Discount Brokerage News – Page 12

Posted on December 16, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – December 16, 2019

Heading into mid-December, there are clearly lots of numbers being thrown about. The number of shopping days left until Christmas, the countdown to the end of the year, and the exact deadline for trades to be counted for inclusion in 2019. To add to the pile, there are also numbers to consider that measure the online brokerage industry in Canada – which for some folks is like getting an early Christmas present.

In this edition of the Roundup, we take a deep dive into the latest online brokerage rankings to be released ahead of the end of 2019, and look at the impact that big changes in definitions can have on how investors ultimately decide which online brokerage is best. After that heavy dose of numbers, we’ve layered on some interesting comments and reactions from DIY investors in the forums and from Twitter to close things out.

2019 Online Brokerage Rankings: Focus on Experience over Price

Just in time for the end of 2019, there was a fresh round of online brokerage rankings for DIY investors to review as they do their financial planning for the year ahead. The annual Canadian discount brokerage rankings from financial services analysis firm, Surviscor, were released this past week and featured some interesting results on the pool of Canadian brokerages.

For DIY investors, rankings and ratings from third party agencies help to provide insights into what the client experience is like at particular Canadian online brokers. In Canada, there are three primary rankings that investors typically turn to – the Globe and Mail’s annual online brokerage rankings, the Online Self-Directed Discount Brokerage Rankings by Surviscor, and the J.D. Power & Associates Self-Directed Investor Satisfaction Study.

Expectedly, each of these rankings and ratings measures different aspects of the online brokerage segment and provides a rating based on their respective view of what separates the best online brokerages in Canada from their peers. For DIY investors, this translates into a somewhat muddled experience where different rankings and ratings provide different perspectives on the question: “which online brokerage is best?”

It is against that backdrop that the most recent iteration of Surviscor’s Canadian discount brokerage review offers some fascinating insights and also provides important lessons for DIY investors relying on rankings for researching online brokerage accounts. In particular, because of significant changes to how they have defined their Canadian online brokerage review in 2019 and what the resulting effects are for interpreting the rankings, it is important for DIY investors to look more carefully at the latest Surviscor rankings to understand how those changes impact potentially important decisions around choosing an online broker.

Starting with Definitions

An important but easy to overlook detail about the difference between the 2019 Surviscor rankings and the 2018 rankings is seen in the respective press releases associated with the rankings data release. In the 2019 rankings news release, it states:

“Surviscor’s proprietary scorCard methodology measures over 3,600 objective usage-related criteria questions over six independent categories, each weighted according to industry importance through direct feedback with industry firms.”

However in the 2018 news release, the following was stated:

“Surviscor’s proprietary scorCard methodology measures over 4,000 objective usage-related criteria questions and reviews each firm by 9 independent categories, each weighted according to industry importance through direct feedback with industry firms.”

Thus, the first important difference appears to be a change in the number of criteria and in the number of categories that are being used to assess Canadian online brokerages in 2019.

As seen in the table below, the categories that did not make it into the 2019 assessment were related to service experience, mobile experience, transactional experience, and cost of services. This selection of categories substantially changes the way in which an online brokerage is evaluated as a whole – shifting the focus to certain components of the experience.

2018 Categories	2019 Categories

Initial Experience	Initial Experience
Service Experience	X
Mobile Experience	X
User Experience	User Experience
Account Experience	Account Experience
Market Analysis Experience	Market Analysis Experience
Transactional Experience	X
Investing and Planning Experience	Investing and Planning Experience
Cost of Services	X

Another important qualifier to the 2019 Surviscor rankings is that these rankings are purposefully attempting to measure the overall “self-directed online brokerage experience” for desktop users. The rationale for the significant change to this year’s study was to focus “on the pure online usability experience to better determine the best online/desktop platform for Canadians.”

Diving into Numbers

Those important contextual points considered, this year’s ranking saw Qtrade Investor still manage to retain its position atop Surviscor’s rankings for the fourth consecutive year. While this is a laudable feat in such a competitive field, it is noteworthy to see that this year the gap between first and second place (TD Direct Investing) came down to one percentage point – a gap that has never been that narrow in the four consecutive years that Qtrade Investor has topped these rankings. Rounding out the top three this year was Scotia iTRADE, a bank-owned online brokerage which has traditionally had a strong showing in these rankings and is back on the podium in 2019 after having placed fourth in last years assessment.

When transactional, service, mobile, and cost data are removed from the evaluation criteria, the 2019 online brokerage rankings paint an interesting perspective of the field of DIY trading service providers. Immediately, the relative advantage that “low-commission pricing” provides is removed in the 2019 rankings.

Three of the four lowest cost online brokerages occupy the lowest three positions when it comes to the “online brokerage experience”: CIBC Investor’s Edge (ranked 10^th), National Bank Direct Brokerage (ranked 11^th) and Interactive Brokers Canada (ranked 12^th).

Clearly, it is important for DIY investors to note that the “best online brokerage” doesn’t necessarily translate into the lowest cost online brokerage nor the “best value,” since commission prices appear to be heavily factored out.

Even with most online brokerages now charging standard commission pricing in the sub-$10 per trade range, events in the US online brokerage space as well as recent moves by brokerages such as Wealthsimple Trade (which was not featured) and National Bank Direct Brokerage point to a significant enough gap in pricing that DIY investors could still see merit in switching brokerages to realize savings on commissions. In other words, DIY investors are still price sensitive when shopping for online brokerages.

The performance of the Canadian online brokerage field in 2019 as measured by the Surviscor rankings is interesting in and of itself. Removing price factors as well as mobile and service features, however, introduces a substantial degree of variability in the scoring when comparing results year over year, and paints the picture of an industry that – other than the excluded factors – is generally getting it right when it comes to “online brokerage experience” for DIY investors.

One of the first interesting characterizations was noted by Surviscor in their press release as a “surge” in performance by TD Direct Investing moving up three ranking positions from fifth place in 2018 to second in 2019. We took the extra step of crunching the numbers on the gainers and decliners for 2019 compared to 2018 to highlight the magnitude of performance difference. Indeed, TD Direct Investing did “surge” a remarkable 22 percentage points from 69% in 2018 to 91% in 2019.

That said, a positional shift (or surge) also took place with two other firms: Desjardins Online Brokerage and HSBC Invest Direct. The latter of these was particularly interesting given the historically poor performance shown by HSBC InvestDirect on the Surviscor ratings since 2016 where it has either been second last or last. Using the new criteria for measurement in 2019, this suggests that the combination of pricing, transaction, mobile experience and service were actually dragging these firms down in terms of performance on the Surviscor rankings.

Two other firms saw double digit percentage point improvements compared to 2018: Scotia iTRADE (+16 percentage points) and Virtual Brokers (+17 percentage points). Despite these sizable gains, however, their respective rankings only improved one position, with Scotia iTRADE climbing to third place this year and Virtual Brokers rising to seventh place.

Interestingly, there were three firms that saw percentage improvements but did not see any change in their rankings: Qtrade Investor (remained in first), RBC Direct Investing (remained in sixth), and CIBC Investor’s Edge (remained in 10^th).

Perhaps the biggest curiousity from this year’s rankings comes not with the advancers, but in the decliners category.

There were four firms that saw position rankings slip, however, in three of those four brokerages, there were actually increases in the percentage scores compared to 2018. This underscores a broader takeaway from the results of this year’s online brokerage rankings, which is that the quality of online brokerage experience appears to be significantly better this year at almost all brokerages. The one exception according to these results is Interactive Brokers, which plunged from seventh place in 2018 to twelfth in 2019.

Removing the factors related to price, mobile experience, transaction experience, and service experience appears to have a significant impact on the comparability of results year over year.

Compared to previous years, the year over year volatility in rankings and percentage points seen from 2018 to 2019 is significantly higher. The standard deviation in scoring in 2018 vs 2017 was 1.97 whereas in 2019 compared to 2018, this worked out to be 7.62 or almost a factor of four (3.87x) difference.

Why that is relevant to note, however, is that in comparing rankings from one year to the next, it is also important to understand that those rankings are not measuring the same set of attributes. And, it is on that particular point of year over year comparability of rankings that consumers and DIY investors need to take the streaks and the ranking shifts with a grain of salt.

To put the impact of the measurement changes in perspective, in 2018, only one firm (Qtrade Investor) scored better than 79% for overall experience whereas in 2019 there were six – or half the firms analyzed – that scored above 79%. Since 2019 to 2018 is not a true apples-to-apples comparison, however, the shift in ranking positions year over year has to be heavily qualified, as does the consecutive nature of a particular ranking. While it is true that Qtrade Investor is first overall (again), why they are first is materially different.

The Takeaway for DIY Investors

For DIY investors shopping around for online brokerages, rankings and ratings are generally a go-to resource to better understand what kind of brokerage experience can be expected. That said, it is important to note that online brokerage rankings and ratings are not static, nor do they measure the same things between rankings.

As such, while an accolade such as being named “best online brokerage” by a particular rating firm is certainly something online brokerages can be proud of, for consumers it is crucial to ask more questions about the nature of what’s being measured. In other words, definitions matter as much as the results.

In the case of the 2019 Surviscor online brokerage rankings, the focus has shifted away from a number of previously important components to focus on the desktop user experience.

The fascinating implication of this analysis, however, is that the differentiators for almost half the brokerages are on the factors that were excluded. That is to say, with so many brokerages scoring 80% or better on “experience” features, this evaluation shows the brokerages have very similar (and reasonably good) platforms and will have to differentiate themselves on other features.

The real answer (if there is one) is how these experience factors combine with the separated-out factors like mobile experience, price, and service. Strategically, Surviscor will be launching a comprehensive “Digital Brokerage Experience award” in 2020 that combines the multiple assessments into one evaluation. The challenge for DIY investors, however, is making sense of the different ranking performances and the inevitable confusion from multiple online brokerages rightfully claiming that they are the “best online brokerage.”

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Cast a Wide Net Worth

Following the loss of their preferred finance tracking tool, one DIY investor wants to know how others keep tabs on their net worth and investments. Read on for tools and tips provided by fellow forum users.

Singled Out

A DIY investor has questions about how to go about investing in a single US stock as a Canadian. See what advice other Redditors provided.

Into the Close

That’s a wrap on this edition of the Weekly Roundup. We’re going to be putting the Roundup on park for the remainder of 2019, so this is the official sign off for the year (unless some kind soul in the online brokerage world decides to take commissions to zero just before the end of the year). While we’ll be monitoring developments and reporting on deals updates (and potentially groundbreaking news), we’ll otherwise be in the workshop until 2020. On behalf of the SparxTrading team, we’d like to thank the loyal Weekly Roundup (marathoners) readers for tuning in, and wish you all the best for the holiday season, and the New Year! Stay safe and profitable!

Posted on December 9, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – December 9, 2019

With the holiday season just a few short weeks away, gifts and presents are top of mind for many folks. Fortunately for Canadian DIY investors, there are some early presents that have arrived courtesy of some of the newest online brokerages in Canada – and the timing couldn’t be better.

