Category: Discount Brokerage News

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Discount Brokerage Weekly Roundup – December 20, 2021

Vixen might be a reindeer name, but Vix’n is just what the active traders wanted to see Blitzen and Dash-in around their screens as volatility, like lockdowns, makes a comeback. Screens and markets might be redder than Rudolph’s nose heading into the end of the year, but like all things market related, there are opportunities for good news if you Comet to finding them.

In this I-can’t-believe-we’re-so-close-to-the-end-of-this-hot-mess-of-a-year edition of the Roundup, we spotted new features being launched by one popular online brokerage just in time for the holiday shopping season, and what they could signal for this brokerage, as well as DIY investors. Next, more savings just got deal-ivered as two (big!) new online brokerage promos crossed our radar this week. Finally, a bonus story about a story – we preview the launch of the Look Back / Look Ahead magazine with an overview of what to expect, including some special features we think will drastically shape the industry in 2022.

Cashing In: Questrade Launches Cash Rewards and Roundup Features

At Sparx, we know a thing or two about roundups. So, you can imagine our joy when we noticed a Canadian online brokerage launch a new product line with “roundup” in the name!

Questrade, one of Canada’s most popular online brokerages, quietly rolled out a pair of new “savings” features for existing clients this past week in what looks like an interesting tactic to encourage low-friction asset gathering, while providing clients with additional value for being a Questrade customer.

The first, the RoundUP automatic savings program, is similar to many well-established services that help encourage saving and investing by rounding up dollar amounts on purchases which then get contributed into investments. Think of it like finding the spare change in your actual couch and automatically adding it to your couch potato strategy.

The second is the new Cashback Rewards program. This new feature appears to offer Questrade clients a way to spend their way to savings via cash back rewards from a variety of retailers. Similar to ebates/Rakuten, purchases made at different online merchants will provide shoppers with a cash back bonus for those purchases. The cash back amount can then be deposited directly into a Questrade account automatically.

In either case, these are timely programs to have arrive just before the holidays and when online shopping season hits a crescendo. More strategically, these new features also help Questrade stand out amongst an increasingly commoditized and crowded field of online brokerage service providers.

Despite an initial mixed reaction from investors and skepticism on the part of clients seeking out lower commission rates, this idea from Questrade is quite savvy even if it is not original. Questrade can lean on the successes from similar programs, such as Acorns in the US and Moka (recently acquired by Mogo Financial) in Canada, all of which are built on a premise of small amounts adding up to material gains. Undoubtedly, it is going to play well with the personal finance discussion groups and influencers who recognize that sometimes being disciplined about saving is hard; anything that makes building the habit of saving and investing easier is likely to win support.

One of the early critiques of the Cashback Rewards program is that Questrade has pulled together a list of merchants offering deals that most online investors don’t find compelling. There are a handful of recognizable names and a heavy concentration of shopping mall gift card-linked offers, so the successful uptake of this program will be correlated to the kinds of offers that Questrade can negotiate in. By comparison, rewards programs offered by Canadian financial service providers, such as RBC Rewards, or even like Rakuten, illustrate just how sophisticated these reward programs are.

As we noted in our coverage of Questrade in the soon-to-be-released Look Back / Look Ahead feature magazine, this year Questrade elected not to provide a submission highlighting what they’ve been working on. Nonetheless, there has clearly been activity and new features being brought forward, so it is curious that even with this new program that the rollout has been quiet out of the gate.

It’s clear that Questrade continues to innovate; however, what also is clear is that they are expanding beyond just the online brokerage space – a trend that other online brokerages in the US have demonstrated is necessary to retain clients from having to access other financial service providers for things like credit cards or bill payments. Their acquisition of Community Trust in 2019 helps to explain why Questrade Financial Group is hiring for roles related to digital banking, and even in roles related to their online brokerage site, they are looking to drive growth in the banking side of their business, the clearest signal yet of where they intend to move into next.

Against the backdrop of broader ambitions in the traditional banking and financial services realm, the latest product launch of RoundUP and Cashback Rewards programs seem aligned with a bigger picture to create ongoing relationships with online investors beyond just the world of investing. Tying real world purchases to the online investing accounts through credit cards and bank accounts gives Questrade important insights into spending patterns of their customers, better enabling Questrade to provide support and content (among other things – like mortgages) to clients in a more meaningful way.

And, if moving into the traditional banking offering is part of Questrade’s roadmap, it also stands to reason that the economics of offering commission-free (or lower commission fee) investing options would change. After all, National Bank Direct Brokerage and Desjardins Online Brokerage managed to take a “big picture” approach to what their online investing clients could represent in terms of business opportunities for other lines of business, and if the math made sense to them, it could certainly do so for Questrade.

Deal-ightful News: RBC Direct Investing Promo and Scotia iTRADE Offer Launch

It might have taken some time, but like the thrill of last-minute shopping, promotions from RBC Direct Investing and Scotia iTRADE joined the pool of online brokerage offers this past week.

In terms of the latest promotions, however, there are some noteworthy differences from the trend of cash back offers that have been dominant through the launch of RSP season promos. The biggest difference: the reappearance of commission-free trades.

The latest promotion from RBC Direct Investing is a huge 100 commission-free trade offer, with those trades being good for up to two years. This is by far the biggest commission-free trade deal we’ve seen since a similarly sized one offered by National Bank Direct Brokerage (before they went fully commission free), and both the quantity of those free trades as well as the duration of time that clients could use them make it incredibly competitive. To boot, there is no minimum deposit required to qualify for this promotion, which immediately positions this offer at the top of the list for any online investor seeking out deep value for active trading or doing some major portfolio reorganization. It is impossible to say where exactly things will end up in two years’ time; however, the fact that RBC Direct Investing is willing to extend such a long runway for commission-free trades is perhaps a sign of an experiment playing out in real time. Either way, this is an exceptional offer that other online brokerages (who still charge commissions and even those who don’t) are going to be compared against, especially given RBC Direct Investing’s feature set (in particular real-time data).

While at first blush it may seem like Scotia iTRADE is content to rely on their regular playbook of promotion structure, their latest tiered promotion of cash back or commission-free trades shows that they’ve been doing their homework (and reading the Roundup!) when it comes to strategic deposit amounts.

It helps to view the latest cash back promotion from Scotia iTRADE against its bank-owned brokerage peers to see the deposit levels at which Scotia iTRADE is competing the most aggressively for deposits.

The first tier that jumps out is the minimum deposit level. Scotia iTRADE is the only one of the online brokerages to have minimum of $5,000 for a deposit, and the associated cash back amount of $100 is tied with the only other bank-owned brokerage with a cash back bonus at that deposit tier (TD Direct Investing). In fact, Scotia iTRADE keeps pace with TD Direct Investing’s cash back offer through deposit tiers up to $100,000, after which point Scotia iTRADE’s cash back bonus leaps to $500, matching the leader at that tier, CIBC Investor’s Edge. What delivers bonus value to anyone signing up for the Scotia iTRADE cash back promotion, however, is that those individuals also receive a temporary commission rate of $4.99 per trade (flat!!) – effectively, a 50% discount on the standard commission rate – until the end of July 2022.

As we referenced in prior Roundups, Scotia iTRADE has been quietly going through a “rebuilding” mode, as evidenced by their front-end website refresh and winding down of their Twitter channel. This latest offer reveals some signs of activity, however, and that they are willing to keep pace with peer firms when it comes to trying to attract new clients.

Unfortunately, there is a lot of ground to make up by Scotia iTRADE when it comes to client experience.

A quick look at their Google reviews showcases concerns that have been voiced very publicly online, and as such, as competitive as their offering may be, it may hold greater appeal with existing clients rather than new clients who are learning about this brokerage for the first time.  

The latest launch of new promotions at this point in the calendar year is a great indicator of the high degree of competition between online brokerages. The biggest rush of interest to self-directed investing is likely behind us, however there is greater awareness of trading online (especially among younger investors) and it’s clear that the effect that National Bank Direct Brokerage’s move to zero commission rates has had across the board. While most online brokerages aren’t lowering standard commissions to zero (yet), the commission-free trades are getting more numerous, cash back incentives higher and commission rates dropping (even temporarily). Combined, those factors clearly paint a picture of a world in which pricing for self-directed investing will continue to decline.

Preview: Look Back / Look Ahead Magazine

The end of a calendar year is a fitting time to reflect on the events of the past twelve months, while also casting a gaze forward as to what to look forward to. We’re not alone in that activity, as numerous political and business leaders are taking the time to comment on what they thought the most important developments were for the past year.

This week coming up, the latest issue of Look Back / Look Ahead magazine is set to publish, and included in it are some very insightful perspectives by a cross section of senior leaders of Canada’s online brokerages. In this issue, we asked all participants a series of questions about what investors can expect from their firms, what interesting trends they noted, and in particular, what they see coming in the year ahead.

All Canadian online brokerages that we cover on SparxTrading.com were invited to participate, free of charge, and were given the opportunity to speak directly and freely to Canadian self-directed investors about the challenges and triumphs of 2021.

Naturally, the industry being as competitive as it is, many online brokerages were not going to reveal all of the things they’re working on; however, it was refreshing to see that among all the participants, there were some candid discussions of new features slated to arrive in the new year.

The online brokerages that provided submissions to this year’s issue include:

We also provided coverage of the rest of the field based on what we saw as important and noteworthy developments during the year, and where things could go for those firms in 2022.

Among the big trends that we noted for 2021, multiple online brokerages called attention to the shift in demographics of their client base to a decidedly younger group. Stats vary, but in the order of 20% to 40% of new clients joining online brokerages in Canada this past year were under the age of 35. This has tremendous implications for what online brokerages are focusing on, and we can already see what several brokerages are committing to as a result. One tangible feature that is in focus is investor-oriented content to support new investors.

We also asked about client experience, and how each firm interprets that component of their service offering. While we doubt anyone would talk down their service experience, there were clear and tangible activities shared by online brokerages as to what they intend to do in the area of providing strong service to online investors.

On the topic of zero-commission trading, there were some intriguing answers – especially from the firms that have not yet lowered their commission rates to zero. It’s clearly something that has been discussed, and in fact, will continue to be evaluated as the market continues to evolve.

