Category: Discount Brokerage News

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – May 25, 2020

It’s likely a sign of the times, but what we see and hear on the news is so vastly different depending on where we live. And, even though we are all living through the collective experiment of lifting restrictions, we are starting to learn more about the unforeseen consequences of COVID-19 as well as the fact that in spite of it all, the world continues to move and people in it continue to want to push forward.

In this edition of the Roundup, there is a lot of news to digest. Up first is a continuation of the wave of information that continues to wash ashore treasures of data that reveal why online brokerages in both Canada and the US may be busier than they’ve ever been, in spite of the economic mayhem playing out on both sides of the border. Though that is a hard act to follow, there is even bigger news that broke this past week in the Canadian online brokerage space, as two new brands get set to enter the discount brokerage pool, making it ever harder for Canadian online brokers to safely keep their distance from one another. As always, we’ll close out by highlighting chatter from across the DIY investing forums and from Twitter.

Chequing the Data: Why Discount Brokerages are So Busy

After being sheltered in place for several weeks, cities and economies across North America are cautiously venturing back into a “new normal.”

While most organizations and individuals are looking forward to getting things back on track, the COVID-19 pandemic has shown that the experience of social distancing was not evenly experienced across the economy. Although many companies found themselves having to shut down, there were others that were able to continue via “remote work” and which fared much better than expected.

For online brokerages, it has been busier than ever during the market turmoil and accompanying shutdowns. The reopening of many economies may represent the end of historic participation by investors in the markets, and as a result, trading levels may drop off. Of course, what led to this level of activity is starting to become clearer, although the consequences remain to be fully understood.

While it is difficult at the best of times to know exactly what drives investors into the market, in the recent market run-up from March lows, a theory gaining steam is that the jump in investor participation is a combination of more people working from home (or being forced to stay home), a lack of major sporting events to bet on, and, perhaps most ominously, government support cheques.

Data gathered by a story published in the Financial Times explains much of what we have been covering over the past several weeks: that online brokerages in the US have seen record growth in the number of new accounts as well as in trading volume. What was especially interesting in this article, however, was what appeared to be motivating individuals trading in the markets in both the US and Canada.

On the US side of the border, the FT article cited examples of prominent sports-betting personality Dave Portnoy, who founded Barstool Sports, jumping into stock trading with E*Trade. The fact that he commands a significant social media following and was also featured on CNBC serves as an indicator for a much more common persona of “investor” at this time. The portrait of the “everyday” investor stuck at home with nothing else to do and making lots of money is a tempting (and familiar) trope of the stock market.

It was a mention of what was happening in the Canadian market, however, that is likely to raise more than a few eyebrows.

Below is the excerpt from the FT article. What stands out from this passage is that there are Canadians who are jumping into online trading and potentially using government stimulus to do so. To boot, the online brokerage happened to be RBC Direct Investing.

In fact, this article isn’t the first or only source to suggest this. Another reference to this behaviour was cited in an article by popular financial personality Garth Turner several weeks ago.

It’s not just in Canada, either, that stimulus cheques are being used to jump into the stock market. A recent report mentioned on CNBC about where stimulus cheques received by Americans ended up getting spent found that individuals with incomes between USD $35K to $75K increased their spending on stock trading by over 90% compared to the week before they received their stimulus cheques. The article went further to state:

“Exact reasons for that surge in interest is unclear. Most analysts chalk it up to the attractiveness of the market comeback, but it appears the stimulus money at least played a part.”

Regardless of the source of coverage, there seems to be a consensus that there have been investors participating in the stock market who might not have the same depth of understanding of risk management as traditional investors would. As a result, the “experts” forecast greater volatility ahead as either more investors pile into a rally at its later stages or retreat at the first sign of weakness.

For online brokerages on either side of the border, COVID-19 has generated a substantial level of trading activity and interest in trading online. The unintended consequences of the emergency relief funding provided by governments have resulted in a number of DIY investors in both countries opening new accounts or funding existing accounts.

While there have been cycles in the past where stock market run-ups have attracted fast money (in particular from younger investors/traders), it does beg the question as to what online brokerages will be doing to prepare for the inevitable fallout.

Almost 20 years ago, day trading met its match in the dot-com bubble. Ten years ago, there was an enormous financial crisis that ingrained skepticism among a generation of investors. This time may not be different in terms of investors getting ahead of fundamentals, but there will almost certainly be tough lessons to learn considering who has been drawn into the market and what they have been drawn into it with.

Newish Kids on the Block: More Discount Brokerages to Choose From

The Canadian online brokerage space is undoubtedly a crowded one when it comes to providers for online trading. With 13 brokers serving a relatively small population of investors, the business case for online brokers is a challenging one. It is likely the reason why, outside of one or two online brokerages in Canada, the current suite of providers are subsidiaries of much larger financial firms. In the online brokerage business in Canada, scale is essential to survive.

These past few months, it has been interesting to observe who among the online brokers in Canada was actively attending to the “growth” functions of their business and who was not.

For example, we’ve been watching who has been launching new features, updating their website with important messaging related to COVID-19, advertising online as well as creating content for investors. Despite the calm and perhaps lack of movement on the front end, this past week revealed a lot about why activity appeared to have dwindled at a couple of Canadian online brokers.

The first big story announced this past week was that CI Financial is going all in on acquiring the popular roboadvisor WealthBar (in which they had already held a 75% stake). CI Financial acquired BBS Securities, parent to Virtual Brokers, in 2017 and since then has been working on an important digital-transformation business initiative, which means the development of the front end and brand of Virtual Brokers has been slower than has historically been the case. Interestingly, the reason for the reduced pace of activity may now become clearer as the announced acquisition also revealed that CI Financial will be launching CI Direct Investing, which will ultimately replace Virtual Brokers.

Taking what has been a household name (Virtual Brokers) and rebranding it into a new entity will be a challenge and likely require a considerable investment of marketing resources. However, with a diverse wealth-management offering that now includes the roboadvisor and direct-investing services in combination with a significantly sized parent company, bank-owned brokerages will undoubtedly have to adjust course. Slides from an investor presentation earlier in the month reveal the new look and organization of the self-directed investing arm at CI Financial as well as motives as to what drove the decision.

Another big story that broke last week was the news that Morgan Stanley will be launching a wealth-management business in Canada that will include, among other services, a self-directed investing platform – aka discount brokerage.

Earlier this year, Morgan Stanley also made a bid to acquire online brokerage E*Trade Financial, and while still awaiting regulatory approval, this could set the stage for the return of this online brokerage to Canada. Interestingly, as part of its strategy to broaden its wealth-management offering in Canada, Morgan Stanley will be working with Canaccord Genuity as its local platform provider that will be delivering clearing, custody, and wealth-management solutions. It is worth noting that Canaccord Genuity acquired online brokerage Jitneytrade last year and launched a rebranded online brokerage Canaccord Genuity (CG) Direct.

With new online brokerage brands in play in the Canadian discount brokerage market, it is going to once again push existing online brokers to accelerate their plans to innovate and to create experiences and incentives to attract DIY investors’ attention (and loyalty).

Though CI Financial is certainly a formidable wealth-management entity, there will be challenges to break into the DIY investor market, especially via the Virtual Brokers brand and experience. On the other hand, the return of an iconic online brokerage brand like E*Trade would make a huge splash in DIY investor circles.

Many Canadian DIY investors, young and old, have heard of both E*Trade and Morgan Stanley, which will pose a serious challenge to existing Canadian online brokerages – including the bank-owned brokers. And, it is worth mentioning that E*Trade offers commission-free trading, which, if they do come to the Canadian market at that price point, would be a watershed moment for commission pricing for Canadian DIY investors.

Despite what appeared to be a slowdown in activity on the front end of certain online brokers, there clearly have been major developments taking place behind the scenes. For existing online brokerages, the race is now on to contend with at least two new incarnations of serious competitors. Of course, it doesn’t stop there, either. Morgan Stanley’s moves won’t go unnoticed in the US wealth-management space, and there will be a number of other providers who may be running their own assessment of competing against the financial giant on Canadian soil. So, as big a story as this is, these new developments could spark an even more volatile time for the Canadian online brokerage space. Talk about a new normal.

Discount Brokerage Tweets of the Week

From the Forums

Gold-Oriented

In this post, a curious DIY investor looks to the big picture to determine whether or not gold is a solid investment, and fellow forum users weigh in on the story that the numbers might be telling.

Just Deserts

A Redditor turns to the forum to ask the question “What would be your desert island ETF?” in this post.

Into the Close

With all that has already happened in just a few months of 2020, it’s hard to believe that there are any more surprises left. And yet, here we are. Just a few days away from the end of May, and even against the backdrop of pandemic lockdowns, the online brokerage space in Canada is poised to radically transform yet again in the year ahead. While the news is certainly focused on what’s taking place in the near term, there are already rumblings of a second wave. Given everything that has surfaced about the DIY investor market this past week, the only advice at this point is to enjoy whatever calm takes place. It doesn’t seem like it’s going to last for too long.