In this edition of the Roundup, we keep things all Canadian (for a change) with a look at the newest online brokerage to roll out in Canada – including the challenges and opportunities they face in a crowded field. From there we’ll review the latest feature being rolled out by another relatively new online brokerage, and how their newest feature can be both a blessing and a curse. As usual, we serve up some interesting chatter from DIY investors on Twitter and in the investing forums.

CG Direct Rolls Out as Canada’s Newest Online Brokerage

This past week, an important and long-awaited shift took place in the Canadian online brokerage space. Jitneytrade, the online brokerage in Canada that is heavily focused on the active trader, and which was acquired in 2018 by Canaccord Genuity, officially wound down their website and transitioned to the new online brokerage segment at Canaccord called CG Direct.

In keeping with the acquisition trend in the Canadian online brokerage space, the smaller independent discount brokerages such as Virtual Brokers, Qtrade Investor, and Credential Direct have been snapped up by larger wealth management players. In the case of Virtual Brokers, it was CI Financial and for Qtrade Investor and Credential Direct, it was Desjardins. And, although the figures related to these transactions weren’t made available, the deal for Jitneytrade was, and came in at $14.8M in June 2018.

The key takeaway: independent online brokerages in and of themselves are not sufficiently profitable to be commercially sustainable in Canada. They need to be part of a spectrum of wealth or financial management services in order to have a chance of competing in the ultra-crowded online investing segment.

So, what would possess Canaccord to wade into a very crowded online brokerage space in Canada? Like most deals, it’s likely driven by ROI.

According to Canaccord’s FY 2019 annual report, the acquisition “serves to support the Company’s mid-market growth strategy by enhancing its market share of equities trading and providing access to new areas of growth through accelerating its development of an enhanced fintech product offering.”

What a positive return looks like for Canaccord is not just growth in revenues from commissions but also a deepening of relationship with their existing (and wealthy) managed wealth client base. With the acquisition of an online brokerage, no longer does Canaccord have to step aside while their private wealth clients who want to “dabble” on their own take assets to another firm or online broker. Instead, Canaccord can now keep those clients “in the tent” and create a stronger case for bringing assets located elsewhere into Canaccord.

Of course, growing assets from within is only one facet of the ROI picture. Another component to the possible return on this purchase will be the extent to which they can win new clients. In this regard, things are going to be considerably more difficult for Canaccord to successfully execute on.

While Jitneytrade may be a name more familiar to professional traders, among most retail investors it is not. This creates two distinct challenges: one is carrying over the Jitneytrade “brand” to the active trader segment, and the second is translating the Canaccord brand into something retail investors believe is compelling.

In the case of the first challenge, retaining existing Jitneytrade clients under a new banner of CG Direct will likely not be too difficult assuming service and pricing stay relatively close to where they were pre-merger. Interestingly, digging into the details of the deal, there was a category of the transaction labelled “intangible assets” which was valued at $1.9M, which specifically related to the value of customer relationships. Indeed, the ultra-active and professional trader segment is a high-touch client, which simply means that while pricing is key, relationships matter (a lot). Going forward under a new banner of CG Direct, growing the brand among the active trader community will now require selling the merits of CG Direct as the destination for active traders. It will have to compete directly with Interactive Brokers in this regard.

The second challenge will clearly be attracting business in the retail investor segment in an already crowded discount brokerage field.

With a new brand, there are inherent hurdles to clear (such as: Who is this firm? Can they be trusted?) and out of the gate, there are already some clear stumbling blocks to winning the attention battle for CG Direct. Perhaps the biggest challenge will be the “differentiator” among the other players.

For new entrants to the Canadian online brokerage space, pricing is one of the biggest drivers of attention among DIY investors. The pricing for CG Direct – at least for the equity commissions – is at the industry standard $9.99 per trade (plus any ECN fees), which pits it against the larger online brokerage competitors. When it comes to options, though, pricing is a bit more competitive (or even better) than most of the online brokerage peers. CG Direct will be charging $1.00 per options contract with a minimum commission of $10.

On the technology front, the retail web-based trading platform for CG Direct, called DirectFolio, will be up against incredibly tough competition. While the core business of an online brokerage is order execution, the “standard” offering for most online brokerages when it comes to platform is to deliver a relatively feature rich experience. As an extension of that, the current website and digital experience of CG Direct is not the kind of wave-making experience that something like Wealthsimple Trade has been. In particular, there is a sense that CG Direct is a “desktop” brand versus a “mobile” one, suggesting that the pace of growth in the retail investor segment is going to be limited by the ability of CG Direct to appeal to the newer, tech-savvier generation of investor who all the competitors are working very, very hard to attract.

When an online brokerage can focus its identity on a segment – e.g. if CG Direct were purely for active traders – it becomes easier for consumers to understand what CG Direct does and when the right time would be to engage them as an online brokerage. In this case, however, with CG Direct going after two segments of the market, it will be an uphill battle to structure communications to be appealing to both.

One component of the story that we have not yet dove into is the potential for robo-advisory services to also emerge from this transaction. In addition to Jitneytrade, Canaccord acquired Finlogik – a company also started by the founder of Jitneytrade. The Finlogik side of the deal also brings with it the software platform that could be used for the deeper push into the digital wealth management experience (e.g. robo-advice) and the web-based trading platform for the self-directed investor.

Ironically, as online brokerages, their core business comes down to execution. In this case, success of the CG Direct brand will undoubtedly come down to execution on the value proposition and brand promise.

For active investors and traders, this means CG Direct needs to continue to execute well on the “bespoke” pricing and service experience that Jitneytrade was known to offer. And, in wading into ultra-competitive waters on the retail investor side, delivering on the value that online investors expect from a discount brokerage (pricing, platform, ease of use, service, resources, etc.) will be crucial if the online brokerage arm of Canaccord is going to be more than a retention tool for existing clients.

Wealthsimple Trade Transfers Now Active

The journey of a thousand miles begins with a single step. In the road to bringing even lower commission costs to Canadian DIY investors, Wealthsimple Trade has been slowly moving forward on its plans to be a genuine competitor to other Canadian online brokerages. This past week, the social media feeds for Wealthsimple Trade highlighted another important step that the zero-commission brokerage has taken to make it easier to do business with them: enable account transfers.

DIY investors can now request a transfer of their eligible registered and/or registered accounts to Wealthsimple trade. Among the accounts users can transfer over to Wealthsimple Trade are TFSAs, RRSPs and non-registered accounts.

Ready to make a move? Transfer your existing investment accounts over to Wealthsimple Trade with a few clicks.

Tell us the details and we’ll take care of the rest so you can start enjoying commission-free trading in no time.

— Wealthsimple (@Wealthsimple) December 5, 2019

As an added bonus, if the amounts being transferred over are greater than $5,000, then Wealthsimple Trade is willing to cover the transfer fee that the existing brokerage will likely charge on the way out.

There is still no way to directly transfer between Wealthsimple and Wealthsimple Trade, however the fact that it is now possible to go from one institution directly into Wealthsimple Trade without having to sell a portfolio into cash first is a big plus for DIY investors who want to take a dive into the zero-commission experience.

For other online brokerages, even though the changes that are taking place at Wealthsimple Trade are still small enough not to be too concerning, the ability to have investors transfer funds and securities away from their brokerage is one which undoubtedly raises some eyebrows.

The addition of account transfer capability was undoubtedly an important feature to get rolling just before RSP season ramps up to full speed, however, this particular feature is not without its risks.

Unlike many of its peers, Wealthsimple Trade (and its parent, Wealthsimple) have made significant strides to redefine user experience in the financial and wealth management space. Their websites, apps and even content are very much the envy of other wealth management firms and as such, the Wealthsimple brand has earned a substantial degree of goodwill with consumers, in particular millennials.

Of course, aesthetics aside, when it comes to people and their money, emotions inevitably factor in and expectations around reliability, stability and speed are also crucial. Why this matters in the context of account transfers is because unlike account opening (which can be completed in minutes online) the account transfer process can take anywhere from two to four weeks (and in many cases, even longer). This pits the ultra-fast, low-friction experience and promise of Wealthsimple Trade against the realities of the financial network between online brokerages in Canada today. And, for anyone who reads the financial forums and tweets about online brokerages on a regular basis, it’s clear that account transfers make up a unique category of frustration among DIY investors.

So, as widely anticipated as this feature is for Wealthsimple Trade, it is almost one of those “be careful what you wish for” situations as well.

Not only is the risk (based on ample evidence from other DIY investors’ brokerage transfer experiences) of mistakes incredibly high, the consequence and subsequent optics of delays that stretch into the weeks and months are terrible. If Wealthsimple Trade manages to generate enough interest, they could be the victims of their own success when it comes to having too much volume of transfer activity taking place, which would also strain their internal resources. Add to that the very high likelihood that their target client is on social media in some way shape or form, and the magnitude of the mistake or delay – even if it is not on Wealthsimple’s end – would be outsized relative to their peer firms.

When it comes to trading and markets, timing is really everything. In the case of Wealthsimple Trade’s new transfer capabilities, it may be a question of investors waiting and seeing as to whether or not the two to four week window is realistic or if it is something even longer. If there’s one thing worse than paying bad fees, it’s enduring the uncertainty of exactly who has your entire nest egg while it’s being moved. Trading markets is fun, trading brokerages – at least from what is written about online – not so much.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

No Time for Bonds

A DIY investor questions the advantages of bonds over HISAs. Fellow forum users weigh in, providing insight on situations in which each type of investment would prevail. Read more here.

Slow and Steady Wins the Race

A 45-year-old, self-employed Redditor wants to start investing and turns to the forums for guidance on where to begin. Read the advice that fellow forum users gave this new DIY investor here.

Into the Close

That’s a wrap on another eventful week. Fortunately this week there was lots taking place in the Canadian online brokerage space. Just like the shopping habits of many consumers, the online brokerage space still might have a few last-minute surprises left before the end of 2019. With a new decade just around the corner, some new discount brokerages starting to make waves here in Canada, there’s lots for DIY investors to look forward to in 2020. To anyone braving the malls to shop, hats off to you and wishing you lots of great parking karma!

Posted on December 2, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – December 2, 2019

Sandwiched between Black Friday and Cyber Monday, the beginning of December is undoubtedly synonymous with big savings and big deals. This year, there are definitely both in the world of online brokerages here in Canada and in the US.

In this edition of the Weekly Roundup, we review the latest deals activity to cross the wire at the outset of December and explore some interesting trends for the end of 2019 and early 2020. From there, we peer into the fog of online brokerage war as the massive news of the Schwab / Ameritrade deal continues to send shockwaves of uncertainty through the online investing industry. For a great change of pace, we’ve also got the ever popular DIY investor tweets as well as chatter from investors in the forums.