There were several notable new features coming soon that were discussed by online brokerages in this issue. One, we believe, will be significant (dare we say huge) and will serve as a catalyst for self-directed investors to seriously consider brokerages based on this one big feature. Other features being telegraphed will undoubtedly address certain pain points with mobile and digital experiences that will hopefully contribute to self-directed investors remaining where they are.

Beyond the online brokerages already operating in Canada, we also took a look at the companies that have all provided some indication of interest in launching new online brokerages in Canada in the near future. Names such as Mogotrade, Tradezero, FreeTrade, and, infamously, Tastyworks, are set to make history if they all are able to come to market in such a short amount of time. Realistically, we understand the regulatory process is neither easy nor fast when it comes to launching a new brokerage in Canada; however, none of those firms mentioned are standing still on the issue of going live in Canada as soon as is feasible to do so.

Finally, this issue happens to coincide with the 10th anniversary of SparxTrading.com’s launch. It’s hard to fathom that a decade has gone by, and through that time, we’ve been covering the ups, downs, and sideways of the online brokerage industry in Canada, as well as in the US. We provide some fun behind the scenes snippets of the journey to this point, and in stepping back to look at the bigger picture of the state of the industry, as well as the needs of online investors, we see our role and mission as more important than ever to deliver on. It’s abundantly clear (to us) that we’ve also grown a sizable community of online brokerage industry stakeholders, followers, and online brokerage enthusiasts, and we’re really excited to reveal what we’ve got planned next for this community in 2022.

Be sure to sign up to our newsletter for recaps and updates (including the first look at the magazine) and follow along on our social media accounts for highlights from the Look Back / Look Ahead.  

Thanks to all the firms that submitted and participated in this year’s magazine, as well as to the readers and supporters of Sparx Trading that have helped us make it to year 10, conveniently X in Roman numerals. Here’s to the next X.

Into the Close

At the time of publication, markets are poised for a bumpy start to a shortened holiday week. And, as financial services firms also sound the alarm to retreat and work from home through the winter to ride out the Omicron blizzard, we’re mindful that this is going to be a turbulent week. Volatility is going to be high, so despite travel bans and lockdowns starting to take effect, anyone who is a student of recent history is going to get a chance to witness a rerun of market turmoil and trading activity spikes. For traders, that’s about as bittersweet as it gets at this time of year but all we can do is buckle up, be kind, and hold on. We’ll be publishing the next edition of the Roundup a little later than usual courtesy of the holidays, but between now and then, thank you for joining us this year, and from all of us at Sparx, we wish you and your loved ones a safe and restful holiday season!

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Discount Brokerage Weekly Roundup – December 13, 2021

Inflation isn’t the only reason interest is heading higher at the end of the year. For the online brokerage industry in Canada, it seems that new features and announcements are also grabbing attention and fueling speculation as to what’s next as we head into the new year.

With just a few weeks left in 2021, and some big announcements of our own to report on, the Weekly Roundup is shifting gears into “year-end” mode. To kick things off, we look into the newest big feature drop announced by Wealthsimple Trade and unpack what it means for investors and competitor brokerages heading into RSP season. Next, we launch into rewind mode and review the big milestone developments from earlier this year as a prelude to the launch of our exclusive Look Back / Look Ahead magazine later this week. Finally, we wrap up with DIY investor chatter from the investing forums.

Wealthsimple Trade Launches SaaSy New Subscription

Just in time for the holiday season, Wealthsimple Trade rolled out a brand-new enhancement that has caused quite a stir among Canadian self-directed investors.

Wealthsimple Trade Plus, a new subscription model-based program offered by Wealthsimple Trade, will soon be removing per trade currency conversion and replacing it with a modified currency conversion option, adding in real-time data (though not streaming real-time data), and increasing the amount available for instant deposit to $5,000. The fee for this new service model is $10 per month, up from the current $3 per month being charged for Wealthsimple Trade Premium.

The new Plus program is slated to replace the Wealthsimple Premium plan. Premium is scheduled to be sunset in March 2022.

Like most big new features at Wealthsimple Trade, there’s a waitlist and a gradual rollout plan to contend with. However, despite what is clearly an attempt to address some of the most highly sought-after features by their clients, the early feedback from self-directed investors is mixed.

Arguably, the price tag is a sticking point. Paying $10 per month for a service might seem small; however, among the discount investor crowd, what amounts to an annual fee of $120 (if used through the year) is considered friction. In fact, introducing optional monthly fees at a time when other leading online brokerages, such as Interactive Brokers eliminate monthly fees (coincidentally, at $10 per month), and when competing online brokerages in Canada such as National Bank Direct Brokerage and Desjardins Online Brokerage have lowered their commission rates to zero (while providing access to USD accounts without forced currency conversions), means that the new Wealthsimple Trade Plus offering will have limited appeal.

For some clients of Wealthsimple Trade, this new capability will make financial sense – they can transfer a large dollar amount into USD and pay a one-time conversion fee of 1.5%. What hasn’t been made clear yet is how clients will be able to withdraw the funds, and whether it will have to first be converted back into CAD or if users can link directly to an external USD account. Additional questions have been raised, such as the ability to journal shares for cross listed securities and what will happen for clients with existing USD securities who sign up for Wealthsimple Trade Plus, and most importantly, what happens when a user opts out of the Wealthsimple Trade Plus program?

Of course, the timing of the announcement is certainly convenient given the proximity to RSP season; however, the fact that there is going to be a waitlist and a phased rollout of the new feature means that competing online brokerages have an opportunity to reposition themselves against this new offer. And the longer those questions about the new feature release remain unanswered, the greater the window of opportunity for competitors to provide a more tangible alternative.

The marketing and advertising for and in response to this latest development is sure to be heated. Already one key theme that existing online brokerages seem to be highlighting is “certainty” in what investors have to pay. Flat fees per trade are, arguably, more appealing than variable costs. The biggest test for Wealthsimple Trade, however, appears to be waning sentiment among millennial investors towards the commission-free offering which was once the exclusive domain of Wealthsimple Trade. One of the most influential sources of information for new and existing online investors is reddit, and it appears that National Bank Direct Brokerage and Desjardins Online Brokerage are both getting a lot of “earned media” from DIY investors who are leaving their existing brokerage (including Wealthsimple Trade) outright or redirecting a portion of their investment portfolio to these low-cost options.

Data from Robinhood, arguably, the best bellwether for Wealthsimple Trade, shows a substantial pullback in equities trading and user growth on the platform plateauing. Thus, the limits of design are going head-to-head with pricing, and in the self-directed investing space, while design might count for something, pricing (and features) usually win the day.

This latest move by Wealthsimple Trade will likely not spur existing Canadian online brokerages into action, nor will it likely be a significant catalyst to lower prices. Most Canadian online brokerages already offer the kinds of services (or better) that Wealthsimple Trade is bringing online in the new year.

As such, heading into the busiest stretch of RSP season, we anticipate Canadian online brokerages to step up advertising and awareness campaigns. If not to highlight their own features, then certainly to go on the offense to directly challenge competitors. The timing seems right for a big announcement from an online brokerage, and we’re probably not the only ones thinking that right now either.

2021 Online Brokerage Rewind: Part 1

It’s hard to believe that the end of another wild year is here. Time distortion is in full effect, thanks to the lingering impact that COVID-19 and all of its unwelcomed variants have had on the course of “normal” life. Now that we’re collectively almost two years into the global pandemic, there is clearly a shift – albeit a rocky one – towards a new equilibrium.

In January, a new reality was also thrust upon the online brokerage industry in Canada and across the globe at the beginning of 2021 when meme-stock mania and FOMO took hold and yet another surge of online investors wanting to join the world of trading online overwhelmed many Canadian online brokerages’ systems. Robinhood took centre stage as the zero-commission stock (and option and crypto) trading firm saw unprecedented customer growth and customer angst play out simultaneously.

Of course, all of this took place against the backdrop of a historic riot/coup in Washington, DC, a scene that provided a poignant reminder that even despite the chaos experienced in the real world, stock markets continued to drive higher. Regardless of what happened at the Capitol, capitalism remained intact.

At Sparx Trading, January was also busy (but nowhere nearly as tumultuous). We launched the first ever influencer edition of our Look Back / Look Ahead series, featuring contributions from the most influential folks in the Canadian online brokerage research industry, and hit restart on a long-dormant newsletter program.

Gamestonks continued to be a dominant theme heading into February, and the surge of (noted now as the “rise of”) retail investors grew, shattering trading and new account growth records at all online brokerages in Canada and around the world. The world, it seems, had shifted, and retail investors embraced markets and risk in a way that nobody really saw coming. That fact was laid bare as customer service wait times exploded in Canada just as RSP season was reaching its zenith, and the combination was not pretty. There were anecdotes of multi-hour wait times to get through to client service teams and it was clear that many (many) online brokerages in Canada were simply not equipped to service that level of rapid interest.

Despite the turmoil on the client service channels, the beginning of 2021 saw what would become an overarching theme across the Canadian online brokerage industry for the year: the release of new features. Twenty twenty was an exceptional curveball that all online brokerages had to figure out how to contend with; however, once teams had transitioned to working remotely (itself a phenomenal effort for the financial sector), the work restarted on launching new features. Big bank-owned brokerages, such as BMO InvestorLine and RBC Direct Investing, took the lead with new bells and whistles added into their offering.  

And speaking of shiny new things, the tail end of February saw the beginning of a new chapter in the digital life of SparxTrading.com, as we officially rolled out a new website. The brand-new look and feel of the site as well as the new features, such as an online brokerage deals calculator and new approach to delivering information on deals and promotions, set the stage for a new direction for the site. The big investments in new architecture were not without hiccups though, and behind the scenes we’ve been working hard throughout the year to continuously monitor and improve performance based on user feedback.

The end of the calendar quarter somehow managed to deliver equally headline-grabbing developments. Specifically, we noted on two separate occasions that month that new commission-free trading firms were positioning to come to market in Canada by the end of the year. Easier said than done it seems. Among the big names, Tastyworks, the popular US online brokerage that focuses on options trading, and Mogo Financial, who announced the launch of Mogo Trade, after the acquisition of Moka. Of course, we didn’t know it at the time, but March was also when National Bank Direct Brokerage set the stage for their eventual leap into being the first bank-owned online brokerage in Canada to offer commission-free trading. In March, however, National Bank Direct Brokerage tested the waters by dropping their standard commission rates by about 30% to $6.95 per trade.