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – May 18, 2020

To all the Canadian traders who went long on fun this weekend, the latest performance by US and international markets while the Canadian markets were closed is a mixed blessing. With the bounce-back rally in stocks still going and some stocks even notching new highs, it certainly goes to show that demand for equities – perhaps certain equities – is outpacing supply. For online brokerages, interest in stocks and trading bodes well, but the surge in demand also presents its own mixed blessing.

In this shortened edition of the Weekly Roundup, the US online brokerage market continues to be in focus, in part with new information provided not just on the brokerages but also on DIY investors themselves. Dive in for a closer look at the choices DIY investors are making when selecting an online brokerage and what that might mean for Canadian discount brokerages planning upgrades and feature roadmapping. As always, be sure to check out the latest comments from Canadian DIY investors on Twitter and in the investor forums.

Trading Just Got Trendy

A familiar phrase in the stock market is that the trend is your friend (until it ends). One of the trends that regular readers of the Weekly Roundup may have picked up on over the past several weeks is that there has clearly been a shift in the world of DIY investing. This shift has resulted in investors and capital flooding into stock markets, despite the grimmest of circumstances and darkest of economic backdrops. What gives?

The honest answer is that nobody really knows. Yes, there are good theories, but they are just that. What is becoming clear, however, is that the evidence emerging from the US online brokerage market, as well as some peripheral data from the Canadian online brokerage space, points to “younger” investors jumping into the markets to snap up iconic names that have been pummeled by pandemic-related selloffs.

Meanwhile, there is also a narrative about “older” investors either shrugging off the news or trying to get their portfolios to stem the losses by moving assets into “safer” or less volatile positions. The result appears to be a matrix that is defined on one axis by risk tolerance and the other by age. Younger investors with higher risk tolerance (or perhaps who aren’t fully aware of the risks related to investing in “discounted” stocks) are pushing markets and online brokerages higher.

This past week, two interesting articles published on the US online brokerage market appear to validate stories we’ve been tracking for several weeks about the explosion in online brokerage account openings and provide additional insight into online brokerages and the sentiment among DIY investors. And, though this data is based on what is happening in the US, it does provide a proxy for what Canadian online brokerages ought to consider when making decisions about the expectations of investors – new and experienced.

The first article, published on Investopedia by a long-time analyst of the online brokerage industry in the US, Theresa Carey, scanned different US online brokerages and provided quick updates from each. While it was interesting to read about feature releases taking place over the past few weeks and trading data, what was especially interesting to home in on was the qualitative information reported on about younger investors.

Data about Robinhood’s spike in account openings was already reported on in a previous Roundup in late April. Nonetheless, it is worth repeating that the spectacular figure of three million account opens in the first quarter of 2020 cited in an article by CNBC drives home the scale of the interest in trading online as well as the popularity of Robinhood when compared to competing online brokerages.

Additional data about trading volume at Robinhood being almost triple that of Q4 2019 and that 72% of orders were buy orders reveal that not only were investors more active but that the falling prices were an opportunity to buy into hard-hit names as well as tech giants alike.

Another interesting development that didn’t get too much coverage, however, was an announcement by Robinhood that they would be rolling out a new look.

Normally, the announcement of a new look by an online brokerage would not generate a significant level of commentary on social media. But, these are not normal times, and in the case of Robinhood, this is not a “normal” online brokerage.

For background, in addition to being recognized as a leader in low-cost (aka zero-commission) trading, Robinhood is perhaps best known for award-winning design and user experience. As such, changes to design were likely to prompt some kind of response from their more design-sensitive clients. And prompt they did.

Judging from the response to the teaser tweet, it was interesting on several levels to see how much excitement the prospect of a new look generated from Robinhood. In particular, the number of users who took it upon themselves to post a comment on Twitter (rather than lurk or like) reflects a user base that has strong feelings about design choices. Even something as seemingly simple as colour scheme matters to Robinhood users in a way that perhaps investors more accustomed to spartan or utilitarian designs of trading-platform offerings do not care about.

Diving through the comments to the Robinhood tweet is likely to yield tips worth considering when designing for an aesthetically sensitive audience of (likely) younger, potentially active investors (hint hint, Canadian online brokerages).

Beyond design and account openings, there was another important insight about younger investors revealed in Carey’s article. E*TRADE conducted a survey among their clients (who had more than $10,000 in their accounts) that found Gen Z and millennial respondents were more concerned with their portfolio performance than with their health. Further, the proportion of individuals checking their portfolios at least daily was 54% for those under 30 compared to 29% for those older than 30.

Although not stated explicitly by E*TRADE, it is a safe bet that younger investors would also be logging in to their accounts via mobile app on their phones rather than on a desktop or tablet, especially when accessing account information multiple times a day.

The implication of these additional data points about the current state of online investing is that mobile experience and technical design choices are going to be critical determining factors for investor satisfaction. That said, while catering to younger investors is key to future growth, there is a significant portion of existing/older clients who will have different preferences, and those also need to be accounted for when it comes to planning the user experience.

Perhaps an important lesson on keeping user accessibility top of mind came from a series of comments on the new Robinhood colour scheme that apparently makes it more challenging for individuals who have red-green colour-blindness to easily read or distinguish data on-screen. This is a particular issue for many stock platforms, considering the standard rendering for gains and losses use those two colours.

As for why younger investors and why now, the “reasons” provided  thus far cite contributing factors such as: more people staying at home, more time, potentially money being saved from dining out, a dearth of opportunities to “gamble” or speculate, as well as the lowering of barriers at online brokerages with zero-commission fees.

Here is our (speculative) take. The influx of “young money” may be part of a recurring trend related to the kinds of opportunities millennial or Gen Z investors wish to invest in. When the cannabis sector was initially legalized (in Canada), a dramatic shift occurred. All of a sudden there was a “new normal” in what was previously an inaccessible or illegal market. In terms of the stock market, it took about three to four years for that story to become mainstream and hit “mania” levels. When the digital currency bitcoin finally hit its stride, it too ushered in the prospect of a “new normal” with respect to the world of finance and the way money can be transacted. The result: a massive rush into cryptocurrencies and blockchain.

Now, with the impact of COVID-19, there are once again huge shifts to the economy taking place in a fairly short amount of time, which is exactly the trade that younger investors are banking on to catalyze wealth creation in a way that older investors may not have the risk appetite or understanding for.

In other words, “new normal” is a signal for tremendous growth in a short amount of time and one that younger or more risk-comfortable investors are keen to capitalize on. And within the past five years there have been at least two of these events. Any feelings of FOMO that have been pent up, and any folks who may have been burned by “speculative” stocks, result in an opportunity to buy into “safer” stocks at a deep discount with the latest stock market sell-off.

While there are likely many reasons that can help account for the surge in interest in investing, the fact this surge exists is undeniable. The consequences of this surge have also yet to be fully understood.

What does it mean to have so many new clients show up so quickly? What characterizes these new clients compared to other existing online investors? What changes will online brokerages need to make to accommodate this new stakeholder group while also delivering on their brand promise to existing, valuable, long-time clients?

For Canadian discount brokerages, in addition to COVID-19 creating a new operating normal, there is undoubtedly another new normal in servicing clients. The key question to online brokerages: will this new trend be viewed as a challenge or an opportunity?

Discount Brokerage Tweets of the Week

From the Forums

Right Place, Right Time

A curious DIY investor asks for words of wisdom from other investors who will be re-entering the stock market in 2020 for long-term holds. A lively discussion ensues, with fellow forum users sharing their long-term investment plans and the logic behind these plans, in this post.

For “Bettor” or For Worse

One DIY investor turns to the forums to ask why bank stocks are not recovering to their pre-Coronavirus crash values as quickly as other stocks. Fellow forum users weigh in and discuss the variable contributors to this matter, including debt levels and loan losses, in this post.

Into the Close

With oil prices continuing to drift higher, COVID lockdowns easing, and the markets continuing to melt upwards, the start of the week has an air of optimism to it. Of course, it being spring, there are also many bears watching the market in awe of the backdrop against which market prices are rising. The voices of fear are getting louder among pundits yet, ironically, quieter with the volatility index, for now. At some point fundamentals may kick in, but for now, hope for a return to a new normal is high demand. Stay safe and have a profitable week!

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – May 11, 2020

Despite what most people, Garfield included, seem to think about Mondays, the good news is that this week isn’t last week. With historic job-loss data being reported, the good news is that hopefully the worst bad news economically is now behind us. Surprisingly, trusting the numbers is now a theme appropriate to the news and to the latest developments among online brokerages.

In this edition of the Roundup we dive into an interesting tale of how a trade gone bad exposes deep vulnerabilities and risks for DIY investors to consider. Next, we take a look at another big online brokerage releasing a very popular feature. As always, we’ve got a selection of comments from investors on Twitter and in the forums.

Outnumbered: Traders & Interactive Brokers Bitten by Computer Bug

Online brokerages play an interesting role in the capital markets ecosystem. They are, by some measure, the gatekeepers to individual investors being able to directly access opportunities in securities marketplaces.

In “normal” times the system tends to work, albeit with the occasional hiccup. When there are surges in demand, as DIY investors have witnessed this year and in prior years at many Canadian discount brokers, things tend to get less reliable. To correct some of this instability, brokerages have either resorted to taking their trading systems offline (or the systems themselves are being forced offline) or instituting some rather unusual moves, like Wealthsimple Trade forcing clients to wait “their turn” to be able to trade once they’ve opened and funded a new account.