December Deals & Promotions Update

It’s a new month and that means another chance to revisit the discount brokerage deals and promotions scoreboard to see what’s new for the month as well as what trends are emerging for promotions from Canada’s online brokerages.

There’s a slight bit of irony to the fact that the end of financial literacy month (November) coincides with both Black Friday and Cyber Monday, since the former is all about learning how to manage money wisely and the latter are all about getting consumers to open up their wallets with the promise of deep discounts. In the world of online investing, the irony extends just a tad further, with “discount brokerages” now cutting commission rates to zero (at least in the US) in the hopes of seeing more trading activity take place.

Before going too far into the trends or strategies that we see unfolding, the good news is that the deals and promotions activity heading into December is upbeat (at least for DIY investors).

Despite there being no online brokerage launching a deal on December 1^st, there are currently 24 offers available to DIY investors and the brokerages currently offering deals represent some of the most popular choices in the space.

Kicking off December, most of the big five bank-owned online brokerages, with the exception of TD Direct Investing, have either commission-free trade offers or cash back promos currently in the market. This offers considerable value for DIY investors to choose from and is dominating what investors are looking at on SparxTrading.com.

That said, we’re expecting some volatility and turbulence over the typically quiet holiday period because of the spacing out of expiry dates on some of the current offers.

RBC Direct Investing, one of the bigger players in the online brokerage space behind TD Direct Investing, has their commission-free offering currently scheduled to expire on December 13^th. BMO InvestorLine’s seasonal offer is set to expire at the beginning of January 2020 and both Scotia iTRADE and CIBC Investor’s Edge have deals set to expire close to the end of February or beginning of March – which coincides with the RSP contribution deadline of March 2, 2020. So, even though the beginning of the month may be relatively quiet, there’s a good chance that there will be more activity as the month progresses or as soon as the new year hits.

One big development in the online brokerage space that is likely going to impact the way in which deals and promotions unfold in the new year is the move to zero-commission trading in the US.

In Canada, the wave of zero-commission trading has yet to fully take hold and between now and the time that it does, the go-to place for online brokerages to get the attention of value-conscious investors is going to be with deals and promotions.

Knowing what’s at stake in terms of having to lower commission prices to zero entirely, the better option for online brokerages is to start dishing out bigger and more valuable incentives to attract new clients (or more accurately, more assets) and more importantly, to retain clients (and their assets).

We’re already seeing that online brokerages are starting to get more creative with what they’re offering.

Scotia iTRADE, for example, launched a new promotion at the end of November which combined both a cash back promotion with a discount in standard commission fee down to $6.99 per trade. That same promo also offered the option to choose commission-free trades instead of cash back. And, to boot, this is a tiered offer that ranges from deposits as low as $5,000 all the way up to deposits of at least $5M. This is by far one of the most comprehensive offerings in terms of choice and targets. By contrast, BMO InvestorLine’s tiered offer is focused on cash back and for higher deposit levels only.

For brokerages other than the big-five bank-owned online brokerages, the mix of already low commission prices and convenience-appeal of a bank suggest that there has to be a mixture of bold thinking and savvy marketing to navigate the choppy waters for their brands going forward. There are likely to be firms that will try to tread water with middle of the road promotional offers, however, it is clear that to stand out from the big bank online brokerages, one strategic area to do that is with promotional offers.

It almost goes without saying but the commission rate drops or promotional offers alone are not going to be enough to keep clients, the service and value experience has to also measure up otherwise customers will choose a provider who gets the details and little things that are important to online investors right. That said, unless there’s something to get attention away from the behemoth and ultimately familiar banks, investors will likely default to the fastest and easiest option this holiday season.

Certainty Begets Uncertainty

They say when it rains, it pours. It seems like a fitting description for the online brokerage space in the US this past week (and for the past 8 weeks) which saw perhaps the biggest repercussion of the zero-commission fee move unfold.

Last week, we reported that Schwab was rumoured to be in talks to buy out TD Ameritrade, and this past week the announcement was made official. Schwab announced that it would be purchasing TD Ameritrade in an all stock deal valued at $26B USD. With the stroke of a pen, two of the US’s largest online brokerages combined forces to create a super online brokerage with almost $5T (trillion) USD in assets under management (AUM).

The question that everyone is asking is naturally where things go from here? In particular where things go for E*TRADE Financial, which for a long time was viewed as the most likely candidate to be acquired. Though just speculation, the case for takeover of E*TRADE seems to still be viable. There are still entities large enough to take on acquiring an online brokerage (including competitors like Fidelity or even Goldman Sachs) however, even a private equity deal in which the business pieces were sold off to different parties could make sense given the value of the different business lines operated by E*TRADE.

In addition, this past week the online brokerage credited with accelerating the move towards zero commissions, Robinhood, quietly withdrew their application for bank status, putting their cash management plans in limbo. Curiously, despite this about-face, there are still images for debit cards on the homepage of the website, suggesting either that they’re slow to update their site (not likely) or that there will be cash management coming but through a partnership with an existing financial institution – potentially similar to what Google is orchestrating in its partnership with Citibank to create their “Cache” program.

Sufficed to say, it has been a whirlwind of activity into the end of the year. Judging by the degree of uncertainty still surrounding the acquisition of Ameritrade by Schwab, the fallout for brands like E*TRADE and Robinhood, and the new world in which online investor preferences are going to shift to focus on the other value drivers of the online investing activity flow.

The big question to DIY investors is “so what?” In particular, for Canadian DIY investors there is clearly an undercurrent of consumer demand for the same kind of pricing in Canada that online investors in the US receive. On Twitter as well as in financial investing forums, Canadian investors are calling for rates to drop to zero for commissions – the premise being if the US online brokerages (as in ALL of the US online brokerages) can go to zero, why can’t Canadian brokerages? It’s a fair question and not one that Canadian online brokerages can answer well just yet, with one exception – Wealthsimple Trade.

Perhaps the only thing that is clear at this point is that there is a great deal of uncertainty looking forward in the online brokerage industry. The fun part of that uncertainty is that it leaves room for speculation.

The one thing that analysts can hang their hats on as far as value is the assets that individual investors bring with them and what that, in turn, can be converted into as far as revenue for the financial services firm. Looked at in this light, financial services firms rely on having large pools of users to achieve the scale required to be sustainable. That also means that technology platforms, such as all of the members of the FAANG stocks, are likely competitors for the traditional financial services firms. For that reason, our best guess for the path forward for the large (and especially not so large) financial services firms will be becoming exceptionally interesting and helpful in the financial management of everyday investors. Anything less, and there’s going to be a cheaper and faster alternative provider for it.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

One Hit Wonder

After switching jobs at 40, this Redditor’s pension payout was put into a LIRA. Worried about the future of the economy, this forum user seeks advice on how to proceed with their pension. Read the responses of fellow Redditors here.

Mad Max

Having already invested in a HISA and GIC, a DIY investor is considering using their TFSA to invest in index funds to get the best returns. Redditors weigh in on this financial situation and provide guidance on the best ways to use a TFSA effectively.

Into the Close

Fitting heading into the holiday season that that’s a wrap on another edition of the Roundup. With Cyber Monday now upon us, there are clearly deal hunters on the prowl and by all accounts this year was a strong one for shopping activity. Savvy DIY investors also know that this is the most wonderful time of the year for bargains on under-performing stocks (*cough cough cannabis and energy*). So, while there’s more than enough uncertainty to go around these days, don’t lose sight of the opportunity it creates. Happy deal hunting!

Posted on November 25, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – November 25, 2019

Black Friday is just around the corner and with just about everyone looking for a bargain, it will be a fine balance to keep things profitable in the face of so many deals. For DIY investors, the good news is that deals keep rolling in and even for online brokerages, there seems to be some interest in making an important purchase.

In this edition of the Roundup, we dive into the latest deal from a bank-owned online brokerage that highlights just how competitive things are getting heading into the end of the year. Of course, the competitive landscape here in Canada pales in comparison to the US where another mega-story is unfolding between the largest players on the online brokerage field. After a decent helping of news, we’ve got just the right amount of extra topping with chatter from Twitter and the investor forums to dig into.

Scotia iTRADE Latest Offers Come Out Swinging

With November quickly drawing to a close, the one thing that Canadian discount brokerages are seeing more of (other than requests to drop their commission prices to zero) is investors hunting for places to open up online trading accounts – in particular TFSAs and RRSPs.

This past week we took note of yet another online brokerage who is jumping back into the deals hot tub. Scotia iTRADE, one of Canada’s big 5 bank-owned online brokerages, stepped forward with a promotion that combines a lowered standard commission price of $6.99 with either a cash back or commission-free trade option.

Building on the momentum from their campaign in the summer featuring a number of social media influencers, it appears that the mass market version of that offer has substantially more tiers and as such, Scotia iTRADE is marketing to multiple investors with this offer.

Scotia iTRADE’s latest promotion consists of 8 deposit tiers, starting with a remarkably low entry point of $5,000 and going all the way up to $1M+. In doing so, Scotia iTRADE has positioned its offer against two of its bank-owned competitors that also have cash back offers, namely CIBC Investor’s Edge and BMO InvestorLine. The table below, which we first wrote about earlier this month, shows an updated view of exactly where the different tiers for Scotia iTRADE’s latest promotion stack up against its peers.

For non-referral offers, Scotia iTRADE actually has the best cash back promotion going for deposits ranging from $5,000 to $24,999. Specifically, it has cash back offerings of $25 and $50 (respectively) as well as a combined drop of commission prices (albeit temporarily until June 2020) to $6.99 per trade. This puts the commission price for Scotia iTRADE’s promotional period very close to the standard pricing for CIBC Investor’s Edge, at $6.95. Scotia iTRADE’s platform and associated features, commission-free ETF selection, and experience in technology could overall, arguably, make it of greater value than the difference of $0.04 per trade (at least over the short term).

For deposits ranging from $25,000 to $249,999, Scotia iTRADE’s cash back offering is on par with CIBC Investor’s Edge. The differentiating factors, therefore, make it debatable as to which bank-owned discount brokerage offers the better value.

For active investors, or those investors that favour ETFs, the decision will likely tilt towards Scotia iTRADE and for more price sensitive investors, CIBC Investor’s Edge might win out because of their commission pricing (and the fact that $6.95 is their standard price, not a promotional one).

Where things start to get interesting is at the higher tier of deposits – specifically deposits greater than $250,000.

Alongside Scotia iTRADE the only other Canadian online brokerage with a cash back promotion for DIY investors at this deposit tier is BMO InvestorLine – another bank-owned online brokerage. For that reason, it is impressive to see that Scotia iTRADE is offering 88% more in cash back for deposits at $250,000 and 25% more for deposits at $500,000. Clearly Scotia iTRADE is trying to send a message to BMO InvestorLine that it is going to fight aggressively for clients at these deposit levels. Because BMO InvestorLine’s deposit tiers don’t include a direct offer at $1M, it means that Scotia iTRADE’s offer of $1,500 is almost 88% greater than the $800 a client would receive from going to InvestorLine.