There were, of course, many other stories, as well as copious amounts of silly gifs shared in the Weekly Roundups, that we didn’t mention here. To catch up on all of the stories from Q1 of 2021, check out our 2021 archives here, and in case you missed some of the fun artwork, be sure to check out the Sparx Trading Instagram page.

Stay tuned for more updates through the year in the next Roundup, as well as the big launch of the Look Back / Look Ahead magazine!

From the Forums

Fees Squeeze

With the launch of Wealthsimple Trade Plus, inevitably investors are asking whether existing online brokerages are going to drop their fees – even nominally – to offset the slow but steady growth of commission-free trading. In the crosshairs of investors this past week, Questrade, where users on this reddit post debated the current low-cost options for self-directed investing, and challenged the perception of Questrade as a low-cost leader.

On Better Terms

Another week, another interesting thread about the finer points of a popular bonus offer. In this post, reddit users weigh in on the tax treatment of cash back bonus offers, and the perspectives are interesting as they are varied.

Into the Close

That’s a wrap on yet another wild week in the markets. After shrugging off omicron, hot inflation, chip shortages, and crypto crashes, it seems like 2021 is determined to end on a high note. We’re also pretty excited about what’s coming just around the corner with the launch of our Look Back / Look Ahead series for 2021/2022 and to gear down for the holiday season. With so much activity in play, we suspect that January will be an exceptionally busy month, and we’d have it no other way! Have a profitable week!

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Discount Brokerage Weekly Roundup – December 6, 2021

And just like that, there are less than 19 days until Christmas (fewer if you aren’t reading this on Monday). This past week and year have seen more twists and turns than a pack of Twizzlers, but either by design or some kind of pleasant surprise, stock markets appear to be pricing in better times ahead – at least for some.

In this edition of the Roundup, it seems that gifts for self-directed investors are arriving in time for the holidays (no chip shortage here!). Read on for more insight into some big online brokerage deals and possibly bigger savings coming for self-directed investors into this cycle of RSP season. Next, we preview the upcoming edition of the Sparx Trading exclusive, Look Back / Look Ahead. Be sure to check out the teaser for interesting perspectives on what we’ve seen from brokerages participating this year. As always, we’ve included some banter from the forums to capture the sentiment from the past week.

Deal-cember: Big Savings for Self-Directed Investors this RSP Season

The number of deals and promotions that tend to show up around this time of year are driven by the interest in the TFSA and RSP contribution deadlines.

There’s fairly reliable data (see below) that shows that Canadians start asking more questions and inquiring about these investment vehicles at about the same time each year; however, it’s clear that the volume of searches on a relative basis favours RRSPs vs TFSAs. Not surprisingly then, the savvy Canadian online brokerages tend to time their promotions for opening new accounts or adding more funds to existing accounts around the same time as well.

What is interesting to compare with the current list of promotions is the expiry dates. Given that the RSP contribution deadline to qualify for the 2021 tax year is March 1, 2022, there are several online brokerage promotions currently running that are timed to expire at around that date. Notably, cash back promotions from TD Direct Investing, CIBC Investor’s Edge and Qtrade Direct Investing – all of which launched in November – are set to expire in the new year. In contrast, the cash back promotion from BMO InvestorLine is set to expire at the end of December, and the commission-free trade deal from HSBC InvestDirect is also set to expire at the end of 2021.

Why these dates matter is because if we look to last year, both BMO InvestorLine and HSBC InvestDirect ran cash back promotions heading into the RSP contribution deadline. Further, RBC Direct Investing and Scotia iTRADE were also on the list of online brokerages offering cash back (or combined cash back and commission-free trade) promotions.

So, as busy as the deals and promotions section is, there is certainly potential for more activity as we progress through December and into January if last year is any indicator.

At this stage of the year, however, it appears that the big bank-owned brokerages are the most aggressive in competing for new business. In particular, TD Direct Investing appears to be on the hunt for new accounts with the largest cash back amounts for deposits ranging from $1,500 to $49,999. This isn’t typical territory for a bank-owned brokerage to look to take a lead in; however, these are clearly not typical times.

Currently, TD Direct Investing’s offer outcompetes Questrade’s referral promotion (which is the only way to get a cash back bonus) at the sub $10K mark. And, in comparing the online brokerage promotions available at this time last year there are some even more startling developments. As seen in the chart below, TD Direct Investing dropped the minimum deposit threshold to qualify for a cash back promotion by 90%. Similarly, BMO InvestorLine and Qtrade Direct Investing also dropped the minimum requirement to qualify by 50% and 40%, respectively. So, while the cash back amounts have stayed relatively the same – or proportionately lower in the case of BMO InvestorLine – the deposit amounts required to qualify for those bonuses (i.e. the hurdle to qualify) has significantly decreased at three of the four online brokerages currently offering cash back promotions.

While no online brokerage aspires to have to spend heavily to acquire new clients, the reality is that when the largest online brokerage in Canada makes such an aggressive move, other peer firms are almost required to follow suit.

Aside from the published deals, it appears there are also very aggressive commission-price lowering efforts happening behind the scenes. While we typically don’t report on rumours, we’ve seen and heard reports of commission prices being lowered at CIBC Investor’s Edge and TD Direct Investing with rates going down to $2.95 to $4.95 per trade. Usually, this kind of price adjustment would be negotiated for very active traders. Now, it appears to be spreading to higher value accounts, which suggests it is a matter of time before a bigger public announcement takes place for commission drops.

All told, it appears that the online brokerage industry in Canada is at a tipping point heading into the next RSP season.

Deals and promotions activity is once again active; however, the fact that promotional offers are being led by the largest player in the space (right now) indicates that they are starting to play offense rather than simply position themselves according to their popularity. TD Direct Investing didn’t have to drop their cash back offer qualification rate for the same offer rate they were giving out last year; however, the fact that they did indicates they felt the need to.

One of the biggest catalysts, we suspect, is commission-free trading available at National Bank Direct Brokerage. Further, the cash bonus from Wealthsimple Trade and Questrade’s continued rise in popularity are additional factors that sway investors with sub-$15K amounts to deposit. With three quarters of the current cash back promotions now having offers for investors with $15,000 and half of the cash back promotions offering promos for investors with $10,000, we might be witnessing a trend by the larger or more established players to revisit their offerings in this segment of the market.

Additional threats to the incumbent online brokerages include newcomers, such as Mogo Trade, Tastytrade, Tradezero, and Free Trade to name a few, all of whom are promising to bring with them commission-free stock trading. At least two of those firms have stated that they will be looking to launch in 2022, if not sooner.

The takeaway is that there are likely to be some interesting offers coming to market for self-directed investors, especially between now and the first few days of January 2022. We expect there to be lots of investment by online brokerages to try and advertise these offers so it may not come as a surprise to see more than Questrade commercials show up from now until the end of February. This, perhaps more than in years’ past, December is really the most wonderful time of the year – especially if you’re looking to open an online brokerage account (or are considering switching online brokerages).

Getting Ready to Look Back, Can’t Wait to Look Ahead

The end of the year is just around the corner, and with it comes a slew of enjoyable traditions. It’s been a tremendous year for the self-directed investing space here in Canada, and with so much having taken place, it’s hard to keep track of everything that’s happened. Or at least it would be much harder were it not for the upcoming issue of the Look Back / Look Ahead magazine.

We’re thrilled to be launching this upcoming issue which features submissions from some of the leading online brokerages in Canada. This issue is currently in production; however, it provides some very rich insights into how the past year played out for Canadian online brokerages and highlights how big shifts in the industry, such as the flood of new investors or the launch of commission-free trading, have impacted firms in different ways.

One of the biggest draws of the magazine is to see what self-directed investors can expect from different Canadian online brokerages in the year ahead. And, there are some very interesting announcements we think are going to continue to shape the industry – especially as more competition enters into the market. From hints on pricing to innovative new ways for investors to get greater value out of their relationship with an online brokerage, some big changes are set to make landfall in early 2022.

Of course, it’s hard for anyone (as we know) to stay on top of developments and feature launches. That said, it’s also a challenge for the online brokerage industry in Canada as a whole to communicate what they’re up to. While press releases remain a mainstay for big feature announcements, we believe that a series of small announcements tend to accrue more value over time with DIY investors. Activity is certainly a marker of progress, however, so too is transparency in communication.

As we noted in a Roundup last month, we’ve seen communications strategy at Canadian online brokerages shift, especially on platforms like social media. Several once-active online brokerages, it seems, have run out of things to talk about or have opted to not say much in places that investors would frequent.

Thus, it is a bit of a paradox as 2021 draws to a close. Despite having more options for finding out information about online brokerages, it is increasingly more challenging for self-directed investors to find well curated and in-depth content about those brokerages.

The Look Back / Look Ahead is therefore a unique opportunity to get direct information from Canada’s online brokerages that would not necessarily be as easy to find anywhere else. It also helps to serve as an indicator of the online brokerages we can expect to hear and see more about heading into 2022.

From the Forums

Paid to Wait, Eh

Patience in the stock market can pay dividends, literally. For one Canadian self-directed investor, the recent news of dividend hikes at major Canadian financial institutions was confused when those hikes hadn’t yet been updated in a popular Canadian ETF, XIU. See what fellow investors had to say in this post about the pace of dividend updates and the virtue of patience.

Waiting on the Edge

The old adage of time equaling money is something that eventually comes home to roost for online investors who have to spend a lot of time waiting on customer service lines. Although it was a big issue early on in the pandemic, wait times appeared to recede to more “normal” levels. So, it was interesting to see this post on reddit from one self-directed investor who experienced an unusually long wait time and had lots of time to write a review and contemplate alternates.

Into the Close

If 2021 wanted to keep things interesting for everyone on its way out the door, it is certainly doing a good job of that. With just a few weeks to go, self-directed investors are getting into planning mode, with tax-loss selling, harvesting of gains, and culling of losses all on the docket heading into the home stretch of the year. Of course, when stocks are done for the week, there’s always crypto dipping to keep things interesting over the weekend.

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Discount Brokerage Weekly Roundup – November 29, 2021

Just when we thought things couldn’t take a turn for the bizarre, Black Friday showed up, and with it, a whole new COVID-19 variant of concern. As a result, markets rapidly sold off, but as this edition of the Roundup is going live, there seems to be some enthusiasm that things will get better from here. 