As awful as these situations have been for online traders, one of the perils that didn’t really ever seem to be in the minds of traders is whether or not the information they were watching – specifically data about price – was accurate. It was this specific issue, however, that was apparently behind the spectacular loss that Interactive Brokers had to incur when one of its Canadian clients managed to turn a $77,000 gain into a $9 million dollar loss as the price of oil futures contracts turned negative in April.

The story is a must read for any DIY investor who trades on margin and, in particular, with any kind of leverage. And, it will almost certainly become the stuff of active-trader folklore. That said, it shouldn’t only be DIY investors who read the story – Canadian discount brokerages should take heed as well.

For starters, it should prompt a review of code and technology systems to be able to accommodate what might be unthinkable conditions in the market. Nobody at Interactive Brokers had configured their system to work with negative prices in the oil contract. For some context, Interactive Brokers is arguably the best of breed when it comes to technology and automation among online brokerages in North America. It does raise an important question: if such a technically capable brokerage can “miss” things, what do less capable systems currently have configured in their code?

To their credit, Interactive Brokers is owning up to it and will be reimbursing customers who were locked into long positions when prices had moved beneath zero. This is (currently) forecasted to cost Interactive Brokers about USD $110 million. While they are taking the initiative to process “refunds,” they are certainly not happy about it. Founder and retired CEO Thomas Peterffy did raise an important question: who, exactly, should be held responsible for individual investors – especially smaller investors – being given access to securities like the oil contracts in which liquidity becomes drastically reduced as contracts head to expiry?

Another important set of details to emerge from this story is the fact that the age of the trader who incurred this loss was 30 years old. To put a finer point on it, a millennial investor managed to get himself into an almost unimaginable position. Similarly, the other trader referenced in the story was someone trading on behalf of a couple of friends. While both of these details might seem trivial, it does characterize what happens when less sophisticated traders are given access to complex trading products. Even with the risk disclosures in place, the stampede of novice or newer investors to the stock market means there are many more stories like this that have either already happened or are waiting to emerge from another yet-to-be-imagined scenario. Younger or more aggressive traders can get into serious trouble, so the challenge to online brokerages is to find a way to have safety mechanisms in place – no small feat.

COVID-19 has had far-reaching effects on the economy and on society as a whole. For DIY investors, however, the economic consequences have brought into focus the vulnerability of online brokerage systems as well as the systems they interface with. It is surreal to think that even the data streaming in real time might not be accurate, but that is what can happen.

For Canadian DIY investors, it will be difficult to build trust in the technology and systems related to online trading without a transparent record of system stability. Wealthsimple Trade, for all of its recent hiccups, puts their system uptime and incident history out there for the world (and investors) to see. As much as society is focused on testing as a path forward to returning to normal, it seems that Canadian online brokerages should be investing in testing their platforms and systems too.

A Slice of Dice: Schwab Offers Up Fractional Share Trading

Some of the most popular names in the stock market are also among the hardest to access. Names like Amazon, Apple, or Alphabet are more than just stocks that begin with the letter A, they’re also stocks that cost in the hundreds or thousands of dollars each per share. For most beginner or younger investors, this presents a hurdle to participating in stock trading by using the approach of investing in things you understand.

This past week, another US online brokerage joined the trend of making fractional share trading available to customers. Charles Schwab announced that they are gearing up to launch their fractional share trading service, named Schwab Stock Slices, against the backdrop of unprecedented volatility and interest in the stock market.

Schwab joins Interactive Brokers, Fidelity, and (eventually) Robinhood in launching a fractional share trading programs in the US, a feature that is picking up significant momentum with users online. With the new program from Schwab, investors can purchase fractional shares with as little as $5 and up to a maximum of $10,000.

With so many online brokerages chasing the elusive “younger” demographic of investor, the fractional share trading program lowers the barrier to participating – something that younger Canadian DIY investors on social media and the forums often bump into. Conversations about diversification usually result in DIY investors turning to ETFs; however, with fractional shares, it is possible to achieve diversified status even with modest savings.

If ever there was a time to offer and advertise this feature, it seems like it would be now. Younger investors are coming into the market at a historic pace. Additionally, as with many features that get launched in the US, the natural question is whether or not this kind of feature can be deployed by Canadian discount brokerages.

Despite the diversity of tactics to reach a younger investor – from social media to digital advertising – online brokerages in Canada haven’t, in large part, lowered the barrier to participating in some of the most exciting names in the stock market today. That, it seems, could prompt another wave of interest and engagement with investing, since it makes trading financially accessible to active and passive investors alike.

Discount Brokerage Tweets of the Week

From the Forums

Honey, I Inflated the Market

A curious Redditor poses the question of whether federal spending and CERB might cause inflation, and a lively discussion on various schools of economic thought on the matter ensues in this post.

Blind (Liqui)Date

A young investor asks for advice on whether to liquidate their investments and transfer to an online brokerage in this post. Fellow Redditors offer their advice and experiences having opened an online brokerage account during a volatile market.

Into the Close

That’s a wrap on another historic week of market activity. Unemployment rates and the general shock to the economy might be making headlines, but stock markets continued their ascent, nonetheless. And  if FOMO wasn’t kicking in already, there’s clearly a case of market envy at play as certain stocks put in new highs and push into record territory (ahem, Shopify). So, if we needed yet another reminder that we don’t live in normal times right now, the push higher by stock markets even despite the direst economic news will almost certainly instigate other investors to join in the fray.

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – May 4, 2020

Here we are at the beginning of a new month. If the old adages are to be believed, then May is where we can look forward to flowers, and when investors would typically sell and look to return in the fall. Of course, those would be in normal times, and with many of us still parked at home, the rule book for this May is going to be anything but typical.

In this edition of the Roundup, we continue to digest the numbers on the popularity of online investing being shared and what those numbers help to explain about the current state of online brokerages in Canada. From there we examine the current state of the deals and promotions being offered at the beginning of a new month and speculate on what the “new normal” is shaping up to look like for deals from discount brokerages. As always, there’s a healthy serving of commentary also included from DIY investors on Twitter and in the forums.

Waves of Interest

The big story in the online brokerage space these past two months has been heavily focussed on numbers. Notably, the numbers of DIY investors – be they active traders or first-time investors – who have been jumping into the stock market, in spite of the sharp declines in stock prices and unprecedented volatility.

With the start of a new month, Interactive Brokers has once again released their trading activity metrics, which offer a unique window into the behaviour of investors and the business conditions of online brokerages.

The metrics published by Interactive Brokers show that there were 46 thousand net new accounts opened, an increase of 15% over the prior month and an incredible 461% increase over the same period last year. In fact, there were more online brokerage accounts opened at Interactive Brokers in April than there were in the last six months of 2019 combined.

Digging further into the numbers published in their press release, it is also possible to see magnitude and direction of activity by investors across April and March. For example, there were 7.2 million buy orders compared to 5.64 million sell orders. To put these numbers into context, these are about 2 – 2.5 times higher than the 2019 average in each category.

The growth in new accounts and the surge in trading behaviour provided by Interactive Brokers’ figures puts what’s been happening here in the Canadian discount brokerage space into sharper focus.

Although different in absolute numbers, on a relative basis the flood of new accounts and trading volume implies that Canadian online brokerages had a VERY good past two months in terms of revenue generation and asset gathering. Unlike their counterparts in the US, Canadian discount brokers haven’t dropped their commission rates to zero, so total revenue gained should be substantial.

Indeed, messages from DIY investors on social media about delays in getting new accounts opened, as well as messages on the websites of Canadian online brokerages communicating delays due to higher-than-normal volumes, once again validate the idea that the sheer volume of interest has overwhelmed many service channels.

Out of curiosity about the delays experienced by clients when attempting to reach an online brokerage by phone, we looked at the open job postings for client service reps for the online brokerage arms of a few of Canada’s largest bank-owned brokerages. The surprising finding in this quick scan was that there were only two of the big five banks with active postings for their wealth management (i.e. online brokerage) divisions. Of further interest, at one of these brokerages, the training program is an intensive full-time commitment of 20 weeks. What this implies is that if Canadian online brokerages that are experiencing severe delays in responding to clients haven’t already done so, hiring into the role of client service is going to be a challenge (especially if everyone does it at once), and the turnaround time for a fix is not going to be short.

As has been reported in Roundups in the past few weeks, these unprecedented times in the stock markets and economies have, almost counterintuitively, resulted in a watershed moment for account openings and trading volume.

Canadian online brokerages, despite their higher commission structures, are facing a huge surge in account openings and a revenue windfall from active trading. It remains to be seen which online brokerage in Canada can successfully deliver consistently positive client service at scale and, more importantly, seems interested in prioritizing doing so. A quick scan of the open job postings at Canada’s largest banks shows that, at this point, hiring more customer service agents to assist specifically with the online brokerage segments of their business isn’t a priority.

While deploying more people to assist with growth is one strategy, the numbers from Interactive Brokers – which counterintuitivelyis arguably the online brokerage most committed to automation – have shown that having a highly scalable business structure pays for itself. Their ongoing investment has enabled Interactive Brokers to accommodate and process new accounts at a rate much faster than online brokerages with less automation to their system.

