Blog – Page 9 – SparxTrading

Posted on January 16, 2013January 30, 2021 by user — Leave a comment

Special Series: Review of Globe and Mail’s Discount Brokerage Rankings – Part II

In part one of this series, we looked at the background of the Globe and Mail discount brokerage rankings as well as how they’re structured and who they’re targeted towards. In this next part, we take a detailed look at what the discount brokerage rankings are actually measuring and some interesting observations we made about the Canadian discount brokerage industry over time. Lastly, we provide some important tips to keep in mind when using rankings as part of your product research.

What Do the Discount Brokerage Rankings Measure?

When looking at any ranking or rating, one of the most important questions to be clear on is what the ranking or rating is actually measuring. In our review of the J.D. Power Investor Satisfaction Survey, we saw that “investor satisfaction” was being measured by six components: interaction, trading charges and fees, account information, account offerings, information resources and problem resolution. By comparison, the Globe and Mail discount brokerage rankings are measuring what Rob Carrick thinks is the “best discount brokerage” for “mainstream” investors.

As we saw in part one, when looking across the last eleven rankings, it appears that the categories that go into defining “the best” discount brokerage are not static. The most stable characteristics of what it means to be “the best” seem to cluster around costs, trading and tools. According to Carrick, the categories that he chooses vary in large part because they are based on a combination of data from reader surveys and his perceptions of what mainstream investors are curious about or would find worthwhile.

Strengths of the Discount Brokerage Rankings

A strength of this approach is that the discount brokerage rankings are somewhat reflective of the mood or sentiment of mainstream Canadian investors. If investors are curious about certain features, such as commission free ETFs or user experience of a discount brokerage, the rankings have incorporated these kinds of innovations into their structure. Having looked at a decade of results, it is fair to say that the rankings reflect the pulse of what mainstream investors are exposed to from the discount brokerage industry and hence curious about.

Limitations of the Discount Brokerage Rankings

While Rob Carrick’s opinion is certainly informed by monitoring Canadian discount brokerages for over 14 years, his opinion may not necessarily be shared by other investors, something that readers should keep in mind when doing their research. The degree to which his opinion can be generalized rests on how accurately the needs of “mainstream investors”, a term that is loosely defined, are captured in the questions he uses to survey discount brokerages and in the process he uses to evaluate their products and services.

A second limitation of the rankings is historical comparability. Because the criteria have changed as often as they have, it is difficult to compare historical performance of Canadian discount brokerages in a meaningful way. It may be possible to compare results on costs, trading and tools because of their relative stability as categories however the total scores from year to year are largely incomparable.

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Posted on January 14, 2013 by user — Leave a comment

The Mindless Investor Chapter 6 – The Little Guy Has An Advantage

Highlights of this Chapter – The Mindless Investor

Chapter six of The Mindless Investor looks at the advantages that everyday investors have over the bigger players. As it turns out, smaller investors have better maneuverability and lower performance hurdles. What it takes for smaller investors to succeed is a strategy that fits their size.

Key Point #1: Use your size to your advantage

Often many ordinary investors look at big investors like Warren Buffet with envy – after all who wouldn’t want a portfolio of a few billion dollars? Well, as the song goes ‘mo money, mo problems’. The problem with very large portfolios is that they are difficult to maneuver. In this instance, having a smaller portfolio means you can be nimble and can take advantage of opportunities that bigger players can’t.

Key Point #2: Use a strategy that works for your size

Most investors don’t have hundreds of millions of dollars in their portfolio. Large mutual or hedge fund managers need teams of people doing a lot of research and analysis to identify the right kinds of opportunities for the money they work with. As a smaller investor, strategies that are nimble and don’t take a lot of time and resources to use make the most sense to start with.

Posted on January 9, 2013February 21, 2022 by user — Leave a comment

Special Series: Review of Globe and Mail’s Discount Brokerage Rankings – Part I

Introduction

As part of our continued look at Canadian discount brokerage rankings, we review the longest running comparison and ranking of Canadian discount brokerages: The Globe and Mail’s annual ranking of online brokers, which had its start back in 1999. In part one of this series, we go through how we conducted the review, who the rankings are aimed at, the discount brokerages covered in the rankings and how the rankings are structured.

