Category: Discount Brokerage News

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Discount Brokerage Weekly Roundup – September 8, 2017

Between natural disasters or man-made ones, this short week has felt much longer than even a regular one.  Of course, there’s still lots of important action to stay on top of, which is something all DIY investors (especially the more active among us) quickly learn is a reality of life in the markets.  This past week there were more than a few market moving announcements – from interest rates hikes to new settlement dates which traders had to maneuver around.

This week’s roundup looks at some market moving news of a new entrant to the Canadian online brokerage space and what that will mean for competitors and DIY investors alike. Next, we do a quick recap of several small developments including the kick-off to a popular investor conference as well as a stock market contest for students that aims to raise awareness for a great cause. As always, we’ll review what DIY investors had to say about Canadian discount brokerages and trading in general on Twitter and in the DIY investor forums.

Virtual Brokers acquired by CI Financial Corp.

It was bound to happen sometime. With pressures on commission pricing and a modest market-size, competing and succeeding in the Canadian online brokerage space in 2017 and beyond requires the scale to withstand commission price declines while monetizing clients through a variety of channels.

Perhaps that was among the factors that led to the major news this past week that wealth management firm CI Financial Corporation announced that it is acquiring BBS Securities, parent to Canadian discount brokerage Virtual Brokers. CI Financial Corporation is one of Canada’s largest independent investment fund companies, and though the terms of the transactions were not released, the safe bet is that Virtual Brokers just leveled up in terms of competitive ability.

According to reporting in the Globe and Mail,  “there are no plans to change any of the current funds offerings or trading fees” at Virtual Brokers, so for the moment clients can rest easy as the deal makes its way through regulatory approvals. Nonetheless, National Bank Direct Brokerage’s move to drop commissions on ETF buying and selling might still mean a shakeup of Virtual Brokers’ pricing is in the cards not too long from now, especially since CI Financial owns ETF provider First Asset.

Competitors to Virtual Brokers, including both the bank-owned brokerages and independent online brokerages, likely need to revisit their game plans now that Virtual Brokers is owned by a company with over $120B assets under management and that has a market cap of $7B. CI Financial is no small fry when it comes to the wealth management footprint in Canada and so the combination of the advisor network alongside substantially greater resources means that Virtual Brokers has discounted access to hundreds of thousands of customers who might also be interested in doing some DIY investing alongside their managed wealth.

For Virtual Brokers, the acquisition means that there are now some serious resources at their disposal.

As part of their news release, founder, CEO and president of BBS Securities, Bardya Ziaian, mentioned “Our firm will benefit from the financial strength and stability of CI, which will support investments in technology, product development and service.” For CI Financial, there is clearly an interest in the financial technology developed by BBS Securities and preparing for the technology arms race that has come to define the wealth management space in general.

Since CI Financial Corp (a publicly traded company) owns Virtual Brokers, it will be interesting to monitor the extent to which online brokerage contributes to the earnings and bottom line. For Canadian DIY investors, there is a strong possibility that Virtual Brokers may once again be able to aggressively revise their commission structure or add in value drivers for their clients that bank-owned brokerages may not be able to match. Either way, this translates into more mileage for the DIY investor dollar, which is always a good thing.

With the ramp up to the ‘busy’ season starting soon, it will be very interesting to see how Canada’s discount brokerages respond. One thing is for certain, however, the newest player on the field will likely force that response to happen sooner rather than later.

Quick highlights

Toronto Moneyshow kicks off

What is arguably one of the largest investment shows in Canada is underway on September 8th and 9th in Toronto, with several Canadian online brokerages in attendance. We took a peek at the social media displays to see what kind of activity was taking place at the event with some snapshots of the action compiled below. Among the online brokerages in attendance are BMO Wealth Management (BMO InvestorLine), CIBC Investor’s Edge, Interactive Brokers and National Bank Direct Brokerage. Check out the @MoneyShows twitter feed for more updates and action from the show floor. (In case the tweets from the show are not loading, they can be accessed here.)