Whether Canadian online brokerages are, at the moment, content to grow at their own pace or are simply unchallenged to do so more quickly, one thing is clear: the longer it takes DIY investors to open accounts when markets present opportunities, the more likely DIY investors will send their assets and trades to an online broker that can execute on this quickly.

Deal-ayed Gratis-fication

Normally, the start of a new month would be the opportune time to recap the deals and promotions being offered by Canadian discount brokerages. These are not normal times, however. With the start of a new month, the deals and promotions being offered by Canadian discount brokerages are largely the same as they were during April.

The current deals-and-promotions landscape for cash-back or commission-free trade offers is dominated by two firms: Questrade and BMO InvestorLine, with the latter being the only big Canadian-bank-owned brokerage to be running a cash-back promotion offer.

The most popular category remains the baseline transfer promotion, which provides reimbursement of transfer-out fees that most online brokerages charge when moving accounts to another provider.

With demand being as strong as it is, and Canadian online brokerages struggling to keep up with processing new account sign-ups, there has clearly been a shift away from most Canadian discount brokerages offering deals or promotions to incentivize DIY investors to sign up for an account. Interestingly, it seems that awareness-based marketing campaigns are being run at the moment, with advertising by TD Direct Investing, Scotia iTRADE and Qtrade Investor showing up on social media feeds.

The takeaway appears to be that while online brokerages are “open for business,” it is not business as usual. At this point, the speed with which an account can be opened and opportunities seized upon takes precedence over the incentives that determine where an online investor turns to – at least for many investors. Translation: FOMO is firmly in control. Of course, commentary by both (and only) Questrade and BMO InvestorLine about the successful rates of account opening may simply be coincidental to their marketing efforts through the big drop and bounce.

As for what happens next from here, it is likely that larger online brokerages enjoy the benefit (and challenge) of being large and don’t have to provide incentives unless they are really interested in capturing market share. For smaller online brokerages, it is clear that this ought to be a time for leaning into the attention that more DIY investors are paying to the space. With online brokerages deferring their promotions, at least for the time being, once things “normalize” from an investing standpoint, it seems like offers could become hyper-competitive. There are still many unknowns on the promotions front, but looking at the big picture, the competition for new customers for financial services and online investing is going to be a lot tougher than it was heading into the COVID-19 pandemic.

Discount Brokerage Tweets of the Week

From the Forums

Oh, Canada

A Redditor asks, “Why should I continue to invest in the Canadian market?” in this forum post. Fellow users rally around the benefits of hedging investments by putting money in the Canadian and US markets and warn the poster to be wary of recency bias.

Speculation Nation

In this post, a user invites the forum to speculate which companies may go bankrupt as a result of the turbulent markets.

Into the Close

For better or worse, stock markets are always forward looking. This week, however, there may not be a lot to look forward to except heightened uncertainty. The math on unemployment figures in Canada and the US is terrible, and as far as plans to “restart” entire economies, it will be anything but smooth. Markets, for now, seem to have digested a lot of very bad news and are priced on the expectations that things will be resolved in some sort of orderly fashion. This week will certainly test that thesis.

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – April 27, 2020

Here we are at almost the end of April and were it not for the intentional reminders as to the date, it certainly feels like the long day continues. Still, the goalposts matter. While dates aren’t moveable, it seems like other goalposts are being moved on DIY investors. Also, on the topic of goalposts, this post has some news of discount brokerages crushing their goals.

In this edition of the Roundup, we review an important development for DIY investors in which leveraged ETFs attached to the oil market have had to do some, um, creative maneuvering to stay liquid even though movement in oil appears to be grinding to a halt. From there, we flow into even more data from the online brokerage space on the scale and scope of activity by DIY investors entering into this market. As usual, we’ve collected chatter from investors online on Twitter and in the investor forums.

Consolidation Offers Little Consolation

There’s no denying it. These are bizarre times for even the most seasoned traders. This past week, with oil prices going negative to the tune of almost -$40 a barrel for WTI, the trading world was turned on its head, and with it, likely scores of DIY investors who sought to take advantage of the volatility swings in the price of oil via leveraged ETFs.

Alas, even the ETF providers could not stomach the volatility and certainly did not ever envision (or provision for) a world in which the price of oil could drop below zero. And yet, this is exactly what happened this past week.

One of the biggest Canadian names in the leveraged ETF plays for oil, Horizons ETFs, temporarily suspended new subscriptions for their BetaPro Crude Oil 2X Daily Bull/Bear products. In addition, the impacted ETFs (HOU/HOD) will no longer be set to double the daily performance of the underlying futures index they were tied to, but will instead correspond to 1X the daily performance. Finally, how they trade futures contracts is changing, with the underlying “roll dates” moving to the secondary futures contract month just 10 days into the primary contract.

Another big name in the leveraged ETF space, Direxion, had already taken measures to dial back their famous 3X leveraged products by 1X to now provide a leveraged exposure of 200% to a select set of indices.

As with the crypto and cannabis craze from 2018, the prospect of making lots of money in a short amount of time naturally pulls in speculators.

Products, such as leveraged ETFs, magnify the already volatile market movements, so “investors” get the possibility to make (or lose) significant returns in a short amount of time with the ease of buying or selling a stock. There is no need for any sophisticated transaction in a futures market: Just enter a ticker symbol with an online brokerage platform and go. Added to that, these leveraged ETFs can be part of a TFSA or RRSP, and the gains (or losses) can offer up the perfect storm of opportunity to grow wealth (or erode it) at a pace that far outstrips salary growth, high-interest savings accounts or even the moves in most individual securities.

It wasn’t just leveraged ETFs in the oil market that suffered catastrophic failures either. The popular United States Oil Fund (ticker USO), which is supposed to track the price of oil, has been decimated by the volatility in oil prices and last week initiated an 8-for-1 reverse stock split (aka consolidation) to boost the price per share.

Like some of its leveraged Canadian counterparts, the futures contract that the fund tracks has been pushed further forward, meaning that investors are betting on the price of oil much further into the future than they have historically with this kind of vehicle. There is some damning commentary coming out of the US for commodity-focused ETFs, and as such the “future” of these kinds of ETFs, especially those focused on oil, is highly questionable. The pessimism on these ETFs in the US market is high and growing, which portends bad news for the Canadian counterparts.

Ultimately, DIY investors interested in making a quick buck may roll the dice with a leveraged ETF without fully understanding the vehicle itself. This puts Canadian online brokerages in a bit of a conundrum. On the one hand, these ETFs generate substantial commission revenue, but on the other, their risk profile is not like that of other ETFs, and clients can be at serious risk of loss.

Some of the more spectacular losses that made the news include Interactive Brokers, which had to take almost a USD $90 million-dollar loss because several clients took heavy losses on their trading account, trading oil future contracts. And, investors in China who were able to trade individual barrels of oil found themselves on the hook for the negative price per barrel, meaning not only did they lose what they invested, they were exposed to the downside as well.

Although Canadian online brokerages are technically order-execution-only entities, the current COVID-19 fueled market conditions show that extreme volatility can take investors seriously offside, especially in some of the most popular products. The drastic maneuvers taken by the ETF issuers highlight the risks that ETFs themselves present to DIY investors – especially if they have leveraged ETFs within their stable. While providing advice on what is or is not an appropriate investment is not something online brokerages want to wade into, perhaps more visible warnings or tools that enable investors to easily discern risks seem like the prudent thing to be doing.

Putting the Pieces Together

There is a recurring theme to the data we’ve been reporting for the past several weeks: Now is a great time to be an online brokerage.

Updates from online brokerages on both sides of the border have been trickling in from various sources, including earnings reports, business updates and posts in various forms of reporting. The numbers continue to paint a picture where retail investors are flooding into the market in record-breaking numbers.

This past week, we learned a bit more about the scope of the DIY investor rush into the online investing market, as well as some insights and perspectives from leaders at several online brokerages who’ve commented on their business and business conditions.

Although we did mention them previously in last week’s Roundup, the largest online brokerage in the US, Charles Schwab, provided their spring business update this past week. This session provided additional colour on the numbers from the recent quarterly release as well as updates on where they’re forecasting for the remainder of the year. Of particular interest in this update was the scale and speed of the new account and asset growth. Schwab added 609K during Q1 of 2020, a 58% increase over the same period in 2019. Similarly, there was a 42% increase in net new assets, clocking in at USD $73.2 billion dollars.

Additionally, there was some interesting colour added to why cash balances were growing to the heightened levels. While during times of volatility, it was expected that cash would increase (e.g. investors may flee to cash for safety), what was curious was that it was more so a result of sales of fixed income assets rather than equities.

Another area that Schwab provided more detail on was the trading volume as well as the increase in volume from customer service touches. Despite the spike in business, the retail call volume was only 16% higher for Q1 2020 compared to Q1 2019. On the digital side, there was a 30% increase in digital logons across both mobile and online. This particular point about increased outreach of clients is interesting to compare against the Canadian experience; assuming that Canadian online brokerages are seeing comparable volume increases for calls, it is remarkable to hear the level of complaints and delays for such a modest spike in call volume. Again, this is simply an assumption based on the US market as a proxy for Canadian discount brokerages, so the increase in Canada could be substantially different.