At these high deposit levels ($1M+), it may seem trivial to be talking about the relatively small amount of cash back offered relative to the deposit itself, however when it comes to competing offers from bank-owned online brokerages, getting almost twice the level of cash back (and access to commission-free ETFs and lower per-trade commission pricing for a limited time), the value proposition is too hard to simply ignore.

Of course, there’s a whole other category that the latest Scotia iTRADE promotion also competes against, which is commission-free trades. In this category of promotion, there are three other primary competitors, Desjardins Online Brokerage, Questrade and RBC Direct Investing.

When it comes to something like a commission-free trade offer, however, there are a few more moving parts for investors to calculate to determine the true value. For example, what the standard commission pricing is and how long the free trades are “good for” are two important factors DIY investors should consider when evaluating a commission-free deal.

Another element that some investors find important is to distinguish between commission-free credits and commission-free rebates. In the case of the former, investors are not charged at the point the trade is made (or if they are, the trade commission is refunded immediately) and in the case of the latter, the commissions for the trade are charged to the client but are be reimbursed at a later date so long as the stipulations of the commission-free trade offer are adhered to for the promotional period.

The multiple moving parts, and the tangibility of cash back mean that commission-free trades are typically less appealing than their cash back counterparts.

In the case of commission-free trade offers, however, Scotia iTRADE is definitely offering up more commission-free trades than other Canadian discount brokerages for deposits over $25,000. Beneath that threshold, however, there is a lot more competition for Scotia iTRADE.

The primary competitor – RBC Direct Investing – is offering up 25 commission-free trades which are good to use for up to a year for a minimum deposit of $5,000. At that same deposit tier, Scotia iTRADE’s commission-free trade option ponies up 10 commission-free trades which are valid for 90 days. For deposits less than $5,000, Questrade has full share of the promotions field, with several commission-free trade offers in play, the best of which offers up 60 days to take advantage of the commission-free status.

Drilling down into the latest offer from Scotia iTRADE shows that the competition between bank-owned online brokerages in Canada is heating up. The end game for the Canadian discount brokerage space is about scale – and for DIY investors who have assets to invest, there is clearly room to negotiate. With iTRADE now in the mix, most of Canada’s bank-owned brokerages are “in market” with compelling offers for at least some segments of investors. This ups the ante and the pressure on any remaining brokerages without ANY offers to step in quickly.

As in the stock market, timing is everything. While there are benefits to seeing what everyone else is doing with respect to pricing, any brokerage waiting too long is going to risk being out in the cold when it comes to attracting clients and assets while investing is top of mind.

Market Hints at Schwab Acquiring TD Ameritrade

If it seems like the US online brokerage market has been in the news and been a topic of conversation in the Weekly Roundup since October, that is because it has. The tsunami of news about online brokerage commissions in the US going to zero took on even more life this past week, with chatter that the largest online brokerage, Schwab, looking to take over rival TD Ameritrade for a projected sum of $26 billion (USD).

Suffice to say that this combination of brokerages was not among the top of the list of forecasted scenarios. There was much more hype and focus on E*Trade as a takeover target than Ameritrade. Even so, contemplating a merger between two of the biggest online brokerages in the US paints a distinctly bipolar picture for the industry as a whole. The winners – both Schwab and Ameritrade – can be seen by the rise in the stock price upon the market learning of this potential deal. The clear losers, at least according to the market, E*Trade and Interactive Brokers.

It might be safe to say that Interactive Brokers didn’t see this magnitude of impact erupting when they chose to launch their commission-free trading platform, IBKR Lite, which is seen as being the tipping point that led the online brokerage industry as a whole in the US to decide to go to zero-commission pricing.

Among the pivotal questions – will this deal go through? And assuming it does, what does that then mean for rivals like Interactive Brokers and E*Trade? What about the new entrants? The Robinhoods of the world will be left competing against a brokerage the size and scale of the combined entity that might be Schwab and Ameritrade (aka Schwameritrade?).

If there are any clues as to what this means for other brokerages, it might be derived from Schwab’s reporting of their account growth since going commission-free. Schwab reportedly gained 142,000 new client accounts and blew the doors off their previous new account growth numbers (and likely that of their competitors). Clearly the calculus on commission-free trading accounts has paid off for Schwab.

Despite the still-fluid state of the US online brokerage landscape, Canadian market observers are trying to get a proxy on whether or not what is happening in the US will play out in the same way here in Canada.

It’s all just speculation at this point, but the lessons learned from the US online brokerage space points to there likely being little to no appetite for Canadian online brokerages to rush to zero. The benefit of letting the US online brokerage market go first is that players here can take a “wait and see” approach as to how online investing can be profitable with lower commission revenues in place.

Secondly, if it wasn’t clear before, it is now abundantly clear that scale matters when it comes to online investing and wealth management more broadly.

The only remaining independent (i.e. non-bank or non-big financial partner owned) online brokerage in Canada is Questrade. Its scale and technology stack – in particular its trading platform, make it an interesting possible fit for a very small number of bank-owned brokerages who are lagging behind the biggest player, TD Direct Investing, in terms of platform and user experience. Nonetheless, when it comes to choices for massive growth in the Canadian online brokerage provider space, there aren’t many places where it is possible; unless providers exit the space or merge (or are acquired).

The possible merger between Schwab and TD Ameritrade will still have to face a great deal of scrutiny from market and anti-trust regulators. The test of whether this will ultimately have beneficial or harmful effect for the marketplace is still an open question considering how much of the market of wealth management these two firms would influence or control. Even so, there are definite hints of further consolidation to come in the US and perhaps one day here in the Canadian online brokerage space.

In a world where lower commissions are a reality, there has to be greater scale or volume to keep things profitable otherwise the notion of a lower price making investing more accessible will actually have the opposite effect. Heading into Black Friday it seems that when it comes to low commission prices, investors should be careful of what they wish for.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Keeping it Real

A Redditor questions the appeal of real estate investments over index funds. Fellow forum users provide insight, discussing the pros and cons of real estate as an investment.

Won is the Luckiest Number?

A DIY investor seeks advice for creating his own portfolio and wonders if a one-and-done, or all-in-one, ETF can help him save on fees and get better returns. Forum users weigh in with the advantages of these types of investments in this post.

Into the Close

That’s a wrap on another edition of the Roundup. Shopping is clearly in the air, with strong retail sales in Canada tied to economic strength, Tesla rolling out a new Cybertruck – the new Musk-have toy for Christmas, and Black Friday coming around the corner. DIY investors love a good bargain, so this week, more than most, it pays to do your homework. Happy hunting!

Posted on November 18, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – November 18, 2019

After what’s seemed like an epic storm of information and discount brokerage news, there finally appears to be an eye of calm. Even in the midst of the calm, however, there are still swirls of activity that point to even more turbulence in the future.

In this edition of the Roundup, the future is in focus with a couple of unfolding trends making news this past week. Up first is a story about the convergence of tech and finance and how the landscape of personal financial management is set to transform yet again. Next, we look at another online brokerage in the US contemplating a move into – wait for it – sports betting. As always, we’ve got a great selection of comments and commentary from DIY investors on Twitter and in the investor forums.

Checking for Competition

With the dust settling on the online brokerage melee in the US, it’s becoming increasingly clear that the line between technology company and financial services firm is getting very blurry. One of the recurring themes we’ve noted in the online brokerage space is that order execution alone isn’t going to be the primary driver for revenues or sustainability, rather, the road forward is going to rely on diversification.

The recent wave of commission fee drops in the US among the biggest online brokerages, also masked the fact that many other smaller players also stepped forward into commission-free stock trading world, most notably, the payment processor Square, which is run by the CEO of Twitter.

Now anyone can buy $42 or even $1 worth of Berkshire Hathaway A ($BRK.A, or $TSLA or $SFIX or…) instantly and for free right in @CashApp. Really proud of the team for making buying stocks and building wealth accessible to more people. Rolling out now! 👋🏼 @WarrenBuffett! pic.twitter.com/5OcUxntPyW

— jack 🌍🌏🌎 (@jack) October 24, 2019

In addition to commission-free stock trading, Square is also launching fractional share trading (something that Schwab also announced it would be opening up to its customers) and with that announcement, the moat around the world of stock trading appears to have been effectively breached.

Why that matters is because the barrier to leap from providing one type of financial solution (e.g. transaction processing) to another is entirely surmountable with the right mix of technology and resource. Which brings us to the big announcement this past week that is surely making waves among financial services providers.

This past week, there were multiple news stories citing that Google is apparently going to launch into the world of providing checking accounts (in conjunction with Capital One) starting in 2020. While this is not the first of the major technology names to jump into the financial services realm (Apple did so with their consumer credit card in partnership with Goldman Sachs and Amazon has discussed launching checking accounts as well), Google is a formidable competitor in the space.

Clearly, as currency and money become increasingly digitized, the tech giants have a natural advantage to harness their expertise and move into the world of finance. As the commission fee wars in the US have readily shown, being an intermediary is becoming a highly challenging role to play without the scale and technology to keep pace. In the case of Google entering the world of personal finance with a checking account, they have both the scale and the resources to rattle a few cages.

Of course, just because Google moves into a space, doesn’t necessarily guarantee it’s success (Google Hangouts anyone?) however it should be sufficiently concerning to the financial services world as a whole to see a large technology company move into something so ubiquitous as a checking account. On the (very big) assumption that Google is able to succeed, it is not hard to envision them moving into other corners of personal financial wealth management that could benefit from greater automation or integration with other technology.

In Canada, there was another big story brewing (not related to Don Cherry) that saw an online brokerage here make the initial moves to launch into banking too.

Questrade, the poster child for the “non-bank-owned” online brokerage is, ironically, now reportedly working on setting up their own banking arm. This past week, there was a reference to a news story of Questrade applying to federal banking regulators to launch a Schedule 1 bank, known as Quest Bank (in English) and Banque Quest (in French).

There is no firm timeline published at the moment, however, the first steps in creating their own banking division are underway. And, while there is already chatter on the investor forums about this possible development and what it will take for Questrade to successfully compete against its larger and better known rivals, there are significant hurdles still to clear for it to gain traction.

Like Google, or Amazon, or Facebook, Questrade is banking on having an installed user base that they can cross market to. The playbook is a familiar one for clients of E*Trade Financial or Interactive Brokers or even Robinhood, where there is some element of a traditional banking feature that is now available to DIY investors via their online brokerage.

Stepping back, it’s also evident that an online brokerage banking is not an original concept, given that banks also do online brokerage. So, in what is essentially a race to the middle – the prized combination of being great at financial service and great at technology – is what firms on either end of the fin-tech spectrum have to get right.