CIBC Investor’s Edge trades for a cause

Canadian bank-owned online brokerage CIBC Investor’s Edge was announced this week as the presenting sponsor in the virtual stock market challenge, the Capitalize for Kids Student Challenge, organized by Capitalize for Kids. Along with market platform company IRESS, who is supplying the software and market data used in the simulation, these firms are helping to raise awareness and funds for Kids Help Phone. Also, funds raised up to $75,000 will be matched thanks to a grant from Brain Canada.

The competition is open to any student at the age of majority who in enrolled in high school or a post-secondary institution for any amount of time between September 1st 2017 and December 31st 2017. Note that the deadline to register for the competition is September 30th.  The challenge itself takes place from October 2nd to December 31st

Top prizes in the competition consist of a combination of a cash credit in a CIBC Investor’s Edge account as well as a lunch or skype session with a CIBC Executive. Top prize in the competition is $2,000 cash credit in a CIBC Investor’s Edge account while second place nets $1,000 and third place $500, both of which are cash credits in a CIBC Investor’s Edge account. In addition to cash prizes, entrants may also have their written analysis of their portfolios evaluated and have their resumes screened by a number of well-known financial firms.

Full details on the competition are available at the Capitalize for Kids website. Also, check out the video below for more information on the competition.

Discount Brokerage Tweets of the Week

Despite the shortened week, there was still plenty of action on Twitter. Mentioned by Canadian DIY investors were Questrade, RBC Direct Investing, Scotia iTRADE, TD Direct Investing and Virtual Brokers.

From the Forums

Importer Exporter

One of the realities of DIY investing is tracking trades in a spreadsheet. In this post from reddit’s Personal Finance Canada section, one user was looking for an easy way to export trading data from Questrade into a spreadsheet program. Fortunately, folks from Questrade provided a couple of tips to make it a snap.

Exchanging Ideas

Figuring out how to save on foreign exchange fees between Canadian and US currencies at CIBC Investor’s Edge sparked an interested discussion in this post in Canadian Money Forum. Worth a read for those looking for recent pricing on Norbert’s Gambit costs at this online brokerage.

Into the Close

Never a dull Friday. Our thoughts are going out to all of the folks impacted by hurricane’s Irma and Harvey and we’re hoping everyone can weather the storms safely. There’s no shortage of news to keep eyes glued to screens this weekend – from weather to scandal to sports, most of which will have markets chattering on Monday. Have a safe long weekend and rest up if you can, the next week looks to be a particularly busy one.

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Discount Brokerage Weekly Roundup – September 1, 2017

Heading into a long weekend where Canadian and U.S. stock markets are closed until Tuesday, certain investors are braving a long gulf of uncertainty. Meanwhile, a new and white-hot market in cryptocurrency continues to burn 24 hours a day, 7 days a week. In the digital era, “money” truly doesn’t sleep. For Canadian online brokerages, it is a brave new world where technology is rapidly changing where and how investors manage wealth, and forcing everyone in the world of money to move ever-faster to keep up.

In this week’s roundup, we look at the latest move by one bank-owned Canadian discount brokerage to disrupt the DIY investing space by offering commission-free ETF trading. From there, we profile the newest promotional offer to cross our deals radar from the robo space looking to leverage a social approach to building their client base. As always, we’ll review which Canadian discount brokerages were active on Twitter and which ones were being talked about by Canadian DIY investors in the forums.

Tipping the balance of power: Commission-free ETF trading gives National Bank Direct Brokerage an edge

This week, National Bank Direct Brokerage redrew the map for the Canadian online brokerage industry by eliminating commissions on ETF buying and selling on both Canadian and U.S. listed ETFs, and in doing so, have likely touched off yet another price war in an already competitive commission marketplace.

The skeptical among us, and in fact most seasoned investors, would be right in asking whether or not this is too good to be true – or at the very least, how National Bank Direct Brokerage expects to make any money. Looking into the details and also putting this latest move into context can shed some light on both those points.

First, is commission-free ETF buying and selling too good to be true?

Well, the good news is commission-free ETF trading is positive – sort of. There are some important details to this new pricing structure that DIY investors should be clear about that clarify exactly the conditions under which NBDB clients can trade ETFs commission-free.