At the other end of the spectrum of the online brokerage space in the US – at least as far as size and age is concerned – is news from Robinhood. This past week, this “millennial”-leaning online broker appeared on CNBC’s Mad Money and spoke to Jim Cramer about the state of the online investing marketplace and Robinhood’s place against the backdrop of consolidation. While there were several interesting points in this discussion, co-CEO Vlad Tenev shared a list of the top 10 stocks being purchased via Robinhood in March. These included:

  • Inovio
  • Ford
  • American Airlines
  • Boeing
  • Carnival Corp.
  • General Electric
  • Microsoft
  • Disney
  • Aurora
  • Tesla


While the trading volumes (up threefold) in March and the net deposits (up 17x compared to Q4 2019) are largely consistent with what other brokerages in the US have stated, what was perhaps the greatest insight from that interview was that Robinhood, according to Tenev, captured over 50% of new account opens at online brokerages in the US. Yes, that’s not a typo. Despite stumbles at the beginning of March with trading outages, Robinhood managed to secure more account opens than all of the major online brokerages in the US combined.

With all of the data in the US online brokerage space pointing to a phenomenally busy March and Q1, it was refreshing to see some details on the Canadian space shared from BMO InvestorLine president Silvio Stroescu in a great piece from Wealth Professional that appeared last week.

Contained in that commentary on how BMO’s wealth management team has been navigating the crisis, there were also some interesting quantitative components. For example, new account openings trended about three times higher than seasonal peaks in January and February. Daily trading volumes clocked in at two and half times higher than trends, and fund transfers were up to 10 times higher than in the past.

It wasn’t just the quantitative context that was shared either. Insights on the difference in behaviour between millennial investors and “Gen X” was also curious to see and lines up in many ways with what has been playing out in the data from the US online brokerage market. For example, millennial clients “added more cash to their accounts and bought into the market more aggressively than older peers.” In contrast, Gen X and baby boomers sold assets to build up liquidity reserves, something that was also reflected in the Schwab data.

Despite the massive economic shock taking place in countries across the globe, the data from online brokerages in both Canada and the US provides some suggestion as to why stock markets are as high as they are. Clearly there are pools of buyers, many of them younger investors, who are flooding into the stock market to take advantage of the volatility in hopes of picking up stocks that can help them boost their portfolio sizes.

Although many online brokerages have had to learn on the fly as to how to operate remotely and withstand surging demand, for the most part they have been able to do so successfully. For Canadian online brokerages in particular, if the data points from BMO InvestorLine are extended to the industry in Canada as a whole, higher commissions weren’t enough of a hurdle to dissuade many Canadian investors from making record high numbers of trades and thus generating a watershed of earnings for the Canadian discount brokerages.

Given the boost to earnings, it begs the question going forward as to where the added revenues will be deployed to next.

One hint was offered by Stroesco at the end of the piece, where he stated that “In the new context, investors will be seeking and willing to consume more financial advice in their digital travels, with a vested interest and more scrutiny on value created.”

While difficult to pin down exactly where things are going to head to next, the clear signal from across the online brokerage space is that there is a strong endorsement that there are clients still willing and excited to trade, even in the most bizarre of times.

Discount Brokerage Tweets of the Week

From the Forums

Back and Better Than Ever?

An anxious Redditor takes to the forum to pose the question of whether or not this current situation signals a “Great Depression 2.0.” A discussion weighing the current data around COVID-19 and the capital markets against past recessions ensues in this post.

Squaring Up

In this post, a forum user unsatisfied with his money manager’s actions in the lead-up to the COVID-19 pandemic takes to the forums to ask about the possibility of “Shorting the Box.”

Into the Close

The perennial challenge to traders is that data becomes available at the “hard right edge” of the chart. Moving through the upcoming week will be an interesting proposition for DIY investors. On the one hand, the historic movements in the oil market cannot be ignored, and on the other, the stock markets are already pricing in the world moving on. These are bizarre times to be sure, but it looks like the first one returning to working as usual is the “invisible hand” of the market – let’s hope it still has enough sanitizer left to make it through the next week. Stay safe and healthy!

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – April 20, 2020

Another week gone by; however, the metrics that matter aren’t hours and seconds, it seems. Tests, cases, and, unfortunately, deaths are part of a grim set of metrics that serve as the very human backdrop to everybody’s new normal. While it’s harder to distance ourselves from the news than it is from one another, what is clear is that markets and online brokerages are pressing forward albeit in surges and stumbles.

In this edition of the Roundup, we continue to track data on the surge in interest by DIY investors to step into the markets, with new information shedding light on what is also likely happening here in Canada. From there, we take a look at how Canadian discount brokerages of various stripes are walking the tightrope of advertising during the time of COVID-19. As usual, we serve up the latest DIY investor comments from Twitter and the investor forums.

Inflection Points: Earnings Data Shows Trading Surge at Online Brokerages

Of the many letters being thrown around during the COVID-19 crisis, the one that seems to capture many themes concurrently is the letter V. For online investors (and by extension online brokerages), the two variations of V that matter are volatility and volume. Stock market volatility during March has been unprecedented and volume of trades executed equally so. The next V that might come into play is the shape of the recovery, which many speculators are hoping will be swift and sharp.

Earlier this month, Interactive Brokers reported a sharp increase in the number of online discount brokerage accounts opened – an eye-watering 22% increase compared to last year. This past week, another (arguably the most) important online brokerage in the US, Charles Schwab, reported its earnings. Though it did not meet estimates on the earnings front, tucked inside the earnings announcement were two very incredible facts. The first is that trading volumes in March represented 27 out of the 30 highest trading volumes of all time for this massive online brokerage. Daily average revenue trades (or DARTs) clocked in at 1.54 million, a 98% increase for the quarter. The second important piece of information contained in that earnings announcement is the tsunami of account openings – over 280K new online brokerage accounts opened in March alone and bringing the total number of online investing accounts to 609,000 accounts for the quarter and a total of 12.7 million.

Additional data from Robinhood, the firm that was the proverbial straw which took the price of commissions for trading in the US ultimately down to zero, also crossed the radar last week. The data reported that their daily trading volume was threefold higher in March compared to Q4 of 2019 and they attracted a tenfold increase in net deposits which ultimately led to revenue of USD $60 million in March, triple what they had made in February. Indeed, these numbers helped bolster the case for Robinhood to be raising USD $250 million, which puts their valuation at USD $8 billion.

While Canadian markets are different than in the US, one reasonable inference to draw is that Canadian discount brokerages have seen a similar spike in their business that likely rivals anything they have ever experienced – including the crypto and cannabis surges of 2018.

Unlike the online brokerage markets in the US, most Canadian online brokerages have yet to drop their commission fees substantially and as a result, have likely generated significant commission revenues from heightened trading activity.

Indeed, until the return to work fully takes shape in Canada and the US, the likelihood of stock market volatility is going to remain high, which is great news for active traders and some of the speculators being pulled into the markets in search of a quick return. It is also great news for online brokerages in Canada who stand to benefit from the increased trading activity. The exact letter that defines the recovery – whether it’s a V, U, W or L – will determine what spells success or failure for the near term.

Online Brokerage Advertising in the Age of COVID-19

The data gathered from online brokerage activity over the past several weeks has validated the immense interest in trading online. For Canadian discount brokerages, the ‘usual’ playbook during predictable times of investor interest is to advertise. After all, if people are out looking for an online brokerage account or interested in trading, it makes sense to be visible.

These are unusual times, however, so it is interesting to see how online brokerages are wading into the ‘marketing’ efforts during this tenuous time of ‘doomscrolling’ and massive social media content consumption.

For the moment, three Canadian online brokerages that have been spotted advertising on Facebook and/or Instagram are Qtrade Investor, Scotia iTRADE, and TD Direct Investing.

A quick scan of the ads show something interesting – that both Scotia iTRADE and TD Direct Investing are featuring female protagonists as the DIY investor. In the case of Scotia iTRADE, they opted to push their campaign from the fall of 2019 which featured “self-starters” – essentially entrepreneurs who also were notable social media personalities to boost the brand with a younger audience. By comparison, TD Direct Investing also took a much more contemporary view of a DIY investor, not sitting at home but out and about on their phone.

During this current state of affairs, both bank-owned brokerages’ ads seem to strike a similar tone but neither quite give a nod to the current sentiment. In contrast, Qtrade Investor’s ad is simple and strikes a thankfully positive tone to the long list of bad news stories and jarring autoplay videos. Pleasant clouds and blue skies are almost a setup for what seems like a travel ad, but nonetheless set a backdrop for a compelling message proving the point that sometimes less is more, including on social media. More importantly, it seems like an astute “read the room” move.

Another small blip on the radar this week was the move by Virtual Brokers to tweet out an investor education piece to help explain some investing basics. Normally a tweet by an online brokerage doesn’t really seem newsworthy; however, in this particular context it is the first post by Virtual Brokers in some time, so the timing and the content are interesting, especially against the backdrop of what is likely a pick up in DIY investor interest.