In this edition of the Roundup, we review Qtrade Direct Investing’s latest move to launch real-time account opening, as well as look into the stats and rankings of online brokerages from Surviscor. As always, we serve up some healthy investor culture to end on. 

There in an Instant: Qtrade Launches Instant Account Opening

In a world where we can do almost anything online, it shouldn’t seem like instant account opening is a game changer, and yet, it definitely is when it comes to the world of online investing in Canada. 

This past week, Qtrade Direct Investing announced the launch of “real time” account opening for self-directed investors, and in doing so, has managed to get a highly-prized feature ready just in time for the start of RSP season. Importantly for Qtrade, this feature now enables them to provide a competitive onboarding experience relative to other Canadian brokerages that already have digital applications in place. 

Aside from being incredibly convenient for customers to be able to open accounts online, the speed with which an investor can get up and running has become an increasingly important determinant of whether or not investors will ultimately select a particular online brokerage. One only needs to look back at the past 18 months to see that the two major waves of self-directed investor interest tested the existing capabilities of online brokerages to be able to sign up clients fast enough. 

On both sides of the border, and in fact across the globe, self-directed investors poured into the stock market in unprecedented numbers. And, despite investors encountering long delays on customer service channels, as well as manual processes to actually complete an application, they nonetheless stuck it out because the opportunity (at least in the eyes of any traders) was there. 

And while it is difficult to predict whether or not something like the pandemic-driven sell-off in stocks will ever happen again, it is nonetheless important to acknowledge that the investor pool has dramatically changed. Those self-directed investors that have now become active in participating in markets have very different expectations about how quickly an online brokerage needs to be available to jump on fast-moving market opportunities. 

While online account opening seems like a natural feature for the online brokerage industry to adopt, the reality is that Canadian online brokerages have been fairly slow at doing so. Even with a more “digital” experience, approval times to get up and running can still take a few days. 

Another trend that has emerged over the past year relating to getting started quickly is in terms of funding accounts. Opening an account is only half the battle – there has to be a quick way to fund the account as well to be able to capitalize on market opportunities. In the case of Qtrade Direct Investing, opening an account is now faster, but funding it will still take time. Conversely, competitors of Qtrade, such as Wealthsimple Trade and Questrade, have digital account opening procedures and the ability to fund accounts right away, albeit with limited amounts. 

Heading into this RSP season, Qtrade Direct Investing has managed to address an important component of the onboarding process. In what is often a scramble to get an account opened or funded, Qtrade clients and those considering choosing Qtrade are in for a pleasant surprise. Conversely, the handful of online brokerages that still require printing or physical signatures of documents are increasingly going to be relegated to the sidelines until they can match the speed and efficiency of the instant account approval process. 

Ranking File: Questrade Notches Second Consecutive Top Mobile Experience Ranking

While the end of the year is typically the ramp up to RSP season, there’s also another important season for online brokerages that shows up around this time of year: online brokerage rankings.

This past week, financial services research firm Surviscor published their latest online brokerage mobile experience rankings, and it seems like this year there were a few surprises, as well as a fair share of tough love doled out to Canadian online brokerages.  

Before diving into the results, it is key to mention that when it comes to online brokerage rankings and ratings, methodology matters (a lot). Ultimately, the goal of online brokerage rankings is to be able to compare brokers to one another using some structured criteria. In this case, the mobile experience rankings are intended to measure the overall user experience of a self-directed investor via a phone or tablet device. 

Importantly, Surviscor uses a fairly comprehensive set of measures that assess various aspects of the service experience. Those components are then collated into six categories that can be used for a high-level view of the “mobile experience.”

Five of the six items that Surviscor reports on with respect to mobile experience at online brokerages include: 

  • Opening an Account
  • Navigational Design
  • Account Management
  • Market Information
  • Market Notifications

This year’s review covered 11 Canadian online brokerage firms. The four firms that were not covered were HSBC InvestDirect, Canaccord Genuity Direct, Laurentian Bank Discount Brokerage, and Interactive Brokers Canada. Interestingly, as part of the summary of the results of this year’s review, Surviscor revealed that while all online brokerages analyzed were invited to participate, several of them declined to do so. 

While the ranking data alone was interesting to see, to add deeper context on the ranking, we also gathered the scores associated with the above mentioned categories. In doing so, there are some fascinating observations of the state of mobile experience as defined by Surviscor.

The first important note to point out is that Questrade’s Edge platform was the one that was evaluated and not the recently launched QuestMobile. There has been considerable controversy among self-directed investors, in particular on user forums, about the switch to the new QuestMobile look and feel on the desktop platform. It is therefore important to distinguish between the way in which a user will interact with a platform on a mobile device compared to a desktop. 

Looking at the overall ranking more closely, the top three firms in the ranking, Questrade (77%), BMO InvestorLine (73%) and TD Direct Investing (72%) were relatively close to one another. Similarly, firms in positions six through nine were also very close in terms of overall ranking (range 54% to 57%). One very interesting result was just how poorly Wealthsimple Trade (33%) performed on this evaluation. Anecdotally, the aesthetic and user experience/user interface for Wealthsimple Trade is something that many self-directed investors specifically highlight as a positive feature. In this analysis, however, other than the account opening category, Wealthsimple Trade came up at or near the bottom of peer firms. 

Another interesting thing that jumps out from the full data set is that almost all online brokerage mobile apps do a poor job of notifications. Only four firms did not score 5%, with BMO InvestorLine scoring the highest in this category (95%). Market notifications are a particularly important feature for active investors, so it is curious to note that more firms would not make this component a more refined experience. 

One more pattern that emerged from the data is the correlation between navigational design and rank. In general terms, the better the navigation, the higher the ranking. That said, it was also interesting to see that navigation ranged from 67% to 90% and in this category; Wealthsimple Trade was a real outlier at 3%.

In the categories of Opening an Account, Account Management, and Market Information, the data show how variable the mobile experience can be in these categories. From a user perspective, this is the definition of hit and miss. It highlights some of the challenges associated with creating rankings and ratings, namely that there are some features that certain online investors will prefer and prioritize that others won’t. 

The mobile experience for self-directed investors in Canada, according to Surviscor’s latest report, has room for improvement and innovation. It seems like most online brokerages have managed to do a decent enough job of navigation but outside of that, there really isn’t a consensus from an industry perspective on what defines mobile experience. One goal to aspire to would be to do everything in an online brokerage account on a smartphone that you could do on a computer. 

From an execution standpoint, Surviscor didn’t hold back on a critique of some of the players in the online brokerage industry. The biggest critique, however, was that there was no app that “wowed” the rating team at Surviscor. There isn’t the kind of innovation or pace of innovation in the Canadian market that exists in other markets, such as the US. 

For self-directed investors looking for an online brokerage and for which mobile trading capabilities are important, this analysis is a great way to dive into the nitty gritty. There’s clearly work to be done by the online brokerages to provide a better trading experience. However, the tricky part will be understanding what clients generally want. 

From the forums

Live and Let Trade

In volatile markets, fortunes can change in an instant. For that reason, having access to accurate information on the latest stock prices is crucial to getting visibility on the best entry or exit points on a trade. In this post from reddit, one user looks to the self-directed investor community to find out which services other investors are relying on for real-time data.

Beware the Deals

Heading into RSP season, there’s no question that online brokerage deals and promotions are in full swing. Among the deal types, cash back offers are the most popular, but they’re not without some important considerations. In this post from RedFlagDeals.com, one forum user asks an important question about getting a cash back bonus for a registered account. 

Into the Close

Just when we thought we were out of the woods, Omicron surfaced and volatility came back into stock markets in a hurry and just in time for the weekend. It didn’t help matters much that the US had their shortened work week (because of Thanksgiving).  If there’s at least one silver lining, it’s that this time around, the world is much more prepared than previously. Stay safe and kind!

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Discount Brokerage Weekly Roundup – November 22, 2021

It’s been a tough week all around. As this edition of the Roundup goes to publication, there’s a tragedy unfolding in Wisconsin. And, in BC, there’s been a lot of bad news over the past week because of the floods. After the year and a half that has passed, when things rise to the level of exceptionally bad, it is often a moment to take a pause and reflect on the things to be thankful for.

In this shortened edition of the Roundup, the US online brokerage market is in the spotlight once again. We dive into recently released metrics to examine a possible shift in investor sentiment, as well as the uphill battle faced by Robinhood into the final stretch of 2021. To close out, we wrap up with some interesting chatter from the investor forums.

Growing Pains: Account Growth at Interactive Brokers and Schwab Spells Trouble for Robinhood

It’s barely winter, but already there are signs that online investor sentiment is “springing” back to life – albeit modestly.

Data from two large publicly traded online brokerages in the US, Interactive Brokers and Charles Schwab, appear to be pointing in the same direction with regards to positive month-over-month new account growth, the first time that has happened in 2021.

This year has certainly been a storied one for online brokerages. Right out of the gate, 2021 saw an unprecedented surge in retail investor enthusiasm based on the “meme stock” interest. All online brokerages in Canada and the US saw record-breaking activity in account opening and trading volumes. That interest, however, faded quickly as the meme stocks lost steam and the fast money sought other opportunities (such as crypto trading).

The October stats on new account growth at Schwab showed 397 thousand new accounts opened, an increase of just over 6% compared to September. By comparison, Interactive Brokers reported 46.3 thousand net new accounts opened in October, an increase of almost 6.7% month over month. Aside from the numbers of new accounts being vastly different at the two firms, the target clientele is also quite different. Interactive Brokers tends to target and attract active traders, whereas Schwab could be a better proxy for “main street” investors.

But what about the “new kid on the block” aka Robinhood?

With the surge of interest in online trading this year, a new segment of investor emerged that didn’t fit the traditional understanding and paradigm of “investor” and many (if not the vast majority) of those investors found their way to Robinhood.

Now that Robinhood is a publicly traded company, it is possible to get a better handle on what kinds of investors are gravitating towards this online brokerage and to see how account performance stacks up relative to incumbent firms. To compare apples-to-apples on account growth, it is important to note that, unlike Interactive Brokers or Schwab, Robinhood does not report monthly performance metrics. As such, we have compiled data on new accounts based on quarterly totals so that we could compare how Robinhood’s performance to Schwab and Interactive Brokers.

The chart shown above helps to put into perspective just how big of a wave of interest in online trading the first two quarters of the year represented to Robinhood’s business and the disruptive force Robinhood has been to the online brokerage market in the US. In the first calendar quarter of 2021, Robinhood added more accounts than Interactive Brokers and Schwab did in the first two calendar quarters combined.