The first, and probably most important, condition for the commission-free trading is that purchases or sales need to be made in 100 unit increments. That means that only online orders of 100 or more units at a time will be considered commission-free. Fractional buys and purchases (or sales) of less than 100 units at a time will be charged at the regular commission rates ($9.95 per trade).

Another important condition is that individuals must sign up to receive all of their documents electronically. In today’s world, it’s not that uncommon to be fully digital, however the onus is on users to ensure that the digital versions of trade confirmations and statements are properly stored.

Finally, other important details that could impact users taking advantage of this offer are that commission-free ETF trades do not count towards active trader pricing activity levels, enable annual administrative fees to be waived nor do they help with getting free or discounted access to trading platforms.

In short, for the average investor – including the long-term passive investor, the ability to trade commission-free ETFs is a significant win.

According to Laurent Blanchard, President of National Bank Direct Brokerage, “More than ever, our aim is to innovate to meet the needs of self-directed investors. It’s our priority and today’s announcement is tangible proof. By saving on commissions, our clients will be able to build their portfolios and grow their wealth. This change benefits all types of investors.”

Yes, executing trades in volumes sufficiently high enough to qualify for zero commission pricing will require more organization and, potentially, a higher balance to take advantage of the offer, but savings on transaction fees are savings nonetheless.  On this last point, however, is where the answer lies as to whether or not NBDB can make money by effectively enabling free trading on ETFs (spoiler alert: they’re able to do it).

By including a minimum amount of 100 units to purchase in order to qualify for commission-free ETFs, there’s a reasonable likelihood that this would appeal to individuals with higher portfolio amounts – especially for passive portfolio holders.  As such, for NBDB, their commission-free ETF program might end up having slightly more appeal to individuals with somewhat larger portfolios than to individuals who are just starting out. Therein lies the value proposition.

Individuals with larger balances may also be looking for convenience in wealth and financial management, which would make National Bank and its constellation of traditional banking, lending and other financial services a natural fit. If individuals have multiple accounts at bank-owned brokerages, for example, there is now an incentive to consolidate at National Bank Direct Brokerage. And, it is that increased integration factor that appears to be an emerging trend for the online brokerage space, with notable examples in the U.S. online brokerages.

Screengrab from National Bank Direct Brokerage website

Two weeks ago, we reported on the move by Interactive Brokers to offer the ‘integrated’ approach to wealth management by linking a credit card into their wealth management mix. E*trade Financial, another US-based online brokerage, also offers chequing accounts and bill payments. On the commission-free trading side, both Robinhood and Merrill Edge have commission-free trading, the latter specifically offering commission-free ETFs.

The takeaway: online brokerages relying solely on commission revenue to survive are an endangered species – increasingly integrated financial and wealth management services will be the model that tomorrow’s online brokerages – bank-owned, credit union owned or otherwise will need to adapt to.  The writing is on the wall for high commission charges for order execution.

In that light, the latest move by National Bank Direct Brokerage is clearly a long-term strategy to get the attention, and hopefully business, of investors with larger portfolios. For those with modest portfolios, NBDB’s latest offer provides room to grow with the upside of occasional commission free trading. The added bonuses of being with a bank-owned brokerage, such as convenience of moving money into and out of banking accounts, might be enough to at least put National Bank Direct Brokerage into consideration.

Whichever way the Canadian online brokerage markets respond from here, the latest move by National Bank Direct Brokerage is reminiscent of the commission price drop from RBC Direct Investing in 2014.

Canadian bank-owned online brokerages are now in a world where a bank-owned brokerage is offering commission-free ETF trading. And, regardless of the conditions associated with the offer, nothing gets the attention of investors like something that sounds like a good deal. A bank-owned brokerage with no-commission trading on ETFs is just that.

Predictions are often perilous, but in this case, recent history offers a lesson for the online brokerage market in Canada: adapt quickly or risk obscurity. The one thing that we can predict is that DIY investors will continue to be the winners.

It pays to have friends: SmartFolio launches cash back Refer-a-Friend offer

Refer a friend programs are a great way for existing clients and their friends or family to mutually benefit from opening a new account. For early adopters in the online portfolio management and robo-advisor space, however, there is now another firm that is rewarding existing clients for referring new clients to them.