That said, the push to advertise or broadcast content on social media is not without some degree of risk. There continues to be negative consumer sentiment about the experience of wait times to get in touch with online brokerages here in Canada, especially for the resolution of issues that require a phone call. A case in point is this post by Questrade on Twitter, which managed to get a pointed response focusing on wait times.

And they are not alone. A scan of the tweets of the week continues to reveal cringe-worthy wait times to talk to an online brokerage that references brokerages that are actively advertising at this time and those that aren’t. Even the most astute marketing team coming into the crisis couldn’t escape the fundamental requirement to have the product fulfill the promise of reliability. Wealthsimple Trade continued to experience system and trading issues last week, creating its own doomscrolling feed of unhappy campers.

There’s no doubt the level of interest for DIY investors to start trading in the market has surged. As many investors have rushed into opening new accounts and many existing account holders have been more active than in some time, systems are starting to show their strain. For Canadian online brokerages, the difficulty is to make sure their systems are stable enough to handle the flood of interest.

With that in mind, we anticipate more online brokerages might start leaning into their advertising programs on social media, and some with promotional offers, to get the right kind of attention at a moment when DIY investors are hungry for some good news.

At the moment, markets seem to have found their footing – a situation that could change at any point. Here’s hoping several Canadian online brokerages start to find theirs.

Discount Brokerage Tweets of the Week

From the Forums

(Mis)Take Your Time

A forum user who received both EI and CERB asks what to do with the money while the mistake is sorted. Fellow Redditors offer advice and their experience with current COVID-19 related funding in this post.

Time to Think Again

After 20 years of investing, a user takes to the forums to lament the current state of their portfolio in this post. Commentators offer their insight into the current markets as well as how the poster might realign their goals with their investment strategy.

Into the Close

Were it any other time, the horrific news of a mass shooting in Canada would be the only terrible story the country has to digest. Against the backdrop of the COVID-19 stories, this makes this senseless act of violence even more heartbreaking and amplifies the heroics of first responders. It is truly shocking. Our deepest condolences to the families of those who lost a loved one in this tragedy – we are thinking of you and sending you wishes for strength.

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – April 13, 2020

For DIY investors, last week’s market bounce is sure to put a spring back into their step, even though stocks are trading well below their levels from just a few weeks ago. Nonetheless, with the fear gauge falling and DIY investors hoping to find treasures in the market, one spoiler to that momentum is that technology and capacity issues are making access to trading online more challenging than anyone wants.

In this edition of the Roundup, we focus in on yet another series of outages and interruptions that took place at Canadian online discount brokerages last week and what that could signal for the industry in the post-COVID-19 era. From there, we highlight a couple of interesting virtual developments set to take place later on in the month that might offer additional guidance on where online brokerages in the US might look to next when trying to navigate the impact that Coronavirus is having on markets. As always, we’ll look to some rather colourful commentary on Twitter and in the investor forums to close things out.

More Outages at Online Brokerages

Markets have continued their volatile dips and surges, and while this past week has seen many stocks rebound, DIY investors yet again have found themselves subject to outages and interruptions of service at Canadian online brokerages.

This time it was a series of outages at CIBC Investor’s Edge, BMO InvestorLine, TD Direct Investing and Wealthsimple Trade that hampered the ability of DIY investors to trade and angered enough of them to the point where they posted their struggles directly onto Twitter.

Last month, there was a feature piece in the Financial Post about Canadian discount brokerages suffering from outages and complaints from active investors who were either sidelined by not being able to log in or trade.

While it is true that technology can occasionally fail, the timing couldn’t be worse. The compounding effects of site outages during heightened volatility, as well as surges in call volume, mean that DIY investors are ultimately left with no viable options other than to wait out whatever interruption or disruption they are facing. A quick scan of the tweets of the week below showcases some of the scarier wait times and frustrations experienced by DIY investors encountering these current trading conditions.

Although there are currently some very major issues taking the spotlight, the recurring issues with uptime and stability will ultimately attract the attention of media and, from there, regulatory agencies. At the very least, DIY investors ought to be aware of what kind of service experience they can expect from an online discount brokerage, not just in terms of wait times or features (like a call back), but also in terms of uptime and platform outages.

The COVID-19 pandemic has shown that governments and industries are capable of moving remarkably quickly when required. With the shift in conversation about COVID-19 starting to move towards describing ‘the new normal’ and life after the peak has passed, there will hopefully be a conversation about better equipping service and systems to contend with surges in traffic and requests. There will undoubtedly be changes that will be put in place and it would be wise for the industry as a whole to use the opportunity to mobilize around continuity and surge protection.

For now, the message to active DIY investors being relayed by the delays and outages is sadly this: beware of your online discount brokerage, it may not be there when you need it. Plan accordingly.

Online Brokerages Navigating COVID-19

When it comes to DIY investing, one of the more interesting things that being a shareholder entails, regardless of size, is the stockholders’ meeting. Of course, now that meeting in person is a non-starter for a variety of companies, the annual general meeting is going online. The combination of investors being sequestered at home and the online availability of these meetings could make for interesting times ahead. At the very least, it may provide a palette cleanser from a binge watch series on Netflix or Amazon Prime.

For the online discount brokerage world, we’ll be keeping an eye on Interactive Brokers, who has their annual meeting on April 23rd, to see what interesting announcements and questions might arise at that time.

Another interesting development coming out of the US will be from the largest online brokerage, Charles Schwab, as they are set to provide their spring business update on April 21st.

Already here in Canada, the largest banks have held their annual general meetings virtually to maintain social distancing protocols. In the Q&A sections, for example, it has been valuable to hear from the senior leadership with regards to the current COVID-19 generated crisis and to get a sense of where their priorities are on a number of key issues.

Discount Brokerage Tweets of the Week

From the Forums

(Mort)Gauging the Market

A Redditor asks whether paying their mortgage faster is better than investing in the current market in this post. Fellow users give their advice on how they should define their goals and the different decisions that they can make with those goals in mind.

Down the Habit Hole

In this post, Redditors discuss how the recent market downturn has impacted their investing habits. Different users lay out their plans and potential outlooks for the coming year.

 

Into the Close

That brings another edition of the Roundup to a close. This one was a little shorter than normal (just like last week!). However, as many Canadian online brokerages are finding their footing with transitioning many systems to remote operation and getting a handle on the flood of interest, we expect more activity to be unfolding in the weeks to come. In the meantime, a deal reached on oil production cuts by OPEC(++) will be yet another reason to expect a volatile week ahead. Have a safe, healthy, and profitable week!

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – April 6, 2020

April has finally arrived. As much as the year is moving quickly, it simultaneously feels like it is moving incredibly slowly. As with the reality in markets, any bit of information about where things go next with the COVID-19 crisis is highly prized.

In this edition of the Roundup, we wade into the shallow deals and promotions pool to start April – in spite of record online investor interest in trading online. From there, we shine a spotlight on a major Canadian discount brokerage that looks like they will once again shake up the features offered by other online brokers. We close out this edition of the Roundup with highlights from investor forums and chatter from the Twitterverse.

New Month, Familiar Deals

It’s the start of a new month. Not just any month either – the one month in the year that typically starts off with some good humour. Alas, the lack of new discount brokerage deals or promotions to kick off the month is no joke.

Like the markets themselves, there has been a considerable pullback in the number of brokerages participating in the most appealing deals and promotions categories: cash back and commission-free trading offers.

If we were in ‘normal’ times, this situation might not seem as unusual after the post-RRSP deadline push. After all, it is expected that leading into that deadline, investors are already actively thinking about their money and investments.

That said, these are not normal times at all.

Despite what is clearly the grimmest economic picture many of us have ever lived through, for Canadian online brokerages, what should normally have been a very slow period in April has turned into one of the busiest seasons on record.

Likely a result of the unprecedented volatility, many folks self-isolating and therefore working from home, and with only so much streaming content to be viewed, means that there is now attention being put on stocks and trading online in volumes that likely exceed the Great Financial Crisis. What is very different now, however, is the scale and scope of impact to the economy from the measures being taken by countries across the globe to flatten the curve on COVID-19 spreading.

With so many prized stocks now on a literal fire sale, bargain hunting investors have been rushing into the market through the door that is the online brokerage. Normally, when Canadians are this interested in trading stocks, online brokerages ramp up their offers and incentives. To reiterate – these are not normal times – and one clear indicator of that is the lack of promotional offers that have been deployed for DIY investors.

Nobody wants to be seen to be taking advantage of a crisis, however, and the conundrum for Canadian online brokerages is this: do nothing about reducing fees/commissions at this time or lowering barriers for folks getting into the markets, then ‘business as usual’ could be like profiteering. Conversely, launching a promotion that would be talk up getting into the most volatile market ever could seem remarkably tone deaf.

What is becoming clear in the COVID-19 pandemic is that major brands are stepping up to help in whatever ways they can. Apple is stepping up to make 1 million face shields a week. Tesla is building ventilators. Breweries and even Louis Vuitton are making hand sanitizer. As “order execution only” entities, the single best goodwill gesture for Canadian discount brokerages to offer to Canadians would be waiving of commission or administrative fees – especially for low balances or inactivity – and especially to those seeking financial relief.