Equally as evident in the chart above, however, is the enormity of the drop off in new account growth at Robinhood in Q3 2021. New account opens plummeted from 5.1 million accounts to just 700 thousand – which is still more than Interactive Brokers but well short of Schwab. Another table from the Robinhood earnings release provides additional context on what investors who signed up for Robinhood were most interested in trading, and as a result, where Robinhood earned most of its revenues each quarter.

Against the backdrop of revenue figures, it’s clear that options trading followed by equities trading dominated the revenue picture for Robinhood for Q1 2021, but in Q2, crypto became the primary driver of revenues. In Q3, Robinhood earned most of its revenues from options trading. Based on the revenue mix, it appears that Robinhood has both active traders – who would prefer options trading and cryptocurrency over equities – as well as less active investors, who would prefer equities and ETFs. For Q4 of 2021, Robinhood has already signalled to expect a soft quarter in line with the Q3 performance figures.

The latest numbers from Schwab and Interactive Brokers indicate a possible resurgence in interest with both active and passive investors which should seem like good news for Robinhood; however, we can’t help but wonder whether there is a significant number of accounts jumping ship from Robinhood. Neither the pace of growth in terms of new accounts nor the trading activity at Robinhood is clear enough at this point in the quarter to make a call either way. If Robinhood wants to attract investors interested in gaining exposure to online trading, they will likely have to change the way in which they report performance to bring them in line with other online brokerages. The fact that they haven’t yet done so does beg the question as to why those monthly figures don’t get published?

In the Canadian online brokerage segment, the data on online trading activity and new account openings is much less transparent. The US online brokerage market serves as a proxy for the performance of online brokerages and online investing on this side of the border. Interactive Brokers’ latest account figures reflect their continuous appeal to active investors and traders, and despite charging commissions for trade execution, people are prepared to pay. Schwab, by comparison, has shown that commission-free trading is only a small component of the wealth management opportunity to be had, a model other Canadian online brokerages are likely to look to when deciding which is worth more to their long-term success.

For the growing number of investors interested and curious about options trading, Interactive Brokers offers an experience that is hard to rival here in Canada – even when factoring in commission pricing. That said, if Robinhood is an indicator, commission-free options trading is something that is going to be increasingly sought after while cryptocurrency trading capability is also important to the newer segment of online investors. In terms of the latter, Wealthsimple Trade has an edge that offers self-directed investors direct exposure to cryptocurrencies and equities in one platform. The major downside, of course, is the cost for trading in US dollars and the lack of options trading. On the other hand, almost all popular Canadian online brokerages offer options trading as well as US-denominated trading accounts.

Until all three products: options, cryptocurrencies, and equities are available in a single online brokerage in Canada (and at a reasonable cost), it appears that Canadian self-directed investors are going to have to figure out how to combine providers to get the exposure they desire.

Turning back to the US online brokerage market, the latest performance figures from Interactive Brokers and Schwab point to an interesting scenario which we will be monitoring when Robinhood reports its next earnings release – namely, whether the account growth at Schwab and Interactive Brokers is coming at the expense of Robinhood clients.

It is difficult to know with certainty that clients leave one online brokerage to go to another; however, the revenue mix provided by Robinhood does suggest that Interactive Brokers is now a compelling alternative for cryptocurrency trading (of certain currencies) and definitely for options trading. Interactive Brokers, as of this past quarter, now offers the “trifecta” of options, crypto, and stocks at a professional trader’s level of sophistication. To boot, Interactive Brokers also now offers an ESG-focused trading tool that takes investor values into consideration when screening companies for possible investment opportunities.

At the other end of the spectrum, many of those investors that thought they could make a fast dollar on the meme-stock frenzy might have learned that investing profitably is a challenge and takes time and effort to do well. Those investors might now prefer a more hands off approach, or even value advice, which would point them towards Schwab.

The concurrent uptick in new account growth at Interactive Brokers and Schwab is a positive sign for both firms and an interesting development at this point in the year and stock market cycle. While it is difficult to know the source of those new clients, it’s clear that winning over Robinhood’s clients seems like part of the strategy of the existing players. Despite Robinhood’s success in bringing in new clients earlier this year, learning to hang onto those clients is an entirely different game altogether.

From the Forums

Exit Signs

While price is one reason online investors make decisions, there’s sometimes more to the story than that. In this interesting post from reddit, one user explains their reasoning behind saying goodbye to traditionally low-cost online brokerage to find greener pastures elsewhere.

Shopping for Options

With Black Friday just around the corner, it seems like Canadian investors are in the shopping state of mind. In this reddit post, one self-directed investor is interested in choosing a new online brokerage catering to options trading and receives some interesting perspective and suggestions.

Into the Close

It’ll be a short week for trading in the US because of American Thanksgiving, one that will undoubtedly be tough for community of Waukesha. Often in times of tragedy, it is the strength of communities that shine through and the kindness shown to others that makes an immeasurable difference. It certainly showed up here in BC when it was needed the most.

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Discount Brokerage Weekly Roundup – November 15, 2021

There’s a saying that goes, “when it rains, it pours.” It is a fitting comment in more ways than one, especially in November in parts of Canada, and especially considering that climate is driving much of the conversation in the news and now among online brokerages.

In this edition of the Roundup, we’re keeping things lighter than usual. It was oddly quiet (perhaps too quiet) across the online brokerage space here, so we’ve elected to shine a light on a new feature launch from one US online brokerage that is likely to prompt a trend of helping investors “go green.” From there, we’ll close out with a few quick updates on things that crossed our radar and wrap up with chatter from the investor forums.

Betting on Better: Interactive Brokers Launches new Sustainable Investing App

When it comes to getting ahead of the curve, it seems Interactive Brokers has a knack for good timing. Just as the conversation about the state of the environment is taking place all over the world, courtesy of the COP26 summit, Interactive Brokers announced the launch of their new “sustainable investing” app: IMPACT.

While the prime directive of Interactive Brokers is to generate shareholder returns (they are a public company, after all), the natural question to ask of the online brokerage is how this new app, which is designed to help DIY investors make more value-aligned investing decisions, will be better for business overall?

If there is one thing that Interactive Brokers appears to be deft at, it is getting creative at finding ways to connect to their existing and desired clientele.

Just before the start of the global pandemic, for example, Interactive Brokers launched a simulated sports betting platform targeting individuals who were interested in monetizing their talent and enthusiasm for professional sports. Despite the sports platform itself being quietly decommissioned earlier this year (no pun intended), the thesis of individuals who bet on sports being interested in trading stocks turned out to be wildly true. The crush of interest in trading online that occurred during March of last year and January this year was in some part due to individuals not having sports to be able to bet on.

In the case of the new IMPACT app, it appears it is yet another attempt in focusing in on a key client segment — in this case, younger investors that could use this app and the commission-free trading price point to boost new client generation. The founder and former CEO of Interactive Brokers, Thomas Peterffy, appeared on CNBC this past week and stated this when asked who this app was designed to reach.

Of course, in addition to the IMPACT app, Interactive Brokers recently launched the ability for its clients to trade cryptocurrency at a fraction of the cost of some larger names in the crypto space. After years of skepticism on the digital currencies, it was interesting to see Interactive Brokers capitulate and essentially jump into the crypto trading game because it was such a highly sought-after feature for clients.

Clearly, Interactive Brokers is no stranger to keeping a pulse on what it is their customers want and trying to deliver that service or experience through their services ecosystem. What stands out about the latest mobile app, however, is that none of their direct competitors have something similar in market. For its part, Robinhood published a blog post in October raising awareness of Latinx investors, and published their own ESG report; however, there was nothing near the Interactive Brokers experience in this segment of the market.

Socially responsible investing isn’t just a trend in the US. However, it is clearly a global thesis that has gained considerable ground over the past few years.

What makes the latest move by Interactive Brokers especially interesting, however, is that they have paved the way for other online brokerages to step up with something equally as compelling, especially the “challenger brands” whose identity is predicated on making the world of financial services “better.” In a macro sense, this kind of competition is great for the planet, as it better enables investors to throw their capital behind their values.

And, while the Interactive Brokers solution involves a well-designed mobile app (from a UI perspective anyway), this is the kind of innovation that Canadian online brokerages have been desperately in search of.

To that end, it is an interesting case study to see how little traction some existing players – such as Scotia iTRADE – have had with their socially responsible investing features. We reported on the launch of Scotia iTRADE’s ethical investing tool back in the summer of 2017; however, despite the macro trend supporting a tool like this getting more exposure and strategic expansion, things have been remarkably quiet at iTRADE on sustainable investing.

Among Canadian online brokerages, sustainable investing tools are a potential place to connect to self-directed investors (especially younger ones) who want to invest according to their values. The current approach of providing thematic choices is a decent starting point, but Interactive Brokers’ latest app demonstrates how much farther Canadian online brokerages need to be prepared to go to truly be seen as market-leading in sustainable investing.

In a small twist of fate, we at Sparx share a similar view to Peterffy when it comes to the power of capitalism being able to find a solution to the climate crisis faster than government action alone could. We think that investors, especially millennials, will be more informed about and willing to seek out brands that prioritize social responsibility as part of their business objectives.

The latest platform launch by Interactive Brokers is an example of their business interest in providing online trading services to as many people as possible overlapping with the next big wave of economic opportunity (imperative): saving the world.

Quick Online Brokerage Updates

Bandits in Sherwood Forest: Robinhood Security Breach

It was a tough week for some clients of US online broker Robinhood as the firm disclosed that five million of its customers had personal information compromised by a security breach. Ouch.

Apparently, the incident arose from a phishing scam that targeted an employee of Robinhood. The breach is yet another example of the hazards of operating online brokerages, and yet another strike on the reputation of Robinhood to contain phishing attacks.

Appy Days

If you can get beyond the characters on Twitter (looking at you, Elon), there’s all sorts of interesting data nuggets to uncover. This past week, an interesting thread started by The Globe and Mail personal finance writer Rob Carrick (famous for his online brokerage reviews) asked a very compelling question of the community of Twitter users. Check out what transpired when users were asked what they like and dislike about online brokerage mobile apps.