This week, BMO Nesbitt Burns’ online portfolio management service, BMO SmartFolio, rolled out a referral program as part of its growth efforts in this increasingly competitive space. The “Refer a Friend” program from SmartFolio offers $50 cash back to both the referring party and the referee.

Within the Canadian online portfolio management and robo-advisor space, there are a handful of firms that offer promotional referral deals which typically include waiving of fees and cash back incentives. What is interesting about SmartFolio’s approach to refer a friend programs, is that the referee’s referral bonus can be combined with an existing ‘mass market’ offer. Currently, SmartFolio is offering the first year of management free on assets up to $15,000, so the new referral bonus for the referee can be used in conjunction with this offer.

Another interesting component of the referral approach with SmartFolio is that they’ve managed to automate (or semi-automate) the process of facilitating a referral. In this referral program, SmartFolio clients get an individualized link that they can share directly with their friends/family. This is an efficient and easy way for both the individual doing the referring and the referee to ensure a bonus is generated. SmartFolio clients also receive an individualized referral code that can be shared with friends/family who would prefer to drop by a BMO branch to open their SmartFolio account.

With BMO InvestorLine, by comparison, the referral method relies on entering an email address of the referring party at the time of new account sign up.  Whenever a manual entry is involved, it typically takes more time and can lead to individuals not entering in correct information which can delay or potentially invalidate a bonus being offered.

Like all promotions, there are some important details to consider.

First, to qualify for the SmartFolio “Refer a Friend” bonus, the referee’s new account must be funded with a minimum of $5,000 and it must be kept open with this minimum amount for at least 90 days. If this is done, the $50 bonus will be deposited by the last business day of the month following the 90-day holding period. Another important condition to be aware of is that SmartFolio clients can get credit for up to 30 referrals per year.

As the competition between Canada’s digital online portfolio management providers (aka ‘robo-advisors’) increases, so too will the incentives in play. BMO SmartFolio’s referral program is a win-win solution for existing clients, new clients and of course for BMO Nesbitt Burns too. The fact that this offer can be combined with the current promo from SmartFolio means that anyone interested in testing the waters with SmartFolio can benefit from someone who has already done so.

[*disclosure note: SparxTrading.com has a referral program in place with BMO InvestorLine and BMO SmartFolio and may receive compensation for individuals opening a BMO InvestorLine account with code SPARXCASH or a SmartFolio account with code STSF and/or clicking through to the BMO InvestorLine or BMO SmartFolio websites]

Discount Brokerage Tweets of the Week

It was a tame week for folks on Twitter, with customer service queries taking the spotlight. Mentioned by Canadian DIY investors were Questrade, RBC Direct Investing, Scotia iTRADE, TD Direct Investing and Virtual Brokers.

From the Forums

Deals on data?

For investors and traders alike, data is crucial to making good decisions. How often, and how quickly one trades or invests can determine whether having level 2 data is a worthwhile investment. In this post from CanadianMoneyForum.com, however, one user is looking to get the best price on some detailed information, and finds some pretty interesting online brokerage options.

Cross border shopping

In this post from reddit’s Personal Finance Canada thread, one user was looking for a little clarification on buying U.S. stocks for their TFSA at CIBC Investor’s Edge. Find out what money saving tips and insights other readers had to offer for a user hoping to save on exchange fees.

Into the Close

That’s a wrap on another eventful week. With the last long weekend of the summer upon us, hopefully you’re in a part of the country that isn’t going to require shoveling snow (amirite Labrador?) . And, speaking of snow, it looks like the Game of Thrones fans will have to find something to occupy their time between now and oh, sometime in 2019 when the next season rolls around. Good thing there’s never a dull moment in the markets.  Except when they’re closed for the holidays. In any case, hope you have a great and safe long weekend whatever you happen to be doing!