In these far-from-normal times, a rethink is required on what brands stand for and mean in the face of this collective crisis. Normally a deal or promotion is intended to appeal to new clients. Perhaps this is the moment when it would be appropriate to consider promoting the infectious kindness that shows we’re all in this together and that even small acts of kindness can go a long way.

RBC Direct Investing Takes Trading Quotes to the Next Level

It’s one thing to be making investment decisions in a volatile market – but for many active investors, it’s a must to be able to see where there are areas of demand or supply when trying to fine-tune a decision to buy or sell. The stakes are much higher when actively investing, so getting the most accurate and up-to-date information on market prices are key. Enter the world of streaming and in-depth quotes.

Late last year, RBC Direct Investing enabled free Level 1 real-time streaming price quotes for TSX and TSX Venture equities and ETFs. This past week, RBC DI rolled out what is arguably one of the best data features after real-time streaming Level 1 quotes: free streaming Level 2 quotes for TSX and TSX-V listed stocks and ETFs.

For DIY investors, and the online brokerage space here in Canada, it is hard to overstate the value this brings to investing online.

Level 2 quotes, also known as depth of market, can cost over $100 per month, and while the new feature from RBC Direct Investing does not bring with it a top-tier trading platform, the value here is hard to overlook.

The table below compares the prices per month that streaming Level 2 quotes would cost at comparable online brokerages in Canada and it is evident that this feature is anything but cheap.

Online Brokerage Trades per Month (TPM) or Trades per Quarter (TPQ) to Waive Quote Fees Quote Fees without Activity Waiver
BMO InvestorLine 25 (TPM); 75 (TPQ) $125/mo
Disnat Direct (Desjardins Online Brokerage) 20 (TPM); 60 (TPQ) $95/mo
National Bank Direct Brokerage 100 (TPM); 300 (TPQ) $148/mo
Questrade 81 (TPM); 243 (TPQ) $89/mo
Scotia iTRADE 10 (TPM); 30 (TPQ) $79.95/mo
TD Direct Investing 10 (TPM); 30 (TPQ) $69/mo
Virtual Brokers $99/mo

 

It is important to once again point out, however, that the prices for this streaming data option at other online brokerages referenced above usually come bundled with a sophisticated trading platform with many more bells and whistles for fast trade execution and charting capabilities than does the web experience at RBC DI.

That said, most of those Canadian discount brokerages referenced above waive some, most, or all of the data fee only when a minimum trading activity or asset deposit threshold is reached. So, the standard offering of the RBC Direct Investing streaming Level 2 quote is of particular appeal to investors who don’t mind the web interface and who can’t or don’t want to constantly have to trade to maintain an activity threshold. Of course, spending on commissions to get a “free” data feed doesn’t quite add up as a winning strategy but that is exactly the position DIY investors would be in at most brokerages.

For everyday investors, free streaming Level 2 quotes may or may not be something that is widely accessed, but for those investors who appreciate the added window into areas of potential pricing support or resistance, this is a very useful feature. In particular, as volatility increases in many illiquid stocks and bid/ask spreads widen, placing market orders can end up in overpaying for a security, and placing a limit order without knowing what else everyone is either selling or buying at puts investors at a significant information disadvantage.

While not quite the bombshell of dropping commission prices, RBC Direct Investing has unquestionably raised the bar considerably for other Canadian online brokerages, especially their bank-owned brokerage peers.

The standard web-based browser experience now including streaming Level 2 quotes means that other online brokerages will have to work harder to adjust their value proposition to a somewhat active or sophisticated investor. Even with so much attention being drawn away from online brokerage features these days, it’s safe to say RBC Direct Investing’s position in the online brokerage race just leveled up.

Discount Brokerage Tweets of the Week

From the Forums

The Best Bet

A Redditor puts forward the question of whether anyone is betting against the market in anticipation of a crash in this post. Fellow forum users go back and forth on the merits of buying inverse ETFs and their plans for the coming weeks and months.

The Long Game

A new investor turns to the forum for advice on how to make sound investments for the long term while the market is still reeling from the impact of COVID-19. In this post, Redditors give advice on how to set up the right portfolio and think beyond the immediate market.

Into the Close

Despite the wild swings in the market, the biggest and most important stories that need to be told are the ones of the brave frontline workers putting themselves in harm’s way and fighting COVID-19, or those mobilizing what they can to push back this sweeping contagion. Thank you to everyone fighting the good fight.

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – March 30, 2020

For frequent market watchers, a screen is hard to ignore. Information about COVID-19 is flying at investors faster than a souped up Vin Diesel muscle car and coupled with, or perhaps compounded by, stock market volatility means it is hard to know exactly how to navigate the unfolding economic, medical and societal crises. Of course, channeling a little Vin Diesel at this moment means having a steady hand at the wheel, being ready to shift gears and having some strong clichés at the ready.

In this edition of the Weekly Roundup, we drive into a story of how investors who move fast also get furious when systems can’t keep up. Staying on theme, we also look at how one big online brokerage got sanctioned for skirting the rules. As usual, we wave the checkered flag with comments from Twitter and the investor forums. Buckle up!

The Upside of Down(markets)

With markets trying to digest, model and value multiple shocks to the economy, it is no wonder that volatility and uncertainty are at all-time highs. And while many investors are rightfully afraid and panicked by the current market whipsaws, there are nonetheless certain investors piling into the markets in hopes of either making fast money or picking up assets at shockingly low prices.

Although there is no one reliable indicator of a market bottom, one of the requisite ingredients for stocks to reverse fall in price is buyers. And, this is no way to call how the market floor is forming; however, the evidence from multiple online discount brokerages appears to indicate that there is a strong flow of DIY investors who are opening online brokerage accounts on both sides of the border.

A scan through recent Twitter threads and synthesis of news stories reveal that, among the complaints logged in the current market conditions, DIY investors are encountering issues with account opening, funding and getting started. Having tracked the Canadian online brokerage industry for the better part of 8 years now, when complaints about getting an account opened begin to show up on social media, it generally points to FOMO – or fear of missing out – kicking in.

A second line of data that might also be indicative of the activity level of DIY investors in this market is that online brokerage systems become strained under the volume. After the frenzy of the cannabis and crypto craze in early 2019, why system overload is still an issue is a bit of a mystery, but being what it is, the backlog of calls and delays in account opening processing reflects the pace and priority of technical and support system investment.

In fact, this past week, there was a fairly critical article in the Financial Post which highlighted the malaise of DIY investors who reported losing money on trades because of system failures and order-related mishaps at many of Canada’s largest bank-owned and independent online brokerages. Had this been during “normal” times in the market, outages would not be getting the kind of coverage they are, but these are not normal times.

A closer inspection of the complaints being cited in the Financial Post article shows that they were from investors using highly leveraged securities, for example, the Direxion Daily S&P 500 Bull 3X Shares, or those using options trades or who were intent on quickly flipping a trade on a highly volatile cannabis stock. These are not the garden variety buy-and-hold or passive investors, and this confirms the data we’ve published in previous weekly roundups as to which DIY investors were in this market.

There are only a small handful of online discount brokerages with platforms and data packages that are equipped to service clients who want to trade this actively and it is, by all measures, the most ideal time for Canadian online brokerages to step up their efforts in appealing to this group of investors, both in service experience and incentives. It perhaps won’t be too long before offers to attract these investors are launched – however, there is a cruel irony at work.

At the time when these most highly-prized active online investors want to sign up and trade with Canadian discount brokerages, the systems cannot support the volume nor can the client service teams keep pace. It seems that grocery stores aren’t the only place that Canadian DIY investors are going to be forced to wait in line.

To drive this point home even further, it was also remarkable to witness Wealthsimple Trade have to place new clients who had signed up to invest on a waitlist to trade after they’ve signed up to trade. As much as Wealthsimple Trade has earned its current standing as innovative and disruptive to the Canadian wealth management landscape, moments like those observed last week are damming and not-soon-forgotten.

For all of the assurances that Canadian DIY investors are provided as to the safety of their investments, moments of extreme strain on the systems reveal there are still many points of possible failure. While there is already a lot of compliance burden on Canadian online brokerages, when it comes to financial services, the latest in a recurring set of examples points to the need for greater transparency in technical system integrity. System reliability, scalability, and service provision capability are factors that DIY investors are learning that will be crucial to determining which online discount brokerage can best suit their needs.

On the flip side, one way that Canadian online brokerages can avoid having this surge of interest show up where new accounts need to be opened in the height of market volatility is by ramping up their marketing efforts across the year.

If Canadian online brokerages effectively “flattened the curve” of demand or “raised the line” on their own systems through a combination of assertive “always on” marketing campaigns and appropriate investments in scalable technology systems, this kind of system overwhelm could be mitigated. Had the market volatility hit a mere two or three weeks earlier, at the peak of RSP contribution season, the results could have been catastrophic for Canadian DIY investors.

As the world continues to be forced to adapt and learn from the COVID-19 crisis, there will undoubtedly be lessons that Canadian discount brokerages will be learning from as well.

Much Ado about Noting

In one of the more apropos headings to be found in a Weekly Roundup, this one is a play on words from a famous William Shakespeare play in which one of the key arcs happens to be about the consequences of not providing the full picture.