To be fair, banks are not taking the onslaught of competition from technology firms lying down. Groups like “RBC Ventures” demonstrate how financial giants are leaning into the innovation ecosystem by acquiring and incubating promising technology firms. While Google has a substantial head start on creating a portfolio of helpful “apps” to keep users inside of their own network, RBC Ventures appears to be attempting to build an impressive portfolio of everyday useful apps or services that could be offered to the general public and pass along perks to RBC customers.

In fact, RBC was reportedly aiming to win 500,000 banking clients from the RBC Venture program within five years.

Undoubtedly the winds of change are starting to blow in the financial services space yet again. Another big tech player wading into finance and a Canadian online brokerage wading into banking means that distinguishing service providers is going to be increasingly difficult. For DIY investors, the challenge will be untangling who offers the best set of features at the best price. Tied into that assessment is who will make finance the most accessible and easiest to manage on their platform.

Gambling on Betting

It’s sometimes fascinating how worlds collide. The world of wealth management, historically, was one in which continuity, certainty and conservatism were the hallmarks of success. Gambling, casinos and sports betting were almost antithetical to the world of investing.

Fast forward to 2019, and the other side of a crypto-bubble; a commission fee battle and relentless automation mean that the world of wealth management is willing to entertain “creative” approaches to generating new interest and revenue.

This past week there was an interesting story that crossed our radar about one of the largest online brokerages in the US, TD Ameritrade, exploring a venture into sports betting. If this sounds a) unbelievable and b) similar to what Interactive Brokers has done, both of the above are true.

Although nothing has been confirmed in terms of a specific offering, Chief Information Officer of TD Ameritrade, Vijay Sankaran, has confirmed that they are exploring the possibility of entering the realm of sports betting. Few details were provided and though this is very much in the exploratory stage, the fact that a second major online brokerage in the US is looking to tap into the sports betting world might signal an emerging trend.

In July of this year, Interactive Brokers announced the launch of their simulated sports betting program which lets participants play with virtual money to try to pick a winning portfolio. The upside for participants in this program: up to $1000 in commission credits towards an Interactive Brokers trading account. Interactive Brokers has positioned the interactive and simulated sports betting platform as a learning tool and a way to generate new leads for the online broker. The rationale is that those who are successful at betting on sports would likely be competent investors or traders.

While sports betting may not appeal to the vast majority of investors, the investment by at least one major online brokerage in a whole platform and now the exploration of a second online brokerage in the space is a decent indicator that brokerages are open to finding new sources of revenue, even if they have to roll the dice (pun intended) with who they reach out to.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Too Soon?

A Redditor in their mid-20s is looking to invest for the first time and is considering a TFSA. Fellow forum users provide advice, recommending adequate research and risk assessment.

An Uncommon Family Heirloom

After discovering preferred shares in their family’s portfolio, a Redditor asked for information on how they work. Forum users engage in a discussion about what preferred shares are and how one should move forward with them.

Into the Close

That’s a wrap on another week of activity. With Christmas just over a month away, it looks like there’s only a few more weeks left for major developments for discount brokerages to announce. We’ve got our ear to the ground for the remainder of November and December as we still expect some more exciting developments to unfold before the year is done. Until then, good luck staying focused on the news that matters.

Posted on November 11, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – November 11, 2019

This week more than most, the focus of November is on remembrance. For some (cough cough weed) investors, however, November is about trying to forget and cutting ties with losing stocks. Capitulation typically takes a while to set in. With so many losses accumulating this year for lots of DIY investors, however, this could be a bargain-filled month of investors finally throwing in the towel on non-performing names. Of course, on the other side of the trade, there are still several online brokerages who are not quite ready to throw in the towel.

In this edition of the Roundup, we take a look at the newest discount brokerage deal to cross the wire and what the uptick in activity suggests for the stretch heading into the end of the year. From there, we cover another new feature added by the newest discount brokerage on the block, and what it means for driving change among existing online brokerages. As always, we’ve got an intriguing selection of chatter from DIY investors in the forums and on Twitter to close things out.

Deals Uptick: New Cash Back Offer From CIBC Investor’s Edge Now Live

November is a month that a lot of bargain hunters look forward to. DIY investors, however, don’t have to wait until Black Friday to take advantage of deals coming their way, especially this year. Just a few days into the new month and there is another bank-owned online brokerage that has stepped up to the promotions plate with a competitive cash-back offer for online investors to consider.

CIBC Investor’s Edge has launched a new promotion with cash back offers ranging from $100 (for deposits of $25,000 or more) to $400 (for deposits of $100,000). Currently there is only one other bank-owned online brokerage, BMO InvestorLine, that is offering cash back bonuses as part of a general campaign. The latest offer from CIBC Investor’s Edge, however, is decidedly more competitive than other cash back offers from Canadian discount brokerages, whether those offers be referral based or public cash back offers.

As can be seen in the table (below) there are currently five Canadian discount brokerages offering up some kind of cash back bonus offer. From the deposit tiers between $25,000 up to $250,000, CIBC is largely unchallenged (for now) with the only alternative offers for a cash back reward being Questrade or Scotia iTRADE via their referral bonus. Even then, CIBC Investor’s Edge is offering, in some cases, more than two times their competitors.

If history is any indicator, we would anticipate seeing other online brokerages start to enter the cash back promotional offer pool with the bulk of offers focusing between $25,000 and $250,000. That said, with millennial investors getting significant focus this year, it would not be surprising to see additional offers come to market for the sub $25K deposit level.

Already at the sub $25K deposit level, four of the five brokerages offering cash back promotions have an offer, however it is remarkable that those are the same four brokerages with cash back referral programs.

With the end of the year fast approaching, it is likely that additional offers will be coming to market. Those stepping onto the field will have to play a fine balance between waiting to see what competitors are offering and getting into the market to be visible when online investors are most actively looking for an online brokerage.

This year in particular, against the backdrop of commission-free trading in the US, it will be interesting to see what the mix of commission-free offers to cash back offers shakes out to be. With two of the big five banks offering up “mass market” offers that are cash back, it would be tough for the bigger remaining players who don’t yet have an offer (e.g. TD Direct Investing or Scotia iTRADE) to come to market with something less appealing. And, for the non-bank-owned online brokerages, this will be a particularly tricky needle to thread. Commission-free trades are less expensive (but also less appealing), however, their pockets are not nearly as deep as their bank-owned competitors.

With markets shrugging off uncertainty or political volatility and pushing into record new highs, strong economic data, and healthy jobs figures, the big picture sentiment seems strong for Canadian investors in many parts of the country to be thinking about saving (and investing) for retirement. That is likely to be an important driver of just how competitive brokerages are willing to be on incentives, especially considering the zero-commission trading train may pull into the station at any time.

The Long Route: Wealthsimple Trade Grinds Away at RRSP Accounts

The classic football film Any Given Sunday has an iconic speech delivered by Al Pacino in which he talks about football being a “game of inches.” In the highly competitive world of online brokerages in Canada, those inches (or centimetres to keep it metric) are also hard to come by in terms of gaining market share. For the newest online brokerage on the block, Wealthsimple Trade, there continue to be signs that it is making progress in its bid to be a serious contender against other Canadian discount brokerages.

One important step that Wealthsimple Trade recently took was the launch of RRSP accounts for DIY investors.

For such an important feature, it has received a remarkably small amount of spotlight on both the Wealthsimple Trade or the Wealthsimple social media channels. One clue as to why that may be the case is because the account feature is not entirely functional in the way it is at most other online brokerages.

The help section of Wealthsimple Trade provided additional details on why that is. Perhaps the most important limitation on the account right now (at least until November 18^th) is that money that goes into the RRSP account cannot be withdrawn to a linked bank account. Convenience is a big factor for the target market of Wealthsimple Trade, so a perceived hurdle like this is not something they’d want to highlight (understandably) as it could be the source of a lot of confusion.

Another possible reason why there hasn’t been a lot of noise made yet is because there isn’t the ability to transfer RRSPs from another institution into the Wealthsimple Trade RRSP. As a result, the current pathway to gaining traction for Wealthsimple Trade is to rely on RRSP contributors to: 1. Open a new account with Wealthsimple Trade, and 2. Deposit funds there. Again, with convenience being an important driver to adoption, having to open up another account with another provider and keep track of money in two different places is just more work than many DIY investors are prepared to put in. With most passive investors capable of accessing commission-free ETF trading at multiple online brokerages, there are just too many other lower friction options out there.

Despite all of the friction points currently in place for Wealthsimple Trade’s RRSP account (and there are a couple more), there is a strong likelihood that these will be addressed or removed entirely in short order. As RRSP season is just around the corner, it is likely that the creative folks at Wealthsimple will find a way to put an optimistic spin on the state of the RRSP account at whatever level of readiness it happens to be at.

Of course, the ace up the sleeve for Wealthsimple (and Wealthsimple Trade) going into RRSP season is that they recently acquired the very popular tax preparation platform SimpleTax. It is not a great leap to be able to see the synergy for Wealthsimple Trade and the tax preparation software, especially at the moment that an individual would be logging any RRSP contribution data or if they have a tax refund they might need to stash somewhere (like a TFSA, RRSP or other investment account).

For now, Wealthsimple Trade remains the underdog in the online brokerage competition in Canada. Even with zero-commission trades, convenience and ease of use are going to be the key areas that the competition can use to pull ahead. That said, other Canadian online brokerages can’t afford to fumble on service or stability any more, and if they do, DIY investors will be asking why they’re paying the fees they are.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Low Fees, High Price

In the midst of the announcement from Planswell that they’re shutting down, Redditors engage in a discussion on the downfall of the company and the precarity of robo-advisors in the race to the lowest fees.

If It Ain’t Broke, Don’t Fix It

A Redditor concerned with optimizing his son’s RESP ponders whether or not to move from TD e-Series to Questrade or TD Waterhouse. Fellow forum users weigh in, offering advice about whether or not it’s a necessary change.

Into the Close

These days, it seems like there’s no shortage of vitriol kicking around online. Sadly, we’re at a moment in history when the efforts and sacrifices of those who fought against fascism and totalitarianism have been overshadowed by some who, if they were really students of history, ought to know better. Fortunately, the symbols of those who stood up to the world’s evils can inspire us to do the same and give each of us the strength to make the hard choice to do the right thing. Thank you to the brave individuals who continue to serve, in spirit and in person, this great nation.

Posted on November 4, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – November 4, 2019

They say when it (November) rains, it (November) pours. It’s fitting for the start of the second-last month to reference the turbulent weather that many DIY investors encountered at the outset of the new month, and a fitting nod to the Guns & Roses song, since nothing lasts forever, especially these days for online brokerages where the winds of change are picking up.

In this edition of the Roundup, we review the latest action taking place in the deals and promotions section, and highlight potential game changers for online investors looking for free trades. Next, we review another emerging trend in the Canadian discount brokerage space that puts portfolio performance and risk in the spotlight. And, speaking of spotlight, we shine a “Lite” on the early results of the commission-free trading shift in the US, with the release of trading metrics at one online brokerage. As usual, we’ve served up a healthy selection of investor comments from Twitter and the investor forums.