Our Methods

The scope of this review covers the 11 Globe and Mail discount brokerage rankings published from 2002 to 2012. Even though the rankings started in 1999, we felt the window we used to be sufficient to explore the recent history of discount brokerages within Canada, and more importantly to illustrate the nature of how the rankings have changed over time. The data was retrieved by searching for each years’ results via Google, The Globe and Mail website as well as from several websites that contained archived copies of articles. In addition to researching online, we also had the chance to speak to Rob Carrick of The Globe and Mail directly about his experiences in putting together the reviews.

Once gathered, the data was compiled into tables for sorting and analysis. Initially we thought it would be possible to compare scores and how they changed from year to year, however given that the ranking criteria changed so frequently, such a comparison would offer limited value. Instead, we have included a figure (see next page) that details the criteria for each year and how the criteria have changed over time. Although it is also of limited reliability, we nonetheless took the historical average rank of each discount brokerage currently referenced in the 2012 rankings which can be seen in the table to be included in part two of this series.

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Posted on January 1, 2013 by user — Leave a comment

4 things for do-it-yourself investors to look out for in 2013

If you are a self-directed investor prepare for even more marketing, incentives and competition for your business in 2013. With modest trading volumes and account openings in 2012, a gun-shy investor base and increased downward pressure on commission pricing, discount brokerages will be trying very hard to win new business in 2013 but also to keep their existing clients from jumping ship. So what should do-it-yourself investors keep an eye out for in 2013?

#1 Lots of deals and even more fine print

Bigger deals for self-directed investors mean lots of fine print to pay attention to. Although they may seem like deals, make sure to ask “What’s the catch?”

Look over and understand the strings attached to offers that require longer-term commitments of your capital. Large numbers of “free trades” are being offered but if you don’t really use them to their fullest, it may not be the best deal for you. Also, pay close attention to “cash back” offers because those usually have restrictions on minimum balances or moving your money around within certain time frames.

#2 The marketing of “value” instead of “price”

2013 will be an interesting year for pricing. The ‘race to the bottom’ in pricing will come up against those players who will try to offer more “value” for the money. The result: brokerages will try to offer “new” services. Unfortunately, in finance “new” is a double-edged sword.

Sure it may seem like a reasonable premise to try something new especially if something old isn’t working, however unless some new product can be demonstrated to work, why risk one’s money as the guinea pig? So-called “new” services are likely to be repackaged older services so be ready to ask how the “new” service is so different than similar “older” services.

Also, adding bells and whistles that you don’t need or use becomes a frivolous reason to pay more than you otherwise would to forego the frills. Requesting trials of accounts or services before you commit to opening an account is a great way to test drive whether or not a discount brokerage’s services are worth the price they charge.

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Posted on December 24, 2012 by user — Leave a comment

The Mindless Investor Chapter 5 – Think Like a Trader

Highlights of this Chapter

Chapter 4 of The Mindless Investor was an interesting look at how Tyler got his start and progressed as a trader and we highly recommend taking a look at it. In keeping with the more instructive nature of this series of reviews, we chose to move ahead to chapter 5, which builds on the idea that trading success is more about self-mastery than market mastery. Understanding that systematic, methodical training can make you a successful trader is possible and it all starts by looking at the world the way a trader would.

Key Point #1: To be a trader, break free of the “investor” mindset

In order to be a successful trader, you have to be willing to move in and out of a position when given the right signals to do so. Because traders speculate on price movements, they pay attention to the price “noise” investors try to avoid.

Key Point #2: Successful trading takes dedicated training

While timing markets is often considered hard to do, in reality many things are hard to do until one knows how to do them. Anyone with money is allowed to participate in the markets, however that easy access is dangerous for most people and their capital. The biggest hazard for most traders is not having committed the time, effort and discipline it takes to learn how to trade well.

Key Point #3: Take it one step at a time

Learning the “what” of trading well is far simpler than learning the “how”. One of the biggest cautionary notes is that before stepping into any kind of speculative activity, know how much you can afford to risk. Take time to learn and become confident at what trading involves before taking bigger risks in the market.

Posted on December 20, 2012 by user — 1 Comment

All’s fair in love, war and investing

An interesting article was published on WealthManagement.com claiming that clients of financial advisors who are also investing through self-directed accounts are “cheating” on their advisors. While the tone of the question presumes that somehow individuals are betrothed to their financial advisors, what is more troubling is the construal of investors as “cheaters” for seeking out other services.

The article reports that while 74% of investors have a personal discount brokerage account, only 17% of financial advisors believe their clients have these types of accounts.