Looking Forward to Looking Back

The next edition of the Sparx Trading Look Back/Look Ahead series is just around the corner, and we are very excited to relay the updates shared with us by some of Canada’s largest and most popular online brokerages. We can see why there might be a slight dip in activity among Canadian brokerages this past week because there are clearly some big developments about to drop. Be sure to subscribe to our newsletter and Twitter feed for more details.

From the Forums

Need for Speed

If there’s one big lesson for self-directed investors over the past two years, it’s that when opportunity knocks, it helps to be able to get funded and get going. In this post from reddit, one user is looking for a non-bank-owned online brokerage that can offer faster deposits. Read what users had to say about the options available.

Departures and Rivals

There’s a lot of chatter these days about switching online brokerages. Because National Bank Direct Brokerage and Desjardins Online Brokerage are two of the first traditional online brokers in Canada to offer zero commission, naturally self-directed investors have questions. In this post from reddit, find out what perspectives users offered when considering a choice between these two new low-cost leaders.

Into the Close

That’s a wrap on another edition of the Roundup. We’re officially passing the halfway point in November and Financial Literacy Month is in full swing. It’s also Movember, and if you’re so inclined to mo-your support, we’re raising money at Sparx in support of the cause. Stay dry and have a profitable week ahead!

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Discount Brokerage Weekly Roundup – November 8, 2021

The end of 2021 is just a few weeks away. Incredible. It definitely feels like we’re on an express train through the calendar, and it is only going to speed up now that the official start to RSP season appears to be here. Thankfully, those of us fortunate to live in a spot with daylight savings have one extra hour to enjoy it!

In this edition of the Roundup, we review the latest promotions from Canadian online brokerages, including some big offers from bank-owned brokerages to try and sway interest their way in what is the most competitive landscape yet. Next, we call out an interesting trend forming among most online brokerages who appear to be pulling back from digital engagement on Twitter despite the record high numbers of investors flocking to online trading. Finally, we wrap up with the ever-entertaining banter from the investor forums.

Online Brokerage Promotions: Playing Cash Up

The RSP deals and promotions activity at Canada’s online brokerages is already off to a strong start this month. And, given who is now in the pool, it shouldn’t be too much longer before we see others follow suit.

Now a week into November, three of the big five bank-owned brokerages have published their seasonal promotions, and they all seem to have one important feature in common: cash.

The latest deals from BMO InvestorLine, CIBC Investor’s Edge and TD Direct Investing are all cash back offers, and as with past years, they are once again tiered promotions where the more you deposit, the more (at least in absolute terms) you stand to receive.

What is very different this year, however, is that it seems like TD Direct Investing (the largest online brokerage in Canada) has shown up with an historic offer for lower deposit amounts. TD Direct Investing’s newest promotion offers an eye-popping $100 for a minimum deposit of $1,500 and an extra $100 on top of any tier for individuals who set up regular deposits. In fact, it appears that among the cash back promotions of the (current) three bank-owned brokerages, TD Direct Investing has the best promotion bonus on deposits up to $25,000 and is tied for top deal up to deposits of $50,000.

By comparison, CIBC Investor’s Edge has staked out its sweet spot in the cash back promotion tier in the  $100,000 to $250,000 range. In that window, CIBC Investor’s Edge is offering up $500 which is more than either competitor by a lot. After deposits of $250,000, however, all three bank-owned brokerages are offering up identical rewards for comparable deposit tiers. Cash back amounts max out at $2,000 for deposits of $1M or more, which is similar to last year in terms of amount and associated tier.

For its part, BMO InvestorLine appears to have played their cards close to their chest in terms of the offer expiry date. The promotions from CIBC Investor’s Edge and TD Direct Investing that launched at the beginning of November run until the beginning of March 2022. The expiry date for BMO InvestorLine’s current offer, however, is the end of December 2021, which leaves enough time for them to decide how (or if) to respond with a slightly different promotion heading into the RSP contribution deadline.

Despite it still being early on in RSP season, the offer by TD Direct Investing is indicative of the competitive landscape this year. With zero-commission trading now a reality at a bank-owned competitor (i.e. National Bank Direct Brokerage), it looks like TD Direct Investing is going to challenge their peers hard at the sub $50,000 deposit level. This is especially interesting because it pits TDDI against brokerages like Wealthsimple Trade and Questrade by offering a more generous bonus than either of these brokerages provide at these deposit levels.

Unlike other online brokerages in Canada, it is hard to ignore or dismiss TD Direct Investing. For online investors looking to start out, TDDI might be a difficult choice because of inactivity fees for balances under $15,000. That said, it looks as if users who are willing to commit to a monthly pre-authorized contribution plan of at least $100 per month, they also stand to benefit from an additional $100 bonus and be able to waive the inactivity fee for a sub-$15,000 balance.

The early and aggressive launch of cash back offers from both TD Direct Investing and CIBC Investor’s Edge are a clear signal that the value equation has changed for self-directed investing. Now that there are at least three zero-commission trading options in Canada, one of which is becoming an increasingly better-known bank-owned brokerage, deals and promotions need to follow suit.

The reality is that it is a matter of when – not if – bank-owned online brokerages in Canada start to drop their commission fees, and as such, this could be one of the most opportunistic windows for online investors looking for a bonus offer on the way into a new account to secure one before pricing ends up shifting lower and promotional offers with them.  

Flying the Nest: Online Brokerages Migrating Away from Twitter

When it comes to quirky stories, Elon Musk seems like as good a reason as any to tune into Twitter. For some Canadian online brokerages, however, Twitter just doesn’t seem to hold the appeal that it used to, and we’ve spotted an interesting communications trend that reflects some of the challenges Canadian online brokerages are having engaging investors online.

Last month, we spotted the rather abrupt disappearance of Scotia iTRADE’s Twitter channel. And upon further inquiry, it seems that this channel had been folded into the customer support Twitter handle for the parent of the online broker: Scotiabank.

Normally, the disappearance of a social media channel would seem innocuous; however, Scotia iTRADE is not the only Canadian online brokerage over the past year to pull a sudden about-face on social media (much to the confusion of many users). As recently as last month, Virtual Brokers also folded up their Twitter handle because of their rebranding as CI Direct Trading, and earlier this year, Wealthsimple Trade also did something similar, opting to use the parent Wealthsimple handle instead.

A quick scan over other Canadian online brokerages who had Twitter accounts also shows that there hasn’t really been a whole lot going on there either. The last published tweet from the TD Direct Investing Twitter account, for example, was from February 2021. With that paucity of activity on social media despite having lots to talk about in other areas, it could be a signal that TD Direct Investing might take a similar approach to Scotia iTrade and wrap up its Twitter presence in favour of other channels being actively used by TD for either customer support or content creation.

As it stands, Questrade and Qtrade Direct Investing appear to be the only Canadian online brokerages using their Twitter handles for both broadcasting of messages as well as customer support responses. With many of their peer firms appearing to abandon pursuing a direct presence on Twitter, it could signal an opportunity for either of these firms to pull ahead with audiences who spend time on the social network.

Given the strategic importance of Twitter to the kinds of individuals that would pay attention to market-moving eccentric billionaires (like very active traders), it seems curious that online brokerages with tools and services catered to active traders aren’t doing more on Twitter. A quick look at the Twitter accounts of TradeZero or Interactive Brokers confirms that there is content being created for active traders there.

The most recent lightning rod tweet from Elon Musk got over 3.5 million people to cast a vote. Granted, he occupies rarefied air for a businessperson to be among celebrities whose primary job it is to entertain, so for brands such as online brokerages (especially Canadian ones), it is tough to compare. That said, if there is any lesson to be gleaned, perhaps it helps to realize that in order to succeed being on Twitter, it’s to make content that’s engaging and entertaining.

From the Forums

Hold the Music

Wait times on customer service lines are back – at least as a topic of discussion. Several weeks ago, we noted the hold music at TD Direct Investing had been replaced with banter. This past week, it seems like the wait time combined with the choice of non-musical accompaniment ruffled a few feathers. Here’s more of what redditors had to say about wait times and musical choices on customer service lines.

Character Flaw

Practice accounts are intended to give users a sense of what the trading experience is supposed to be like – much like a test drive. Unfortunately, one user on reddit discovered that their last name didn’t meet the minimum length requirements to sign up. Find out what others had to say in this post here.

Into the Close

That’s it for another week of curious developments in the online brokerage world. We’re hurtling towards the end of the year and for any die-hard readers of the Roundup, the good news to report on here is that we’ve got a very exciting Look Back / Look Ahead edition planned for this year. Stay tuned!

On another note, this upcoming week is Remembrance Day, and we wanted to take the opportunity to thank the brave individuals who have served and sacrificed in our armed forces, as well as those who continue to stand at the ready. Thank you.

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Discount Brokerage Weekly Roundup – November 1, 2021

Even though Halloween may be behind us, things are still a bit… “meta.” While the world tries to wrap its head around the Inception-esque metaverse, it’s officially November, and, coincidentally, earnings season at a lot of publicly traded companies. If there’s one thing this past week has revealed, it’s that being in the public eye opens you up to a lot of scrutiny.

In this (post Halloween) edition of the Roundup, we look at the skeletons and Pelotons shaping the latest developments at US online brokerage Robinhood and dig deep to unearth what their latest earnings report reveals about their future plans. And in keeping with the snackable financial content theme, this week, we’re dishing out a lot more investor chatter from the forums.

Robinhood’s Latest Earnings: A Lot of Sizzle at Stake

In their second-ever quarterly earnings report as a public company, Robinhood reported to investors a Dr Jekyll and Mr Hyde disclosure of exciting features mixed in with frightfully grim earnings numbers. The result: a drop in share price scary enough to qualify for a thrilling amusement park ride.

So why did the price per share for Robinhood fall so sharply?

Robinhood’s Q3 earnings report revealed a substantial drop in revenues, a sharp increase in expenses, and an admission that growth, not profitability, is the focal point for this business for the near to intermediate term. In short, revenues dropped, expenses rose, and the outlook for growth was muted.

By Robinhood’s own admission, they are betting the big expenditures (or “investments”) in hiring people to develop new features will be ultimately more valuable over the longer term than the current snapshot of financial performance would suggest. The market, it seems, is a bit skeptical.  

As is the case with most earnings reports, the standard metrics of business health – including revenues, expenses and earnings – were covered in the latest Robinhood results. However, the numbers we’re most interested in for this online brokerage relate to the numbers of new accounts and activity per user on the platform. These stats tend to provide insight into the rate of adoption of a platform, as well as the kinds of users (active or passive) that typically make up their client base.