Deal-vering Change

The start of a new month typically brings with it some interesting activity in the deals and promotions section and this month is no exception.

Promotional offers for Canadian DIY investors did see some turnover as the new month began with an offer from Scotia iTRADE expiring, as well as the summer promotion from BMO InvestorLine giving way to a new offer that runs through to early January. Nonetheless, savings are in the forecast for investors with the end of the year in sight and industry competition at an all time high.

In terms of turnover, after having been extended from the middle of October through to the end of the month, the latest offer from Scotia iTRADE signalled that something interesting is happening behind the scenes at this bank-owned online brokerage. These past two months have seen some creative approaches to pricing and offers emerge.

In particular, in September, the parent of Scotia iTRADE, Scotiabank, rolled out a banking package that also kicked in 10 commission-free trades for the first year an account holder has the account, and five commission-free trades per year thereafter. Also that month, they launched an offer of $50 cash back and discounted commissions – again something novel for both that brokerage and unusual for the online brokerage space – which suggests that efforts are ramping up to win and keep customers. It remains to be seen how offers from the parent bank co-exist, complement, or compete with offers from Scotia iTRADE, but it does raise an interesting prospect as to whether deals and promotions, as we have traditionally known them, are about to evolve into something new.

On the topic of change, this month’s deals suggest that BMO InvestorLine is hoping that their latest offer brings in DIY investors who’ve got lots of change to spare.

The latest cash back promotion launched by BMO InvestorLine is a tiered cash back promotion with the highest top-tier offer we’ve seen yet – $5,000 cash back for a deposit of $5M or more. Both the minimum deposit tier and the accompanying cash back bonus are new highs among online brokerages in Canada. Of course, the entry point to qualify for the current offer is also relatively high – at a minimum deposit of $250,000. All told, BMO InvestorLine is looking specifically to appeal to investors with higher balances and assets rather than something aimed towards younger or entry-level portfolio sizes.

For DIY investors, the combination of the ramp up to RRSP season, the looming end of year deadline, and the recent collapse of commission prices in the US point to a perfect storm of incentive offers set to launch from this point through to March. Although it’s tricky to predict the weather, the forecast for DIY investors heading into 2020 will bring with it a high ridge of downward pressure on prices and a flurry of savings.

Qtrade Investor Powers Up on Performance Analytics

In the battle for DIY investors in Canada, the discount brokerages can see the writing on the wall with respect to commission prices falling.

Slowly but surely, as online brokerages tinker with pricing, they are also working on improving the client experience to address important wealth management needs. This past week, Qtrade Investor announced the integration of a new set of risk management tools for investors called Portfolio Score.

The analytics tool for investors, which is developed by financial technology firm Wealthscope, provides assessments to DIY investors that explain the performance and risk features. For example, clients can now assess their portfolio against domestic and global market benchmarks which helps to showcase how well (or poorly) their portfolio is performing relative to a diverse set of indices. Winning strategies will typically outperform the market so depending on the approach investors are taking with managing their own financial destinies via online trading, this tool will spell out the performance being generated.

Another interesting feature about the Wealthscope Portfolio Score tool that will appeal to DIY investor clients at Qtrade Investor is that it analyzes portfolios using a “checkup” evaluation. Included in the list of items being assessed are: downside protection, performance, diversification, income, and fees.

Earlier in 2019, Virtual Brokers also announced it had partnered with Wealthscope to offer clients portfolio analysis and analytics, bringing the number of Canadian online brokerages using the Wealthscope system to two.

For its part, TD Direct Investing has also offered up financial planning and portfolio analytics via their own partnership with Hydrogen Technology Corp. TD Direct Investing’s “GoalAssist” was rolled out in March 2019 with the objective to help support DIY investors in understanding the factors and behaviours required to achieve their wealth planning goals.

While Canadian discount brokerages are, almost by definition, not allowed to provide financial advice, there is clearly a market for providing DIY investors with the kinds of tools and support they need in order to successfully plan and navigate the world of investing on their own. The role that technologies are starting to be able to play in providing statistical analyses of goals or portfolio composition provide an important piece of information that DIY investors can use to plan their trading or investing strategies more rationally.

Clearly, with three highly visible online brokerages bolstering their suite of features with portfolio risk and performance analytics, there may be yet another trend forming for 2020 as other online brokerages look to replicate and do the same. Ironically, providing investors with in-depth benchmarks could itself become a benchmark feature savvy investors come to look for.

As Financial Literacy Month kicks off, these kinds of tools are very much aligned not only with enabling investors to see the power of aggregated data in managing their portfolio risk exposure, but it appears these platforms will also help to support investors learning about sound portfolio management principles.

While cooler heads are something most Canadians try to avoid having in winter, when it comes to investing online – especially DIY investing online – hot heads are dangerous liabilities. With the new slate of portfolio analytics tools coming to market, there’s finally an easier way to digest and act upon complex information in a calm and orderly fashion.

Early Numbers on IBKR Lite

With the rollover to a new month, Interactive Brokers released its monthly trading metrics. Aside from the usual stats provided by the US-based online brokerage, this month’s metrics featured a new “bullet point” that reported on the progress of the commission-free trading platform IBKR Lite.

The early numbers reported by Interactive Brokers show that IBKR Lite clients executed an average of one thousand US Reg-NMS orders per day. Unlike the standard metric for trading that gets reported, Daily Average Revenue Trades (DARTs), commission-free trading doesn’t generate revenue (at least from trading commissions), so it was interesting to see what the numbers were but also how they were being reported.

Given the short timeframe in which the IBKR Lite platform has been operational, it was interesting to see the reporting of the figures showcase the volume of an average of one thousand orders per day. To put that into perspective, Interactive Brokers clients overall generated 797 thousand trades per day, so the volume of activity in IBKR Lite is almost inconsequentially small by comparison to the standard IBKR platform.

Another interesting number to highlight from the metrics release was the growth in accounts at Interactive Brokers. The month over month increase was 1% which, considering the move to commission-free trading, reflects that the introduction of this feature was met with a more muted response by investors than it was with competitors.

Upon the release of the IBKR Lite platform in October, other online brokerages in the US quickly lowered their commission rates to zero – perhaps in an effort to prevent a flood of customers from leaving to go to a lower commission competitor. Clearly, it seems to have worked, at least for the time being.

Interactive Brokers has never been shy about its focus on catering to active investors and traders. The recent moves into providing more products that mainstream investors could find appealing is still just a small portion of their business. International expansion also factors heavily into the Interactive Brokers growth plans.

In another interesting move, after Schwab announced in September that it is closing its offices in Singapore at the end of 2019, Interactive Brokers appears to be stepping into Singapore in January 2020.

Over the next several weeks and months, analysts and industry observers will be looking closely at how the zero-commission trading fees will impact metrics like client acquisition and turnover (churn). In particular, we will be monitoring the growth (or contraction) rates to see if there is any suggestion that zero-commission trading moved the needle on online investing accessibility or if the market of DIY investors still maintained its steady state pace of ebbs and flows with respect to joining an online brokerage.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Shoring up an Exit Plan

After having left a full service broker, a new DIY Investor on this forum seeks help figuring out the logistics of investing as they make plans to leave the country. Forum users offer incredibly in-depth advice on how to approach DIY investing and weigh in on the possible home country bias in their investment strategy.

Switches in Stitches

A Redditor switched RESPs to Questrade in hopes of saving on fees, but encountered a lot of turbulence in the process. Fellow forum users share their experiences with transferring accounts and commiserate about the bumpy ride in switching online brokerages.

Into the Close

That’s a wrap on another series of updates. There are still lots of interesting developments taking place daily so it feels a bit like the ground is continuously shifting. On the plus side, DIY investors are going to be in for a fun stretch into the end of the year.

Posted on October 28, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – October 28, 2019

Halloween is just around the corner, and for the online brokerage industry, it appears that they’re poised to deliver lots of treats and perhaps even a few tricks for DIY investors this year. Of course, this year’s scary prospect for Canadian discount brokerages might be vanishing profits, but as the US online brokerages are showing, even when commissions disappear, profits don’t have to.

In this edition of the Roundup, we continue our coverage of the fallout of falling commission prices, with a closer look at the conference call from TD Ameritrade and what hints it provided for the US and Canadian online brokerage industry. From there, we take a peek into what the folks in Sherwood forest are up to now that their vision of a zero-commission world is here, and they have to compete in it. As always, we’ll cap things off with chatter from investors on Twitter and in the investor forums.

More Commission Price Fallout: The TD Ameritrade Conference Call

It’s hard to pick a bigger story for this month or year than the fall of commission prices for stock trading in the US. This past week provided additional colour to the unfolding saga of the new reality for online investors and online brokerages in the US, as TD Ameritrade reported earnings and held their investor conference call.

With several earnings announcements and conference calls already having taken place (for Interactive Brokers and E*TRADE), it was interesting to see where the analysts who were on the call focused their questions and what could be gleaned from the responses of outgoing CEO Tim Hockey and CFO Steve Boyle.

There were a number of interesting, if not surprising, observations about this call, with implications for the US online brokerage market in general, and perhaps hints of things to come for Canadian online brokerages too.

One of the first standout items about this conference call was that the analyst questions appeared to take the new commission-free reality in stride. Unlike the clearly disoriented moments in early October when the pricing cuts were announced, there was clearly a more rational tone struck that seemed to suggest: “commission-free trading is here to stay, now what?”

Perhaps the clearest recurring question that came up on the conference call was that of mergers & acquisitions – with the subtext being the acquisition of E*TRADE.

A total of six questions referenced directly or indirectly the prospect of an acquisition being more likely now that commissions have gone to zero. While there was no definitive response on the part of Ameritrade regarding possible acquisitions (or being acquired), there was a clear acknowledgement that TD Ameritrade’s timing for the acquisition of Scottrade couldn’t have been better because it contributed scale. Nonetheless, reading between the lines on that response, it is clear that scale is going to be a critical pillar to the success of TD Ameritrade going forward.

In terms of the path forward, TD Ameritrade is looking for both growth and for increased efficiency. In terms of growth, areas such as stock lending appeared to have boosted earnings coming into this call (bets against cannabis and Beyond Meat helped that), however, in the longer term, they are looking to other lines of business and to other markets overseas to boost assets and revenues.

Outside of growth, there were also remarks and comments made with respect to cutting costs. It is abundantly clear from Schwab and E*TRADE that the path forward to sustainability in the zero-commission world is going to require efficiency, or as they like to call it, “streamlining.”

What stood out as an interesting move is the sentiment expressed by Boyle that Ameritrade is going to be “focusing on what is our core competency where we can grow, not trying to be all things to all people.” Subtle shade aside to the online brokerages moving into more traditional financial services, the notable context here is that Ameritrade is going to ramp up efforts to acquire and service high net worth individuals and potentially look to realign how they deliver services to account holders that may not take advantage of the full feature set. Specifically, Boyle stated “we do have a number of customers who have relatively small revenue with us. And we think it – there are a number of ways where we’re providing value that people will be willing to pay for.”