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Discount Brokerage Weekly Roundup – August 25, 2017

Whether it’s mythical dragons, rare celestial events or a new album from a musical mega-celebrity, the bar for getting peoples’ attention this past week felt significantly higher. Of course, against the backdrop of so many big events DIY investors are looking for places to talk finance and trading – and astute online brokerages in Canada and the US are finding a way to tap into this desire in some new and exciting ways.

In this week’s roundup, we check in on an interesting social media/content-based contest from one of Canada’s bank-owned brokerages to see how the first month is shaping up. From there we take a look at a new technology solution being deployed in the U.S. that could change the face of online brokerage customer service here in Canada. For good measure, we’ll also take a look at the latest discount brokerage tweets and see what Canadian DIY investors were chatting about this week.

Make it Happening

Earlier this month we reported on an interesting contest being run by Scotia iTRADE as part of a new venture into user generated content. Their “#MyMakeItHappen” campaign seeks out submissions from Canadians on their personal finance stories, with entrants then being eligible to win an Apple iWatch Series 2.

Given the excitement that follows all things Apple as well as the lively conversations we track online every week about personal finance in Canada, we were curious about the progress thus far of Scotia iTRADE’s latest venture, in particular, what is being displayed online. Though not a perfect measure, the participation of DIY investors serves as an indicator of the level of interest and engagement with DIY investor audiences.

For a quick refresher, as part of this campaign, Scotia iTRADE will be posting stories about personal finance that individuals submit to iTRADE on the contest landing page. Specifically, those stories that meet the submission criteria will be selected for posting. At the time of publication, and just under a month into this contest, we have spotted one submission that has gone live.

A post from user, “Vanessa B” from Ontario, was posted to the stories section of the contest website and on Twitter, there have been a handful of user generated comments.

We checked on social media to see what kind of traction the hashtag received. Here’s what we found:

So far, the early results – at least on Twitter – suggest either participation is low or that people aren’t tweeting about their participation. Fortunately, this contest runs through the end of October so there is ample time for Scotia iTRADE to continue to build awareness of this competition and to generate more interest from DIY investors as there are numerous personal finance discussions happening online all the time.

Taking a step back, however, it is interesting to observe that part of this contest may rely on connecting with younger investors, in particular those that would be on Twitter to notice the hashtag, something that might prove to be particularly challenging for Scotia iTRADE.

One of the biggest challenges for Scotia iTRADE in gaining traction on social media, where millennial investors are largely present, boils down to pricing. Standard commission pricing at Scotia iTRADE ($24.99+ per trade) is almost 2.5x higher than at peer bank-owned brokerage institutions and almost 5x higher in some cases than firms such as Questrade.

While Scotia iTRADE does offer lower commissions for individuals with at least $50,000 in assets or relatively active trading levels, this generally doesn’t characterize the beginner or younger investor. The relatively high standard commission fee force DIY investors to carefully consider the value proposition put forward by Scotia iTRADE as a bank-owned brokerage. There is also another hurdle for Scotia iTRADE and Scotiabank to clear with social media users – reviews by other users.

As the post above (from Facebook) shows, online brokerage pricing strategy can also act as a drag on the banking side of the business underscoring how important it is for bank-owned brokerages to get the service and value experience consistent between services. The reverse is also true, the banking side of the business can impact whether or not investors may take their business elsewhere or not.

Ironically, the first user generated post published as part of the new campaign is about saving money, something that high commission rates make more difficult for the very demographic likely to come across the publication on Twitter.

While the lure of a contest will capture the interest of certain individuals, whether or not these folks turn into Scotia iTRADE clients (which is the hope behind this campaign) will largely depend on their financial situation. Many might find themselves looking at the minimum balance required to avoid fees or high commissions and saying ‘money just doesn’t happen.’

TD Ameritrade launches Facebook messenger chatbot

Now that robo-advisors are a thing for investors, could robo-customer service be next? For DIY investors, it very well could be.

This past week U.S.-based online brokerage TD Ameritrade, released a new chatbot feature enabling clients to ask a bot to provide updates on their investments and to get stock quotes. While the functionality of the chatbot is limited right now, there’s little doubt that the data provided by users will help improve the experience over time.