Churn Baby Churn

One of the more stunning graphs from the Robinhood earnings presentation was the Net Cumulative Funded Accounts chart. This past quarter, Robinhood ended up with 22.4 million funded accounts, a slight decrease from the prior quarter of 22.5 million funded accounts.

What is astonishing, however, is that they added almost 700,000 new accounts during the quarter and lost (or “churned”) 900,000, meaning that Robinhood lost more customers than they gained this past quarter, something that has not happened in the previous four quarters this data was reported. During the quarter, they also managed to regain (or “resurrect” in their lingo) about 100,000 new accounts.

Here’s what CEO of Robinhood, Vlad Tenev said in the investor conference call:

“In Q3, net cumulative funded accounts were 22.4 million, up 97% year-over-year and slightly off versus Q2. We As we previewed last quarter, in Q3, we saw considerably fewer new funded accounts and lower revenue as compared to Q2. In Q3, we added 660,000 new funded accounts, bringing our total additions for the year to 11.4 million, nearly doubling our customer base since the end of last year”

Granted, the last three quarters in the online investing industry have been unlike anything witnessed before in terms of retail investor participation, so it would be a reasonable assumption that new client growth could not continue at the same pace it has over the past year; however, as we’ve noted as recently as two weeks ago, new account growth at other online brokerages, such as Schwab and Interactive Brokers, has been positive.

To contextualize the performance of Robinhood in terms of new user growth, Tenev stated:

“Historically, our growth has come in waves. The surges have come during periods of increased volatility or market events. We’ve also seen that new customers join when we add new products and features, giving us some degree of control over our growth.”

When measured against the user account growth at Interactive Brokers and Schwab, however, Tenev’s comments reveal a concerning stall in terms of what Robinhood appears to be bringing to the table for investors. Both Schwab and Interactive Brokers have found ways to overcome the churn despite what the waves that Tenev describes. Perhaps, the fact that a firm like Interactive Brokers has had the kind of consistent growth streak it has reflects just how impressive a feat it is to accomplish, all the while charging commissions for trading.

Back to the Feature

Despite the challenging quarter and with another similar one likely on the way in Q4, Robinhood appears unfazed, setting their sights farther down the track.

Prior to their earnings call and even all throughout the call itself, bringing on top talent into Robinhood was a key point of emphasis as to what will help Robinhood get a leg up on competitors in both the traditional online trading world and the brave new world of cryptocurrency trading. To navigate the next chapter in the Robinhood story, they’re going big on getting creative.

Case in point, Dara Treseder, the Senior Vice President and Head of Global Marketing & Communications at Peloton, is joining the Robinhood Board of Directors. And, to boot they added 580 new full-time employees across the company during the quarter in areas like engineering, compliance, and customer service. While the latter two areas are intended to ensure operating stability, the heavy investment in engineering is a signal they are going full throttle at product development and refinement of their technology ecosystem.

Not entirely unrelated, another noteworthy development that caught our attention in the Robinhood conference call was related to financial content. Specifically, Robinhood Snacks is arguably one of the best-in-class financial content productions aimed at millennial self-directed investors. The content is “digestible” and entertaining, something that is exceptionally rare in the world of personal finance, let alone the realm of investing.

With over 23 million unique readers of their Robinhood Snacks newsletter and more than 10 million downloads of their podcast in the past quarter, there’s a sizeable reach to their content program. And it appears that content is going to now go farther. In the earnings conference call, Tenev announced a partnership with Snap (of Snapchat fame) which will distribute the Robinhood Snacks content on their channel.

Curiously, despite the strong following on their newsletter and podcast, the official Robinhood YouTube channel is sorely lacking in followers and their reddit page, which despite having 937,000 followers (at the time of publication) has very little commenting or interaction taking place on it. So, while the numbers on the podcast and newsletter are a nice flex, other public channels for Robinhood show a startling absence of engagement.

Like most earnings reports, ultimately, the bottom line comes into focus. For Robinhood, however, it is clear that they are still operating in “growth mode,” meaning they are spending considerable time and energy building out new features and working to improve delivery of existing ones. It is important to contextualize that they practically doubled their customer base in about a year, and although online investing is capable of scaling, there are limits – which Robinhood has evidently discovered.

For Canadian online brokerages and self-directed investors, Robinhood has served as a harbinger of the sorts of things to come in the online investing space. Aside from commission-free trading of stocks, there are several other features, such as cryptocurrency trading, promotions that use stock bonuses, and heavy emphasis on user experience (UX), that other online brokerages have adopted as part of their strategy here in Canada.

While investors in Canada have learned to hurry up and wait when it comes to features launched in the US actually coming to Canada, there’s no doubt that Robinhood influences a Canadian investor audience as to what’s possible.

Of course, since Robinhood’s commission rates are at zero, everyone, but especially shareholders, are curious to see what their next act is going to entail.

From the Forums

Shifting Attention

One of the curiosities of the Canadian online brokerage market is how slowly other providers in the space are lowering their commission rates down to zero, despite the presence of three companies now offering trades at this rate. In this post from the Financial Wisdom Forum, one user elegantly sums up what big bank-owned brokerages need to fear about the shift to a competing online brokerage offering commission-free trades.

Negative Sentiment

Like the stock market, there’s a strong relationship between sentiment and loyalty when it comes to online brokerages. In this post from reddit, one user relays their frustration with the state of their current online brokerage (Questrade) and whether or not the time is right for making a change.

What’s in Your Wallet

Cryptocurrency trading at Wealthsimple is a very popular (and sometimes controversial) feature. One of the biggest pain points with customers, however, is the limitation on withdrawing crypto into an external wallet – something that this post on reddit indicates is going to be changing soon. Read more for responses from other investors.

Early Birds

Trading on the stock market is just too exciting for some self-directed investors. In this post from reddit, one investor asks whether any online brokerages allow trading ahead of regular market hours. Not surprisingly, there are others who are curious about this feature too.

Error of Commission

When is a good deal on trading via an online brokerage platform? With so many providers in Canada charging slightly different pricing of self-directed investing, sometimes the costs of paying a commission are outweighed by a simpler or more robust feature set. Find out in this post on reddit whether one user is paying too much.

Into the Close

It’s going to be a big month across the board. From new online broker promotions to feature launches and even some great updates from Sparx Trading in the mix, the official launch to RSP season is here. You could say the launch is going to be so… meta.

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Discount Brokerage Weekly Roundup – October 25, 2021

Halloween is just around the corner, and it’s not just ghouls and goblins that are causing a fright around online brokerage circles. Apparently, the specter of zero-commission trading is a bit of a phantom menace on both sides of the border.

In this edition of the Roundup, we reveal (yet) another new commission-free online brokerage setting its sights on coming to Canada and what that could mean to existing online brokerages’ plans to keep commission rates where they are. Next, we review one US online brokerage’s move to put account funding in the fast lane and dive into what it could mean for active traders here in Canada who want to get going as fast as possible. Finally, we cap off this week’s news with some fascinating commentary from self-directed investors in the investing forums.

TradeZero Coming to Canada

Last week we mentioned the news that TradeZero announced they would be going public. A fun fact about going public is that there is usually a pitch deck for investors to buy into your company, and in the case of TradeZero, there were several interesting nuggets of information about their intent as an online brokerage.

Buried in the TradeZero investor presentation deck was the revelation that TradeZero intends to launch in Canada sometime in 2022. Although they had officially registered in Canada as far back as June of this year, the investor presentation put a timeline and target on what the opportunity for them in the Canadian market could look like. It appears that TradeZero is using its launch in Canada as part of a series of launches in different countries and regions over the next few years.

Perhaps the most interesting angle in terms of their expansion is that TradeZero is positioning itself to compete directly against Interactive Brokers for the ultra-active retail trader. Of all the segments of investors, the active trader is highly prized but comes with the highest expectations for quality of experience, platform stability, capability for complex trading, and competitive pricing.

Although it is unclear as to what they will launch in Canada, it’s a safe assumption that the products will be aligned to active traders, and according to their investor presentation, options, and cryptocurrency trading, are likely candidates alongside equities to be a part of the go-to-market offering. The timeframe to achieve the scale they’re looking for, namely some percentage of the 160,000 accounts, is also unclear. For comparison, account opens cited by other media sources peg Questrade as opening 200,000 accounts per year, and while there very well may be a large number of accounts in the total addressable market in Canada, hitting their target number won’t come easy.

It begs the question, who would TradeZero’s competitors be in Canada?

At the top of the list would be Interactive Brokers; however, based on their target demographic and the active trader profile, there are several other firms whose lunch TradeZero would try to eat. These would include CG Direct (the legacy business from Jitneytrade), Wealthsimple Trade (because of crypto and US equities), and it’s fair that Questrade and TD Direct Investing would be in the mix too because of their active trader offering, especially on the options side.

Then, there is the branding issue. While active traders might be more inclined to trial or check out a new technology or brokerage, being a new online brokerage in the Canadian market is generally met with some suspicion, regardless of the offer. A great case in point is the fact that despite having low standard commissions and offering a lot of the perks of being bank-owned, both HSBC InvestDirect and National Bank Direct Brokerage have yet to see the kind of traction from price sensitive online investors that would have been expected. Even with zero commission trading now available from National Bank Direct Brokerage, it is surprising to read how many investors are willing to stay with their existing brokerage in hopes that commission rates will drop at their broker.

In order to ramp up to the addressable market that TradeZero is targeting for Canada, there will almost certainly be a significant investment in marketing and advertising to let people know who they are and what they do best – perhaps better than the alternatives. And, to make matters more challenging, they will also be doing this alongside at least two if not three other new entrants into the Canadian online trading landscape – the most directly challenging one being Tastyworks.

Of course, Interactive Brokers is also no slouch and is unlikely to simply allow a new entrant to directly compete for high value clients. The product mix, especially with regards to account types such as RRSPs and TFSAs, are crucial to the “convenience factor” even for ultra-active traders. The benefits of TFSAs and RRSPs for wealth creation are simply too high to not try to take full advantage of, hence clients who wish to “trade fast” with TradeZero will have to maintain another relationship with another online brokerage to do the “slow stuff,” thus opening the door to being courted away.

