quotes from Canadian exchanges as well as Nasdaq.

Fast deposits of larger sums of money are an area that non-bank-owned online brokerages have struggled with in the past, so it is no surprise to see “account funding” be a feature that Questrade, as well as Wealthsimple Trade, are working to improve.

The summer has been a busy one for Wealthsimple Trade with no signs of a slowdown in terms of new feature releases. It appears that they are pushing very hard to have some very big features in place for RSP season, and with news coming out almost weekly on Wealthsimple Trade, it is hard to imagine other online brokerages being able to rest easy knowing that current pain points of Wealthsimple Trade customers are going to be that way for too much longer.

SparxTrading.com Turns 10!

Also eclipsed by the big news from National Bank Direct Brokerage: SparxTrading.com’s official birthday!! It’s hard to fathom that we officially went live 10 years ago in September with a mission to help untangle the journey of self-directed investing and that we’ve been around for this long.

It has been quite the journey to where we are today. From a conversation among friends expressing frustration at the state of online investing to becoming one of the most important voices in the Canadian online brokerage industry, I certainly didn’t picture this world 10 years ago.

In so many ways, the world for online investors a decade ago was dramatically different than the one now. There was no inkling that commission-free trading was “a thing” and we were just coming out of the Great Financial Crisis, so sentiment on markets was understandably skeptical. Nevertheless, it was clear at that point that the world of online investing was prohibitively inaccessible to so many, and it was time to change that.

I would like to think that in some small way, we’ve helped improve the experience of online investors over the past decade, whether it’s been through making it easier to research online brokerages in Canada, improve access to deals and promotions, or advocating directly to leaders across the industry as to what online investors are interested in.

As anyone who knows the Canadian online brokerage landscape will tell you, change often happens slowly, so patience has been a defining trait since day one.

The first “official” post on the original Sparx Trading site is still available – it was a reference to an investment blog called Juggling Dynamite, which is still going strong today. And, in a twist of fate that can only be one of those signs the universe tends to toss our way every now and then, a recent post on that blog happens to be a harbinger of where the parent to Sparx Trading, Sparx Publishing Group, is heading towards to help make the world better.

The Sparx team has now grown to 18, many more if you include new family members, pets, and one heck of a spider plant.

We’re so excited to see what the next 10 years has in store, and with the latest shift in the online brokerage industry in Canada, there seems to be as much of a need today for clarity for self-directed investors as there was when we first started. True to the mission of Sparx Publishing Group, we’re content to make the world better one post at a time.

Like most of the online brokerage industry, we too are actively working on new features and can’t wait to have them launch soon enough.

Thanks to everyone who has helped us get to this point, especially you curious and supportive readers who enjoy the world of online investing as much as we do!

From the Forums

Kind of a Big Deal?

At the start of the month, it seems fitting to be talking about making a move from one online brokerage to another. In this post, one online investor wanted to know what the consequences were of transferring assets into a TFSA from a non-registered account. Check out what fellow online investors had to say about making the shift.

Sliced vs Diced

Smaller portions are all the rage right now when it comes to buying stocks online. With some very popular stocks like Amazon out of reach for many new investors, online brokerages and investment firms have gotten creative, in particular using fractional shares and ETFs to lower the bar to get a literal piece of the action. Find out what one reddit thread had to say about fractional shares versus ETFs on the NEO exchange.

Into the Close

That’s a wrap on the long weekend edition of the Roundup. There’s a lot in play – including the return of NFL football – so there’s something extra for fantasy football portfolio managers to stay on top of. We’re thrilled to be stepping into our 10th year with so much change taking place. September is often associated with the “back to school” theme, however, as we’ve come to appreciate (this year more than ever), every day brings something new to learn.

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Discount Brokerage Deals & Promotions – September 2021

September is officially upon us, and with fall just around the corner, change seems to be the appropriate theme to capture what’s taking place in the online brokerage industry in Canada.

Of course, the big news this month is that National Bank Direct Brokerage launched commission-free trading at the end of August, signaling the start of a new chapter for the industry in which bank-owned brokerages are prepared to compete with the nimble upstarts in terms of pricing.

On the deals and promotions front, this is a particularly busy month, now likely made even busier by National Bank Direct Brokerage’s latest pricing move. All of this is great news for Canadian self-directed investors, who will likely benefit from more compelling promotions and pricing in the coming weeks and months.

The launch of the new commission-free trading structure at National Bank Direct Brokerage wasn’t the only story that is relevant to the deals section this month, however. For example, we saw cash back offers still lead the way at BMO InvestorLine; Qtrade Direct Investing still has their cash back offering, and we (finally) spotted the official terms of an RBC Direct Investing deal that appears to be advertised on search engines.

Another big piece of news in the deals section: the best Questrade promo offer code on the market, Sparx88, is being retired at the end of September.

The end of August also bid farewell to offers from Scotia iTRADE for their education bootcamp, and the 100 commission-free trade offer from National Bank Direct Brokerage is, for all intents and purposes, taking an early retirement.

Given everything that’s in motion this month, we’ll be keeping an eye out for more offers and if you spot any you think would be of value to other online investors, let us know.

Expired Deals

There are a couple offers that have officially expired at the end of August. The commission-free trade offer from Scotia iTRADE linked to their investor education initiative concluded, as well as BMO InvestorLine’s summer cash back offer (a new one has replaced it).

Extended Deals

No extended deals to report at this time.

New Deals

The most exciting new deal to report on this month is from RBC Direct Investing. We had first spotted this in August, however, locating it online was a challenge since it appears to be tied to different Google searches – something that is a fascinating tactical choice. This new deal represents an important shift for RBC Direct Investing, as the number of free trades being offered (50) is higher than any recent commission-free offer they’ve put forward, and the time horizon to use the trades is two years. Like several other offers, this deal is scheduled to expire at the end of August. Check out the online brokerage deals index for more details.

BMO InvestorLine launched a slightly modified cash back offer upping the minimum deposit requirement from $15,000 to $25,000. The cash back amounts range from $50 to $2,000 so it is one of the few offers currently available to provide larger cash back rewards for large deposit amounts. This offer expires at the beginning of November, which is likely the window of time in which we expect to see more online brokerages launch RSP-linked campaigns.