For the near future, however, TD Ameritrade will still have human representatives on standby to handle interactions deemed too complex or volatile for the chatbot to respond to. Amusingly, it appears that the use of “salty language” will automatically result in the chatbot escalating the session to a human representative.

With Canadian online brokerages generally lagging their US counterparts when it comes to technology and features, there doesn’t seem to be a definite time horizon to bring chatbots to DIY investors in Canada. Additionally, the technology is still in early stages, so there’s still a lot that needs to be learned about integrating a robo touch into a chat/client service role.

That said, there’s nothing quite like a functional demonstration of a technology in action to motivate decision makers and executives into seriously looking at a solution that might end up reducing the operating cost of an online brokerage client service program. Some estimates peg chatbots to be able to automate up to 46% of the tasks done by financial services contact centre staff.

Another data point to watch is the increasing number of individuals who rely on mobile banking rather than traditional banking options. Recent data from the Canadian Bankers Association measuring mobile banking usage found that 52% of individuals anticipate using a mobile device to do more banking over the next two to three years.

In an upcoming article on SparxTrading.com, we’ll be reviewing the client service options for DIY investors at Canadian online brokerages. Early data already shows, however, that there are major differences in the technologies made available by Canadian online brokerages as well as the time that ‘live chat’ services are available. With chatbots, online brokerages could conceivably add software-based resources at a fraction of the cost of a human service agent which could then provide coverage and support to clients trying to reach support personnel.

The “bot”tom line for investors is that whether it is a human or bot on the other end of a chat window, if it can handle basic requests easily and quickly, it probably won’t matter to most investors. For Canadian online brokerages, however, the potential for cost savings or for performance enhancement is compelling. Eyes will be on how this bot works with TD Ameritrade and if the initial feedback appears positive, it will then be a matter of ‘when’ not ‘if’ Canadian customer service chatbots start to appear.

Discount Brokerage Tweets of the Week

Some of the comments from DIY investors were ‘off the charts’ – specifically because the charts were off. Mentioned by Canadian DIY investors were CIBC Investor’s Edge, Questrade, Scotia iTRADE and TD Direct Investing.

From the Forums

Risk-free parking

When it comes to getting a good deal, asking around can pay off. In this post on the Canadian Investing Forum, one CIBC Investor’s Edge client was rewarded for asking around about their plan to get more mileage out their savings strategy.

Rebutting heads

A debate between friends as to which brokerage was better – Questrade or Interactive Brokers, spilled over into reddit in this post on the personal finance Canada section. Find out what other DIY investors had to say about the pros and cons of each brokerage.

Into the Close

That’s a wrap on another controversy-filled week. Of course, this weekend the biggest controversy will be whether to spend it indoors or out: UFC star Conor McGregor dukes it out with (yet to be) undefeated boxing star Floyd Mayweather and the season finale of Game of Thrones takes place on Sunday. For a lot of folks, there will be plenty of spoiler warnings, memes and time spent on social media. Ironically, that might also describe the U.S. President’s  schedule this weekend too. Wherever the last weekend of August takes you, have a safe and enjoyable few days off!

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Discount Brokerage Weekly Roundup – August 18, 2017

Right now, a lot of news in the US and from around the world seems bad. Rightfully so. This week, however, after many weeks of discounting the rhetoric, it seems that along with headlines, markets are also making a formation to look to the future with pessimism. For DIY investors and for online brokerages, however, figuring out how to adapt and ride out the storm is par for the course.

In this week’s roundup, we take a look at some of the interesting developments emerging from the US online brokerage market which might offer the promise of something the look forward to for DIY investors here in Canada. First, we look at the move of one very popular online brokerage into the world of traditional banking services and the potential impact it might have on how DIY investors manage more than just their investments. Next we shift gears to look at one rapidly growing online brokerage’s  creative approach to reach younger investors while also growing their client base on the cheap. As usual, we’ll also review the latest discount brokerage related tweets and see what DIY investors were chatting about in the investor forums.

Interactive Brokers plays an interest-ing card

One of the major reasons that individuals choose a particular online brokerage, especially a bank-owned brokerage, is because they have the convenience of accessing additional (and very useful) financial products or services.