To TradeZero’s credit, despite the hurdles, they are clearly ambitious in their desire to expand their brand globally and into the highly regulated areas of securities trading. The fundamental business case is certainly there; however, so is the competition. There are pain points among users of Interactive Brokers, such as a steep learning curve of the trading platform and lackluster customer service, so TradeZero does have a foothold if they can improve the client experience of active retail traders.

The consequences for the Canadian online brokerage landscape may not be felt right away, especially given the segment that TradeZero will be pursuing. That said, with a name like TradeZero and an offering of commission-free trades, there is almost certainly going to be increased pressure on incumbent online brokerages to drop their commission prices. It is already happening a few times per week in investor forums and discussions and will likely only ramp up as each new commission-free brokerage comes on stream.

Canadian investors and traders alike might just find the pace of change at their own online brokerage slow enough that they’d be willing to at least try TradeZero, and at that point, it’s a slippery slope as to whether they switch brokerages. Those are the odds that perhaps TradeZero is banking on.

Interactive Brokers Puts Payments on Rails

Payments were an interesting thread of discussion at Interactive Brokers this past week. In the first instance, there were some intriguing remarks made by founder and Chairman of Interactive Brokers, Thomas Peterffy, regarding payment for order flow (PFOF), the (now) controversial practice that enables zero-commission online brokerages like Robinhood to sell the orders their clients place to buy and sell stocks to a third party.

An industry veteran, it is always fascinating to hear Peterffy’s take on the mechanics of online trading, and in an interview last week with Yahoo! Finance, it was his position that despite the increased scrutiny from the US financial regulators, the reality is that the practice of selling orders would likely still persist although under a different pathway. In short, even if PFOF was clamped down on, online brokerages would find another way to monetize the trade execution.

Another interesting talking point about Interactive Brokers this past week was an announcement that they are launching a real-time payment solution that will enable clients to make instant deposits to their accounts. The rollout of this feature in the US is starting with clients who have accounts with Chase; however, given the desire for fast money traders to be able to move money around just as fast, this is a huge step forward.

Getting funds from point A to point B is remarkably longer than it should be in 2021, especially among online brokerages who aren’t bank-owned. The ability for individuals to open an account and essentially fund the account instantly removes a major friction point from being able to quickly jump into hot trading opportunities.

In the case of real-time funding of accounts, among Canadian online brokerages that are not bank-owned, this has been a significant stumbling block to individuals who are looking to get started as quickly as possible. Earlier this year, we reported on Questrade launching instant deposits (up to $3,500) and Wealthsimple (Trade) too, with the latter raising deposit limits significantly since they first launched and tying the ability to send more (up to $1,000) to their premium service. For Interactive Brokers in Canada, the funding time listed on their website states up to four business days for funds to be available, depending on the funding method chosen.  

As the launch of the real time payments option in the US is still in the early stages of a roll out, there is likely some time before Canadian self-directed investors can benefit. That said, it is a sign of a trend already in place whereby the faster an online investor can fund their account, the more likely they are to choose that brokerage to get up and running with. It’s not enough to have instant or fast account approvals if the ability to trade opportunities – especially fast-moving ones – is limited. Clearly, other online brokerages in Canada have figured this out, so it is now a bit of a race for others, including Interactive Brokers, to ramp this feature up quickly or risk being derailed by whatever the next big wave of new trading opportunities brings.

From the Forums

Trade Interrupted

If there’s one thing that all seasoned DIY investors know, it’s that online trading is not without its risks. One active investor learned the hard way about the risk of a platform not working as intended, and shared their experience in this post on reddit. Find out what fellow online investors had to say about what happened as well as the aftermath.

Hold On, For One More Day

Being told to wait is rarely music to any investor’s ears. In this post on reddit, one self-directed investor pointed out that the new hold music (or lack thereof) at TD Direct Investing was an unusual experience. Find out what fellow online investors had to say about this small but interesting detail of the customer service experience.\

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Discount Brokerage Weekly Roundup – October 18, 2021

If there’s one thing that stock markets can do quite well, it’s to price in expectations. Judging by the rally in stock markets, including in the share prices of some online brokerages, there’s optimism and some insight as to what the market thinks is going to be necessary to succeed in the coming months.

In this edition of the Roundup, we peek across the fence at the latest developments in the US online brokerage market, with a particular view on different strategies for growing in a highly competitive market. From there, we relay updates from one Canadian fintech firm looking to add zero-commission trading into its suite of services by the end of this year. Finally, we cap off the news with some fascinating feedback from self-directed investors in the forums.

Charting New Territory: US Online Brokerages Trade Their Way Higher

Stock markets aren’t the only ones pushing new highs. Share prices for a couple of online brokerages in the US are also on the move upward in a scenario that appears to be more than a simple case of a “rising tide lifting all ships.”

Earlier this month, Interactive Brokers reported their regularly scheduled performance metrics, and this past week, online brokerage giant Schwab also reported their latest quarterly earnings. Included in both reports are numbers around new account growth rates that we’ve been tracking closely to gauge what the retail online trading sentiment is like south of the border.

The latest data continues to show an interesting divergence in new account growth at these two big names. Interactive Brokers continues to grow net new accounts while the pace of new account growth at Schwab has continued to contract. Interestingly, the share price trend over the past year points to the opposite – at least until very recently.

Historically, and in “normal conditions,” the growth rate of new accounts at Interactive Brokers has managed to stay positive. The exception, however, was the meme-stock mania which significantly distorted stats. After account openings reached a peak frenzy in January and February, the enthusiasm for new account opening has been waning.

As can be seen in the Interactive Brokers account growth data chart above, after bottoming out in May, Interactive Brokers has shown new account growth in the past four consecutive months. It looks like things are “back to normal” insofar as account growth is concerned.

On the other hand, account openings at Schwab show that after the peak of account openings earlier this year, the month over month decline persists. It is worth noting, however, that the magnitude of difference in the number of accounts opened between Schwab and Interactive Brokers is enormous.

Schwab has opened about 10 to 20 times the number of accounts that Interactive Brokers has over the past 9 months, which is no small feat. The combination of Ameritrade and Schwab within the online trading space has created a formidable giant against which only agility and service experience can truly outcompete.

Considering the context of the two firms, however, Interactive Brokers’ growth is exceptional in that they still charge for commissions per trade (in their IBKR Pro, they do offer a commission-free version IBKR Lite) which is clearly not a deterrent for some.

The online brokerage space is incredibly competitive, especially in the US and increasingly around the globe. Earlier this month, zero-commission trading firm Tradezero filed to go public (via SPAC) and just this past week, UK-based Freetrade announced it had reached one million users. Both of these zero-commission trading brokerages have Canada on their roadmaps (and likely the US as well).

Growth in interest in trading online certainly helped propel zero-commission trading into the spotlight. However, for an online brokerage to be sustainable, the model has been shown time and again, that other financial services must be a part of what the online brokerage offers. Scale is also important.

Despite the differences between Canadian and US online investing markets, the dynamic of being able to survive and thrive as an online brokerage are remarkably similar. At the end of the day, online brokerages need to make money – and profit – to sustain themselves and aside from the active trader segment, there has to be more than just trading stocks or ETFs.

As National Bank Direct Brokerage and TD Direct Investing have both pointed out, it’s those “other” relationships and financial products that offer opportunities to deepen the value self-directed clients bring to their respective firms.

Interactive Brokers and Schwab demonstrate two different approaches to monetizing the online brokerage space. In the case of Interactive Brokers, it is still able to charge for commissions because of superior technology and user experience for active traders. Conversely, Schwab is able to survive because they have the immense scale to be able to generate higher earnings with interest rates. In either case, agility or scale, the room for new entrants is tough, so creative differentiation and investment in product will be key to survival for newcomers.

The stock prices for Schwab and Interactive Brokers are signaling a brighter future than Robinhood’s. That future seems to suggest that to truly succeed, an online brokerage must be fast or big. Simply being the least expensive option isn’t enough.

MogoTrade Coming Soon(er)

One of the hallmarks of a great Thanksgiving is having some leftovers to dig into after the holiday is over. Cue some developments earlier this month that we didn’t get a chance to report on.

This past week there was an interesting update on the commission-free trading front that will naturally add more kindling to the smoldering conversation about when “that” pricing model will gain wider adoption here in Canada.

Mogo Financial, a Canadian fintech firm, provided another update on the status of their commission-free trading service, MogoTrade, announcing that they had selected CI Investment Services to provide “operational and back office services, including clearing and settlement, custody of client funds and securities, and trade execution.”

The biggest update in the press release, however, was a forecast that the launch date would be coming later this year, putting MogoTrade and the zero-commission option in the conversation for investors during peak season for online investors poking around for new online brokerage providers.

By working with an established services provider like CI Investment Services, MogoTrade is able to hit the ground running in technology, operations, and compliance required to run an online brokerage in Canada. This, in theory, should enable MogoTrade to focus on bringing on new clients and working on user experience. It is currently unclear what account types and features will be a part of the launch. And, importantly, based on the infrastructure costs associated with online trading (including all of the back office function), how MogoTrade will make money will be an important question many investors will surely be asking.

As referenced above, the connection of online trading to other financial products seems to be key to Mogo’s strategy to enter into the world of self-directed investing, with a particular focus on beginner investors.

Mogo has a number of additional lending products as well as cryptocurrency trading connections that could enable it to use self-directed trading as a mechanism to cross-promote other services, a direction laid out in their recent investor presentation. This increasingly familiar playbook of cryptocurrency trading showing up beside traditional online investing in stocks and ETFs might become a sign of things to come at other online brokerages in Canada.

From the Forums

Readying to Move

When it comes to transferring away from an online brokerage, sometimes the exit can be complicated. In this reddit post, one user wants to minimize the financial hit incurred from switching brokerage away from Questrade. Find out what fellow investors provided in terms of perspective.

A Portfolio Built for Two

DIY investing isn’t just about managing one’s own investments, for many couples and families, additional account management comes into play. In this post, it was interesting to see how many self-directed investors are also taking on the management of their significant others’ portfolios.

Into the Close

That’s it for another edition of the Roundup. It was a short week; however, as we round past the halfway point in October, signals from all over point to an incredibly busy stretch to the end of December. On deck for the week ahead is yet another earnings wave, and with several new online brokerage stories forming, there’ll be lots to digest. Fortunately, if Thanksgiving is any indicator, there’s always a creative way to find more room for something enticing.