What these “stats” mean, or the position they are meant to support isn’t entirely clear. On the one hand, if it is true that 74% of the population has a discount brokerage account AND a financial advisor, the big question is – so what? They are still retaining a financial advisor. On the other hand, if 83% of financial advisors (100%-17%=83%) are completely oblivious to their clients having discount brokerage accounts, doesn’t it seem like the overwhelming majority of these advisors are disconnected with their clients and therefore probably undeserving of the business anyway? If the author is talking about two different groups of people – those who have financial advisors and those who have discount brokerage accounts, then why brand investors who don’t have financial advisors as “cheaters”. If, however, the author is saying people with financial advisors also have discount brokerage accounts, why on earth label current, paying customers of financial advisors as cheaters?

Reports about the scale and growth of the discount brokerage industry are not news to many in the investing world. If the author and potentially 83% of financial advisors from the survey read the annual reports of the two discount brokerages cited in the article (TD Ameritrade and Charles Schwab) or read the myriad of reports showing the continued interest in ETFs over mutual funds, then why they are surprised at so many people having discount brokerage accounts is a bit of a head scratcher. It stands to reason that the growth in discount brokerage accounts has to come from somewhere.

It is precisely the attitude of entitlement that will be the undoing of an industry that is service-based. The financial services industry relies heavily on trust. That trust is not only built on good intentions, but more importantly, it is built on good investments. If the financial advisors polled in the survey could manage their clients’ money more effectively than clients could do themselves, what incentive would people have to try something else?

Aside from generating poor returns and charging high fees, accusing 74% of your current customers of “cheating” because they are seeking out other sources of investment management is definitely one more reason for those customers to look elsewhere. Hyperbole is one thing, but reckless accusation paints a grim picture for the state of the wealth management industry as a whole. Unfortunately for the author, it seems like she can count herself amongst the 83% of individuals who just don’t get it.

Posted on December 17, 2012 by user — Leave a comment

Special Series: JD Power & Associates Discount Brokerage Rankings Explained – Part 3

In this final section of our special series on the J.D. Power & Associates Discount Broker Investor Satisfaction Survey, we look at the survey from the perspectives of its creators as well as the company that has placed first in investor satisfaction for the past four years. Dr. Lubo Li, Senior Director and Industry Practice Leader for Canada at J.D. Power and Associates and Laurent Blanchard, Vice President and Manager of Online Brokerage at Disnat – shared their perspectives with us on the value of the investor satisfaction survey, and what it means for both consumers as well as the discount brokerage industry.

As we’ve learned from the previous sections in this series (click here for part 1 or here for part 2), the Investor Satisfaction Survey measures the experiences of consumers with different discount brokerages in Canada. According to Dr. Li, however, the value of the survey goes beyond simply looking at experiences. The real strength of the survey, he explained, is its ability to measure the “voice of the customer” and uncover “perceived customer value.” In short, the survey results reflect what consumers believe are important components to having a discount brokerage account.

Reliability matters

As any quick Google search will reveal, reliable and impartial measures of consumer opinions on Canadian discount brokerages are hard to come by. Thus, for consumers of financial products, the opportunity to access reliable feedback from their peers is invaluable. Since a survey is only as useful as it is accurate, consumers must be skeptical when coming across ‘polls’, surveys or other rankings by asking how they were devised and measured. As we’ve seen over the past year, several discount brokerages have been considered “the best” depending on who’s doing the ranking. Defining and measuring “investor satisfaction” accurately and transparently was therefore critical to the overall reliability of the investor satisfaction survey. For example, Dr. Li was able to explain that the reason the rankings (covered in section 1) were ordered in the way they were was because that was the priority most investors placed on those items. To review, the six categories of investor satisfaction are:

Interaction
Trading Charges and Fees
Account Information
Account Offerings
Information Resources
Problem Resolution

Interestingly, when asked why something as seemingly important as “Problem Resolution” was placed last on the scale, Dr. Li answered that while the importance of receiving help when it is needed is high, the frequency with which that occurs relative to other situations is actually quite low. The example he gave was using the insurance industry where although the essence of why insurance is useful is precisely because one may need it in an emergency, the frequency of those occurrences is actually quite rare. Similarly, for discount broker customers,the more immediate concerns of being able to get a hold of someone or how much a transaction costs score higher on the list of priorities hence they are given greater importance for scoring.