What is apparent from the ability of TD Ameritrade to pivot their pricing so quickly to zero was that this eventuality is something they had prepared for for quite some time. In fact, the “strategic resiliency project,” as it was called, was set in motion in 2017 so there was plenty of runway for Ameritrade to adjust to the new reality.

Hockey was surprisingly upbeat about the zero-commission move. His confidence rested on the premise that Ameritrade has an award-winning (and perhaps best of breed) platform that passive and active investors alike will take to, as well as deep bench of value-added features that other online brokerages have not invested in to the same degree. The net result: with commission price no longer a barrier, Ameritrade has one of the strongest competitive advantages in terms of customer experience of all the major US online brokerages and that will attract customers away from other brokerages. Anecdotally, according to Hockey, this is already happening.

For Canadian discount brokerages, the emerging playbook for the zero-commission reality is starting to become clearer thanks to the experiences of brokerages south of the border. While it is still likely to be some time before commission prices hit zero in Canada, it is clear that the path to financial sustainability for discount brokerages rests in creating a best-in-class service and technology experience, as well as offering access to other financial services. As such, it is no longer a race to the bottom per se as much as it is a race to the middle.

The balance of technology, pricing, and experience mean that investors looking to manage their wealth, not just trade the stock market, will think holistically about who the right online brokerage is for them. Conversely, the zero-commission rate also appears to be providing a chance for online brokerages to rethink who the right customers are for them.

Sherwood Like Cash

The ground is clearly shifting beneath the online brokerage industry in both the US and here in Canada. Even though the headlines this month have been dominated by the drop in commission fees by the major online brokerages, there have nonetheless been important stories and developments that deserve a little more time in the spotlight.

Now on the defensive, the online brokerage that was the catalyst in “democratizing” pricing for online investors, Robinhood, announced this month the re-launch of their cash management program.

One of the more potent arrows in its quiver, the cash management feature offers Robinhood clients the ability to earn high interest (2.05% at the time of publishing) on uninvested cash balances as well as access to a (great looking) debit card.

Just under a year ago, Robinhood attempted to launch this feature by labelling it as a checking/savings feature, and in doing so, earned the extreme ire of the US financial regulators. Nonetheless, after some time in the penalty box, Robinhood posted to their blog that their shiny new feature is “coming soon” – an interesting move in the midst of the zero-commission melee, as the report got eclipsed by bigger news stories about the industry.

Even so, Robinhood, like Interactive Brokers, has picked up on the idea that offering high-ish interest on uninvested cash balances is likely to not only keep existing customers happy but appeal to prospective customers.

Another new feature announcement from Robinhood also launched last week, which is the roll out of stop-limit orders for options trading. Interestingly, despite zero-commission trades for equities being implemented at other online brokerages in the US, options trading commissions – specifically per contract prices – are still in place. At Robinhood, however, options trading (including the per contract fee) is still $0.

The launch of this new feature is likely one part the result of client request and another part strategic news item to point out that there are still features to Robinhood that provide economic benefits to active investors. That said, options trading is both more complex and obscure to many DIY investors than stock trading is.

The data and platform requirements are equally more sophisticated, as are the competitors (e.g. Tastyworks) so Robinhood definitely has its work cut out to be able to effectively draw DIY investors into options trading if they don’t already do it, or to attract options traders into their platform and away from the bells and whistles that other platforms already offer.

In spite of the new features, it is clear the path forward for Robinhood is going to be significantly tougher to compete in. By all measures, the stand-alone online brokerage is officially a thing of the past, and where they were once entirely focused on stock trading, they are now going to have to be able to execute well in options trading, cryptocurrency trading, and broader personal financial services. With other financial service providers launching commission-free trades, including Square announcing the end of 2019 as when they’ll roll it out, we’re really excited to see what innovations drive interest and investors to particular brokerages and investments next.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Safety is no Accident

A self-proclaimed “couch potato investor” on Reddit contemplates switching from Questrade to TD Direct Investing due to concerns over Questrade’s security guarantee. Forum users weigh in on their favourite discount brokerages and the role they have to play in security precautions.

The Fund-amentals

A Redditor who has newly signed up to Desjardins for their group RRSP at work asks for guidance in which fund to pick. Commenters on this post explain RRSPs and offer advice on assessing one’s risk aversion.

Into the Close

That’s it for another week of discount brokerage activities. There continue to be lots of smaller developments that we’re tracking as the news about zero-commission trading continues to settle down. The next big wave of earnings is also washing over the market, so in addition to the sugar high from all the candy consumed this week, there’s also going to be lots of data to digest. Hooray for spreadsheets!

Posted on October 21, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – October 21, 2019

On the eve of election night in Canada, citizens are tasked with making an investment of their own in the party or candidate that they believe is in their best interest. Another voting machine, the stock market, provides price as a proxy for expectations. Fascinatingly enough, the recent activity in US and Canadian online brokerage is providing a glimpse of where DIY investing is heading next.

In this edition of the Roundup, we dive into the latest earnings announcements from US online brokerages in the wake of the recent commission-fee cuts and read the tea leaves as to what’s brewing for the industry and investors alike in this new pricing reality. Speaking of trends, it looks like combos are the menu item of choice in the bank-owned online brokerage battle here in Canada – our second story spills the tea on what’s about to be trending for DIY investors. As always, there’s plenty of chatter from investors to dish out in the Twitter posts and in the investor forums.

Forecast for Online Brokerages: Cloudy with a Chance of Upside

As every experienced trader knows, sentiment and expectations drive pricing. Prices in the stock market, however, are dynamic and constantly changing which, by extension, means that so too are expectations.

The recent and rapid implosion of prices of US online brokerage stocks was anything but rational. While the market is an efficient pricing mechanism, during times of heightened emotion or uncertainty there’s a natural mispricing moment, and since the big price drop earlier in the month, we’ve witnessed the recalibration of expectations and calculations restore some sense of calm to a rattled industry.

This past week, the earnings announcements and management guidance for three of the big four names in the US online brokerage space were released. And, without giving away any spoilers, it appears expectations are shifting from pessimism to cautious optimism.

Since early October, the stock prices for publicly listed online brokerages AMTD, EFTC and SCHW have rallied an average of 15.3%. Interestingly, the online brokerage that touched off the avalanche in pricing drops, Interactive Brokers, is down about 4% over the same period of time.

What’s behind the change in sentiment? Fortunately, the question is somewhat answerable thanks to earnings conference calls held last week for E*TRADE Financial and Interactive Brokers.

The timing of earnings releases and subsequent investor conference calls so close to drop in commission pricing means that predictably, the “plunge” is almost all of what analysts covering these online brokerages wanted to discuss on the conference calls.

Despite the best efforts to pry additional information out of company management, there wasn’t a lot of brand-new market moving information that was revealed. More than anything, there was a lot of soothing of nerves and spin on what the significant loss of revenue from trading commissions would mean going forward.

At E*TRADE, for example, the CEO Mike Pizzi framed the loss of $300 million per year of commission revenue as an opportunity to win back clients to a best-of-breed trading platform. Indeed, that appears to be a pillar of the new narrative and the competitive reality.

Without trading commission costs, active traders will undoubtedly be seeking out the best online investing experience – including the best trading platform, decision support, and feature set. In that way, established brands like E*TRADE and Interactive Brokers (and Schwab and Ameritrade) have a significant leg up on the newcomer Robinhood for the most lucrative account holders (active traders) who need advanced tools and convenience.

Despite the many evasive dips and weaves of management to the analyst questions about what happens next, there were still a few interesting takeaways revealed by tuning into these calls.

The first, and arguably most significant for Canadian online brokerages, is that Interactive Brokers sees a business case for bringing commission-free trading here to Canada. In a question from analyst Will Nance from Goldman Sachs during the Interactive Brokers earnings conference call, it was asked whether or not IBKR Lite would be expanded to other locations around the world served by Interactive Brokers. Chairman and now former CEO of Interactive Brokers, Thomas Peterffy, stated that unlike the US, there weren’t that many equities markets internationally that could support robust payment for order flow. One exception: Canada.

Another important and recurring question that arose was the prospect of consolidation in the US online brokerage space and whether E*TRADE would be a candidate to be acquired.

Asked on both the E*TRADE conference call and on the Interactive Brokers one, it was interesting that there appears to be a renewed chatter about this online brokerage in particular. While nothing was affirmed in the call with E*TRADE, the door wasn’t closed on the topic either.

For additional context, E*TRADE had communicated achieving a target earning per share (EPS) of $7 by 2023 and in this earnings announcement call, that timeline was pushed back by a year to 2024. The current EPS forecast is ~$4 so even if the P/E ratio (9.88) manages to stay the same by 2024, the share price by that point could hit $70 (closing price on Friday was $40.85).

Normally, a downward revision or delay in EPS of that nature would prompt a sell off, however based on the drop in price prior to this earnings release, it’s evident the market believes it was oversold and hence the stock rallied. Moreover, it’s a vote of confidence in management that the market believed that hitting that target is achievable.

Suffice to say, the fact the door was left open to an acquisition suggests that if the price is right, management would consider a sale, and there’s even a target price on what that might be. When asked by an analyst if Interactive Brokers would consider buying E*TRADE, Peterffy rejected the prospect – however, it would be hard to imagine that even if they were kicking the tires on an acquisition, that they would disclose as much in a conference call.

Another very interesting takeaway from the investor conference calls was that even though there might not be commissions on equities trades any more, commissions on options trades are likely to stay buoyant for quite some time. The complexity of options strategies and trading almost necessitate having the right platform in place, and so this somewhat technical requirement could serve to ringfence trading commissions for these types of securities.

All told, the story going forward for the US online brokerage industry is still highly fluid.

There were a slew of new feature announcements (which will be covered in a subsequent Roundup) most notably the ability for investors to trade fractional shares (something Schwab and Ameritrade announced last week).

The reality is that there is no exact playbook to navigate a fundamentally different world than the one that has been in place for the past three decades. That said, it is fascinating to see just how adept each online brokerage is at evolving to the new reality of zero commissions for equity trades.

There are undoubtedly other levers and fees that can be used to grow revenues, as well as diversification away from just order execution – a preferred path it seems for Schwab and E*TRADE. There’s also a lot of cost cutting that is slated to take place. E*TRADE announced a number of initiatives in its conference call. Curiously, Interactive Brokers reported a 15% year over year increase in their total headcount, a signal that in spite of everything, they appear to be building out their overhead and team resources, not shrinking it the way that Schwab recently announced they would.

We’re eagerly awaiting what TD Ameritrade will have to say about the journey forward in their conference call, however, we suspect it will be some variation of what as already been said by E*TRADE, Schwab, and Interactive Brokers. There is a strong platform and client experience appeal to TD Ameritrade, so they certainly have a leg to stand on in that department. Add to that another very strong trading platform experience and new entrants are going to have a tough time competing. Ironically, zero commissions might accelerate the onboarding of clients to TD Ameritrade at the expense of other “low cost” online brokerages.