In the Canadian online brokerage world, when it comes to the disclosure to clients of certain key information about their investments, there is no room for playing around.

From about the end of 2013, Canadian regulators at the Investment Industry Regulatory Organization of Canada (IIROC) initiated a revision to the way in which member organizations were to report certain pieces of key information to Canadian investors. Regulators gave member organizations, including Canadian discount brokerages, a long runway of about 3 years to implement changes to the way in which investor statements were organized to ensure that organizations had sufficient time to implement the necessary changes.

Unfortunately for one organization, however, the decision to step offside of a regulatory requirement was met with a harsh rebuke. TD Waterhouse Canada was fined a stunning $4 million dollars (plus almost $30 thousand dollars in legal fees) for its decision to not comply directly with the CRM2 requirements.

There are a number of intriguing angles to this story, but what sticks out is what the calculus of this plan must have been to warrant such an action. It truly begs the question “what were they thinking?” in running afoul of regulators and exposing themselves to the kind of financial penalty they ultimately ended up having to pay.

With any business decision, the risk has to be worth the reward.

Looking at the fascinating details of this particular event, it was clear that the downside of ensuring that the TD Direct Investing was fully compliant within the timeframe laid out by IIROC seems to have suggested that there would have been some messy tax consequences and potential litigation that could have ensued. In short, facing the stern – if not damning – language (see image below) and fine was potentially the better option.

Ultimately, the persistence of a single client that sought information that was legally required from TD Direct Investing was what triggered the avalanche of activity that concluded in the fine and the damaging rebuke. It demonstrates that individual clients do, in fact, have the power to hold their vendors – in this case, online brokerages – accountable.

In the language of the panel’s decision:

“In the modern world where news is distributed almost instantaneously and widely by all forms of media, the reputational aspect has to be taken into account in fixing a sanction. Major financial institutions such as TDW invest large amounts of time and money in promoting their brands. While they may be able to easily afford large fines as a cost of doing business, bad publicity is very bad for business and that in itself provides a strong specific deterrence.”

For a brokerage of the size and repute of TD Direct Investing (TD Waterhouse) to be called out by IIROC is a very big deal and certainly something their peers – and perhaps investors – will take note of.

Discount Brokerage Tweets of the Week

From the Forums

Go with the Flow

Redditors discuss an article from the New York Times of an investor who was rocked by the recent fluctuations in the market in this post. Forum users go back and forth on the impacts of the markets on their own portfolios and investment plans.

The Little Short

A forum user asks how they may be able to short the market and fellow Redditors offer their two cents on the incredible risks involved in this post.

Into the Close

That’s it for another edition of the Roundup. To close out this irony-filled edition, markets also appear to be both fast and furious. While the plot of the unfolding saga in the markets may be hard to follow, there is certainly no shortage of action unfolding a quarter mile at a time.

Posted on by — Leave a comment

Discount Brokerage Weekly Roundup – March 23, 2020

The most fundamental view of how the stock market works is a balance between supply and demand. As the past few weeks have now shown, there are clearly some places where there’s an oversupply and some places, like grocery stores and phone lines, where demand has surged. Even so, it’s important to remember, especially at the beginning of spring, that growth is a force that will happen and that life will find a way.

This edition of the Roundup will be shorter than usual, as the one big story that matters and is on everyone’s mind is COVID-19. In particular, we will highlight the responses to the COVID-19 crisis that different Canadian discount brokerages have posted to their websites and what interesting things have emerged as a result. Not departing too far from the norm, we’ve also corralled comments from DIY investors on Twitter and in the investor forums.

Canadian Discount Brokerages Provide COVID-19 Updates

It’s safe to say, almost everyone is impacted by COVID-19 and Canadian online discount brokerages are no exception.  Over the past two weeks, there have been a slew of updates from most of Canada’s discount brokerages informing their clients of how they are prepared to provide support during this extraordinary time.

The overall theme emerging from these various messages is that DIY investors looking to get in touch with their online brokerage should be prepared to wait.

Call volumes are up and so too are volumes on other channels, such as email.  The net impact is that systems are currently overwhelmed and investors will face delays. At a time when markets are facing unprecedented volatility and market circuit breakers are being tripped, systems are particularly vulnerable to being unable to support the flood of actions that normally would be quite low.

While many market observers, including those who advise passive investment strategies, are doing their best not to look at markets or even to sell off investments, there is only so much “loss” that investors are prepared to take in the face of a totally unprecedented event. There have been financial crises and recessions before, but nothing at the speed and scale at which COVID-19 is moving.

As such, this pandemic is testing the planning and resourcefulness of all online brokerages. In reviewing the different responses from Canadian discount brokerages, the messages that some chose to provide came from the parent bank, if they were bank-owned brokerages, whereas some came directly from the online brokerage themselves.

Here are some interesting and important highlights from the COVID-19 messages posted on Canadian discount brokerage websites:

BMO InvestorLine

BMO InvestorLine referenced the features and service options that can be accessed online, as well as their modified call centre hours. Although their message was focused primarily on service, they also pointed site visitors to the BMO parent page on COVID-19 which had more general information.

CIBC Investor’s Edge

At the time of publishing, the CIBC Investor’s Edge was displaying an alert for website visitors to expect higher than normal wait times on call centre channels. Also, they were encouraging individuals who wanted to open an account to consider doing so using their online account open feature.

Interactive Brokers

Though this message came from the head of Interactive Brokers (and thus not a message directly referencing to Interactive Brokers Canada), it nonetheless acknowledged the global nature of this online brokerage. The CEO’s message mentioned that Interactive Brokers has invested significantly in the robustness of their trading systems, and even in light of the heightened volatility, they are confident in their capacity to operate. Interestingly, they revealed that they have multiple fail-over options for running their organization remotely, should one of their trading operation centres go down.

National Bank Direct Brokerage

National Bank Direct Brokerage directed users on their website to an announcement from the parent brand which detailed a reduction in branch hours and, in some cases, temporary closure of branches to minimize in-person contact. There was also a link provided to a Facebook live video answering questions about the market volatility.

Qtrade Investor

Qtrade Investor reiterated their commitment to providing service to their clients and mentioned plans put in place to enable call centre staff to work remotely should it be necessary. In addition, they highlighted services that would be available for investors to access online and provided a couple of articles that helped to explain market volatility.

Questrade

Questrade’s message, like those from its peers, indicated the increased wait times on their client service channels. Importantly, they mentioned that they are allowing document drop-offs only at it their Toronto retail location and are encouraging customers to submit documentation online instead.

RBC Direct Investing

RBC Direct Investing’s COVID-19 message contained important information on their response plan, as well as some of the issues they are encountering. While they did specifically mention telephone wait times as an issue, they also directly referenced the fact that they have been fielding lots of interest for new account opens which have added to delays and wait times. Importantly for documents that need to be submitted to RBC Direct Investing by mail, they are still available to receive those documents.

Scotia iTRADE

The COVID-19 response statement on the Scotia iTRADE points visitors to the COVID-19 information section of their parent brand, Scotiabank. This landing page contains a substantial amount of information about the Coronavirus, as well as important personal financial tips and updates on what the bank is doing to mobilize. In the note from their CEO, it was also revealed that in the past week, delays to their system were, in part, the result of their call centres receiving close to 80,000 calls per day, with calls to mortgage and loan teams up 500 percent.

Expectedly, things work differently at different online brokerages, and just because statements do not appear on websites does not mean or imply that steps are not being taken or communicated to clients or stakeholders. The statements on COVID-19 responses ranged between very matter-of-fact and somewhat inspirational in tone. There were messages which, encouragingly, recognized the efforts of call centre and customer-facing staff who are working hard to service clients at this time, as well as to clients for their patience.

In spite of the different messages, there were two recurring themes: that Canadian online brokerages (and financial services providers) stand ready to help customers and that they believe we will get through this together. These are key messages to remember – even for those who may be stuck on hold for what seems like an eternity. Waiting in lines might be the new normal for some time and it is simply a reminder of the fact that as digital as things are with online trading, there is still a large part of this industry that is driven by and relies on people being there.

Discount Brokerage Tweets of the Week

 

From the Forums

Time and Time Again

On Reddit, users engaged in a lively discussion around a video on whether this market crash may or may not be different from those before. Redditors go back and forth on the narrative being constructed around this event in this post.

Ramping Up While Hunkering Down

In this post, Redditors discuss the merits and drawbacks of putting money saved by working from home and social distancing back into the stock market. Other users weigh in on how their plans for adjusting to ever-changing circumstances are going.

Into the Close

Another new week, and another start with Dow Futures hitting the “limit down.” There are currently no signs that trading will be any less volatile this week, as the largest economies in the US go into lockdown. Fortunately (or unfortunately), civil society and private industry have mobilized faster than many governments to make up for lost ground. Our hope is that all of our readers, their loved ones and the communities in which they call home stay calm, safe and healthy. Please remember to thank all of the front line workers – from hospitals to grocery stores – who are working so hard to keep us all afloat.


View this post on Instagram

It’s week 1 of this quarantine, and things are already getting weird.

A post shared by Ellen DeGeneres (@theellenshow) on