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Posted on December 12, 2012 by user — Leave a comment

The Mindless Investor Chapter 3: Be a Trader – Chapter Review

Highlights of Chapter 3 – The Mindless Investor

This brief chapter in The Mindless Investor focuses on what “being a trader” means. According to Tyler, becoming a competent trader means first understanding what kind of trading style best suits the reader. The key points covered by this chapter are that trading is not gambling, successful trading takes effort and, and most importantly who you are as a person doesn’t matter to the market; only what kind of trader you are does.

Key Point #1 Trading is not Gambling

Even though traders and gamblers have speculation in common, traders are professionals who calculate risk and reward. Thinking like a trader is key to success because the primary focus for traders isn’t what kind of company they are investing in, it is what kind of risk to reward relationship is defined by the opportunity.

Key Point #2 Trading takes Effort and Motivation

While some may equate trading with day-trading, Tyler offers a different perspective. Even though executing a trade takes mere moments, most of the money in trading is made in the waiting. The market accommodates different types of traders, from short term to long term, from complex traders to very simple ones. The important note is that to succeed, trading does take a significant amount of motivation and effort in order to avoid being on the wrong end of the market statistics for successful traders.

Key Point #3 What Kind of Trader You Are Matters More Than Who You Are

Whether you are a hedge fund manager or a ‘regular Joe’, it makes no difference to “the market.” The most important thing to focus on is knowing yourself – what kind of emotional makeup you have, what your time and capital constraints are and what life situation you are in. These factors will help to decide what kind of commitments you can make to the market and what strategies you can use that best suit you. The common thread for all traders, though, is focusing on buying/selling shares in order to make a profit. What distinguishes traders from investors is that “investors own assets; traders speculate on the price movement of those assets.”

Posted on December 10, 2012 by user — Leave a comment

Special Series: J.D. Power & Associates – Discount Brokerage Rankings Data Visualized

How to use the Visual Discount Brokerage Rankings Table

We’ve collected the results from the J.D. Power and Associates Investor Satisfaction survey from 2012 (Table 1) as well as historical results from 2009-2012 (Table 2). To help visualize how the different discount brokerages have performed on the surveys relative to other discount brokerages, we’ve created small graphs called “sparxlines”. Each graph shows a series of dots that represent the order in which a company ranked according to the survey results and ordered from left to right (with 1st being on the far left). A red dot on each graph corresponds to the company referenced in the same row. The average for the industry is presented on the graph for a point of reference to identify which companies are at, above or below average. Lastly the scores are provided for a numerical reference point. To find out more about a particular discount brokerage, simply click on the logo of the company to be taken to the brokerage profile.

Table 1: J.D. Power and Associates 2012 Investor Satisfaction Results

Sparxline	Company	Investor Satisfaction Survey Score	Rating
		768	5/5
		720	4/5
		719	4/5
		707	3/5
		690	3/5
		687	3/5
		686	3/5
		686	3/5
		678	3/5
		656	2/5

Source: J.D. Power and Associates 2012 Discount Brokerage Investor Satisfaction Study

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Posted on December 7, 2012 by user — Leave a comment

The Mindless Investor Chapter 2: Everyone Wants Your Money – Chapter Review

Highlights of Chapter 2 – The Mindless Investor

Three key points that are covered in this chapter of The Mindless Investor all revolve around investors taking responsibility for their financial decisions. Understanding that trading is a battle, that the market is filled with competing interests and that “the market” itself can be a source of information are key for self-directed investors to ingrain into their perspective of markets.

Key Point #1: Trading is war – Be prepared to defend your money

The first powerful bit of insight is the way in which Bollhorn frames trading as a war. In the case of trading or investing, a conflict of opposing beliefs about the future of a stock happens with every trade. It makes total sense, therefore, that the participants in the market are out to make money from other participants and why protecting your capital should be taken seriously.

Key Point #2: Be skeptical – Ask how the providers of information make money and from whom

The market also has many moving parts – entire industries are built around bringing companies into this market and attempting to influence the purchasing (or selling) behaviours of its participants. Brokerages, and the analysts they employ, have a tendency to be optimistic about everyone they either do work with or want to work with. As a result, there is a high degree of self-interest (and possibly “contrapreneurship”) that sometimes line up with investors’ goals but more often than not runs contrary. The best ‘defense’ in this environment is a healthy dose of skepticism. Asking “how the source of my investment information is being compensated” is a simple but powerful way to decide whether your goals and that of your source are aligned.

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