It does beg the question as to what’s next for Robinhood – the zero cost online brokerage that essentially helped to catalyze the industry race to zero commissions. In a way, they appear to be victims of their own success, and the other online brokerages appear to be forcing the hand of Robinhood to compete on feature sets and value drivers beyond just commission price.

Just because commission prices have fallen to the ground, it doesn’t mean that the incumbent online brokerages won’t be hitting that same ground running.

Packaged Delivery

For any fast food aficionados, there’s nothing unfamiliar about the combo being a better deal than the single item. Turns out that DIY investors hungry for a deal at Canada’s bank-owned brokerages might just be in luck. Earlier this month, National Bank Direct Brokerage launched their newest pricing offer which also happened to come with perks (like lower commission pricing) for anyone who was also a National Bank client.

Another bank-owned brokerage also seems to be looking to offer a compelling online investing side-order to its banking clients. Scotiabank, parent to Scotia iTRADE, is offering up clients who sign up to the recently launched Ultimate Package 10 commission-free trades in the first year, and five commission-free trades every year that the account is open.

This new offer is likely going to generate some waves with DIY investors and potentially open a new front in the online brokerage battle.

In terms of the offer itself, the threshold for this banking package requires a minimum balance of $5,000 to be maintained in the bank account. However, there are a number of daily banking features and perks to keep things worthwhile. To boot, there is a cash incentive of up to $350 that would make this offer even more compelling relative to other onboarding offers from the online brokerage side of many big bank-owned brokerages. Finally, there is the ongoing commission fee waiver for five trades per year which is likely to appeal to the very passive investor. Combined with Scotia iTRADE’s selection of commission-free ETFs, there’s a lot on the table for the right profile of investor who has enough to surpass the inactivity fee threshold ($10,000). For investors under the age of 26, however, this is an especially interesting choice because those inactivity fees are waived for younger investors.

When it comes to the future of online trading in Canada, it appears that bank-owned brokerages are relying on their biggest asset – the banking relationship – to entice DIY investors to stay put.

This is almost certainly the next front in an ongoing battle for DIY investor assets, one that non-bank owned brokerages such as Questrade, Virtual Brokers or Qtrade Investor will have to figure out how to counter.

One likely scenario is for the non-bank owned brokerages to start providing high interest on uninvested cash – something that has clearly been shown to work for Interactive Brokers. As has been the case in the US online brokerage market, the major online brokerages have increasingly started to deploy “bank-like” solutions such as bill payment capability and even credit cards to enable a “one-stop shop” experience for personal finance management.

With more zero-commission fees on the horizon for the Canadian discount brokerage space, this latest combo experiment may buy brokerages some much needed time before having to drop their commission rates to zero. More importantly, combo offers like this keep customers from casting their gaze over the fence.

Interestingly, unlike a race to the bottom, this appears to be the next step in a bidding war for loyalty.

The unintended consequence to the bank-owned brokerages, however, is that they will have to get all points of the service experience right – from banking through to wealth management – because going forward, those fortunes, like those of their clients, are going to be tied closer together than they have ever been before.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Clean Break

Breaking up is never easy, so in this forum post on the Financial Wisdom Forum, a user seeks advice on the process of leaving their full service broker for a discount brokerage account at NBDB.

Fee-dom

In search of investment options without fees that add up over time, a Redditor asks for discount brokerage options and advice for a first-time investor in this forum post.

Into the Close

With online brokerages and the ongoing fee-asco now in the spotlight, the focus on the industry is almost unprecedented. We are definitely in uncharted territory as to what will ultimately shake out as a direction for the industry, and that uncertainty is going to definitely translate into lots of questions from consumers.

Turns out that in addition to putting an X on a ballot this week, DIY investors are going to need to remember to tune into the blue X to stay on top of what’s going on. We’re thrilled to see where this next chapter takes us and are starting to get the feeling we’re going to be needed now more than even we could have imagined. Here’s to whatever comes next.

Posted on October 15, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – October 15, 2019

Welcome back to the market action after what was hopefully a restful long weekend. While many DIY investors will start the week feeling cheerful, it was pretty clear that after a stretch like the one we’ve just witnessed, a few online brokerages are feeling like they’ve had the stuffing knocked out of them.

With so much chatter and attention focused on commission-free trading battles taking place in the US, it’s easy for news stories and developments from Canadian online brokerages to fly under the radar. Fortunately, this post (Canadian) Thanksgiving edition of the Roundup is tracking some of the smaller but important developments taking place. Our first story highlights some deals activity that points to more volatility in October for discount brokerages in Canada. From there we’ll review emerging trends of features and enhancements that, curiously, aren’t getting a lot of coverage. As always, we’ll serve up the forum post favourites and a healthy portion of Twitter commentary to cap things off.

Discount Brokerage Deal-ite

With the end of the year in sight, there will be more than just Christmas decorations starting to light up online brokerages across Canada. Invariably, the more organized among us will already be done with their Christmas gifts and be kicking the tires on RRSP accounts. As such, Canadian discount brokerages are likely seeing their websites light up with traffic from these early shoppers looking to get a handle on what offers and features exist to support investing for retirement.

This past week, we noticed RBC Direct Investing, one of Canada’s largest bank-owned brokerages, re-release one of their more popular offers to Canadian DIY investors: 25 commission-free trades that are good for up to one year.

While this latest move by RBC Direct Investing coincides with the celebration of their 30^th anniversary as an online brokerage in Canada, it’s clear that commission-free “offers” now have to stack up against the expectation and anticipation of “commission-free trading.” Indeed, a lot has changed over the past 30 years in the online brokerage industry, with the biggest changes taking place over the past few weeks.

Undoubtedly, the tsunami of zero-commission trading that slammed into the US online brokerage market has been (and will be) a hot topic of conversation among Canada’s discount brokerages. With the launch of this latest offer from RBC Direct Investing, other Canadian online brokerages will also be feeling the pressure to come to market with something equally, or more, compelling.

Timing-wise, October will continue to be an interesting and somewhat volatile month for Canadian discount brokerage deals – especially those from bank-owned online brokerages.

For example, Scotia iTRADE’s “Get Self-Started” lowered pricing and cash back offer is scheduled to expire on October 15^th (at the time of publishing). Later in October, BMO InvestorLine’s cash back promotion is also set to expire.

Add into the mix that National Bank Direct Brokerage’s new lower pricing takes effect on October 15^th, and it is clear that the remainder of the fall season will be great for DIY investors seeking out better pricing on commissions and deals suited to attract new business.

With all of the activity taking place this week, we’re banking on the fact that this will be just the beginning of a burst of activity from Canadian online brokerages who are gearing up for their most competitive year ahead yet.

New Website Changes Signal New Features & Strategies

With online trade commission pricing facing even more downward pressure, the writing is on the wall for the Canadian discount brokerages to get more creative and improve their user experience. Given the recent events in the US online brokerage market, the timetable to deploy these new changes has almost certainly been accelerated.

Commission commotion aside, over the past few weeks we’ve noticed some interesting changes to several online brokerages websites that have been curiously flying under the radar.

One of the first important changes noted was the Virtual Brokers website, which quietly underwent a significant facelift earlier this month.

Historically, the launch of a new website was almost always accompanied by some kind of announcement, press release, or even chatter on social media or investor forums. In this case, there was no mention to be found on social media channels run by Virtual Brokers or chatter from investors.

The look and feel of the new site is more streamlined and hints towards a new visual direction. It’s less “cartoony” and more corporate, with a heavy emphasis on their designation as the “best online brokerage” by the Globe and Mail.

It’s hard to say whether no reaction is better than a negative one, but it is noteworthy that nobody mentioning anything is possibly a harbinger of where online investors are pointing their attention (and where they aren’t) when it comes to Canadian online brokerages. Redoing a website is no small feat, so it’s a safe bet there was a lot of effort and expense that went into the redesign and what the ROI is will remain to be seen.

Interestingly, with a new CEO (Kurt MacAlpine) taking the helm at CI Financial, the parent to Virtual Brokers, as well as digital being “critical” to the long-term strategy at CI, it seems like there will have to be a series of significant changes coming.

Clearly the non-bank-owned brokerages (other than Questrade) are going to have to double down on efforts to stay in the spotlight given the competitors they are up against. A rethink of digital experiences and pricing strategies is almost certainly the next order of business to come.

On the bank-owned brokerage end of things, we have also been noticing changes appearing to the CIBC Investor’s Edge website, specifically with regards to the design and knowledge-driven features appearing on the homepage. Interestingly, there were whispers of a new platform coming from Investor’s Edge in a forum thread in September so these changes seem to be in line with, or supporting, a shift in either look and feel or user experience.

One of the most important evolutions to the CIBC Investor’s Edge site that has been taking place is in the knowledge base. From webinars to video content to articles, it appears that Investor’s Edge has been working quietly to build out this important kind of resource and making it publicly accessible to DIY investors.

Similar to Investor’s Edge, we’ve also taken notice of a buildout of the knowledge base at Scotia iTRADE. Historically iTRADE has invested consistently in webinars for educational content, however, over the past year or so there has been more focus being placed on supporting material (e.g. “how to”) and other financial content, such as their tax content series.

In spite of all of the changes mentioned above, one interesting observation regarding these additional features has been the relatively quiet, if not completely silent, roll out.

The emerging picture is a curious one. On the one hand, it’s clear that Canadian online brokerages are actively working to deliver value-added components to their product experience, in part, to offset the perception of being a place to go to for low-cost trade execution. That said, the accompanying lack of chatter or lack of excitement/buzz is anomalous.

With commission rates under pressure of falling further, it is going to become increasingly more important for online brokerages to highlight what makes them special. The muted messaging and marketing from several notable online brokerages around new feature development make it harder for DIY investors to talk about what’s special about an online brokerage.

By cutting back on marketing, discount brokerages may feel like they’re saving precious resources, but if there’s one thing that online brokerages can’t afford more than lower commissions, it’s to be forgettable.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Platform for Discussion

When it comes to picking a trading platform, finding a straight answer is somewhat of a challenge. In this forum post on RedFlagDeals, one forum user decided to create a new watering hole for fellow readers to contribute information on and learn about discount broker trading platforms.

Greener Pastures

There’s no question the environment is having a moment. But is investing in green energy as good for a portfolio as it is for the planet? A Redditor asks for advice to help his parents invest in green energy ETFs and gets some sage advice for those nearing retirement. Read more here.

Into the Close

After the long weekend, there’s a lot to digest heading into the week ahead (not just the leftovers either!). It will be another wild week for US online brokerages as earnings from Schwab cross the wire premarket on Tuesday, and E*TRADE after market on Thursday. The lingering questions for analysts, investors, and other industry participants is where things go from here, and this week, we may just get a much clearer picture.