Globe and Mail 2012 Canadian Discount Brokerage Rankings Review

Virtual Brokers Takes Top Spot

The 2012 Globe and Mail Canadian discount brokerage rankings are out as of today with Virtual Brokers claiming the top spot and displacing the 6 year “reigning champ” of this survey, Qtrade (which came in second), by a razor thin margin.

Becoming Globe and Mail’s top ranked brokerage, albeit barely, was a pretty lofty achievement for Virtual Brokers for a number of reasons, not the least of which is because they were sitting at the bottom of the ranking back in 2010. This year (2012) marks only the third year in which Virtual Brokers has been included in the ranking, so for such a recent entrant into the ranking pool to move up so quickly is certainly noteworthy.

So what took Virtual Brokers from the bottom of the pack in 2010 to being crowned the best Canadian discount broker for 2012?  Certainly credit is deserved where credit is due.  Virtual Brokers has aggressively priced their services far lower than many of their peers and started to match the types of services found at their competitors.  Of course, it also helps to understand how the types of categories that went into this ranking could impact the outcome. In order to understand what being the “best discount brokerage” really means, we took a closer look at the rating system used by the Globe and Mail’s Rob Carrick.

Looking at the Ranking Structure

The following five sections (and the percent they play in the scoring) are used in the Globe and Mail discount brokerage ranking to assess each Canadian discount brokerage:

1. Costs – 25%
2. Account Information – 25%
3. Trading – 20%
4. Tools – 20%
5. Innovation -10%

For this ranking, the two factors that heavily influence the overall ranking are costs and account information (combined they form 50% of the score).  The last three categories of trading, tools and innovation combine to form the other 50% of the ranking.  Interestingly, when looking at the definition of innovation: “Which firms are leaders in terms of cutting prices and introducing new services, and which are followers?” price comes in again.

Thus, the prices that a brokerage charges for its services end up having a bigger influence in the overall score relative to any other single component.  Virtual Brokers had the strongest showing on fees and innovation and tied for first in the “trading” category which likely gave it the edge it needed to squeak out ahead of Qtrade.  Qtrade shone brightest in the “account info” category.  Sometimes the overall ranking can mask some particularly noteworthy performances.  On the good side, buried in the results is an impressive perfect 20 out of 20 that TD Waterhouse managed to achieve in the Tools category (even though they were ranked 6^th overall).  Conversely, the lowest ranking was given to HSBC InvestDirect which ‘earned’ a particularly biting comment: “They win in one respect – most annoying log-in process.”