This past week, however, Interactive Brokers sent a shock wave through the traditional online brokerage space by announcing their launch of a MasterCard-branded debit/credit card. Specifically, Interactive Brokers is ‘banking’ on being able to compete against big bank ‘convenience’ by offering IB clients a way to manage their daily finances through the IB platform with a low interest credit card or debit card.

As part of the roll out of this new initiative, chairman, founder & CEO of Interactive Brokers, Thomas Peterffy, took a personal approach to pitching the new ‘integrated’ value proposition of Interactive Brokers with a four-minute video in which he describes several reasons why he believes Interactive Brokers is a leading online brokerage.

Currently, the Interactive Brokers Debit MasterCard is only available to US residents, so unfortunately Canadian residents wanting one are out luck at this time. That said, the fact that an online brokerage has built the infrastructure and is now rolling out this kind of product, means that a genie has been let out of the bottle. Observers will be keenly monitoring what kind of traction this offer gets and if the model itself is a profitable one. In the event that it is, other online brokerages might be inclined to follow suit.

For clients who have a cash account, the new Interactive Brokers Debit MasterCard works like a debit card with a limit available equivalent to the amount of free cash that is in the account.

For margin account holders, individuals can borrow against the equity in the account so long as they can continue to meet margin requirements. Interest rates for borrowing against securities, at this time, range between 1.41% and 2.5%.

Interactive Brokers has put together a calculator on the information page related to this new feature to assist individuals in calculating what the amount borrowed will be. Shown below, for example, is the approximate spending limit under the Reg-T margin account option with a stock value of $100,000.

In addition to the simple ‘banking’ feature, Interactive Brokerage appears to be shifting its messaging to taking an “integrated” approach to personal financial management. Specifically, the functions that can be accomplished with Interactive Brokers account include borrowing, earning, spending and investing – the combination of which starts to sound much like a bank-owned online brokerage.

There is, of course, a catch (or two), the main one being that all of this takes place seamlessly within a ‘brokerage’ account. So, depending on whether your assets are in cash or securities, you can still access ‘cash’ for real world purposes the same way you would at a bank, but at substantially lower borrowing rates (if need be) and with the ability to earn interest on idle cash (i.e. the dry powder). There is no need to switch back and forth between accounts or providers.

Whether or not something like this can be replicated in Canada at a different brokerage is debatable.

At best, Canada’s non-bank owned online brokerages might emulate what E*Trade Financial had done several years ago by starting to offer other banking services, such as bill payments, to clients. As for Canada’s bank-owned online discount brokerages, thus far the best that individual clients can do is to access cash from their accounts or even pay bills from their online trading accounts. Using an online brokerage account card to purchase a cup of coffee the same way that one can with a credit card or deriving the same benefits (e.g extended warranties on purchases) is not yet a reality.

It will be particularly interesting to monitor if Interactive Brokers can roll this program out to other locations – including Canada. If they are able to do so, individual traders might find themselves asking a slightly different one than Peterffy posed, namely: “why not manage your finances on the Interactive Brokers platform?”

Robinhood online brokerage goes looking for friends

Refer-a-friend programs from online brokerages are generally a way for the brokerages to offer an incentive (such as cash back or free trades) to an existing client to help bring in new clients, often at a fraction of what it would normally cost to do so through other means.

Earlier this month, US-based startup online brokerage Robinhood, continued to disrupt the online brokerage space with an innovative and millennial-friendly promotional offer: namely a chance to get shares in popular companies as compensation for referring a friend.

One of the hallmarks of Robinhood is that it doesn’t charge commission fees on trades. While consumers love it, the flip side is that Robinhood has to get creative to ensure that the cost to acquire a client stays as low as possible. Being ultra-low cost will always get the attention of investors, however at the end of the day, Robinhood will have to be profitable to be sustainable.

The stocks that they’re putting up for grabs as part of this referral promotion are popular and predominantly large cap stocks. Value of the shares is between $2.50 and $200 however stocks are randomly selected so it’s more of a lottery based reward.

Referring parties who successfully get another party to sign up for a Robinhood account receive compensation in the form of a single share from an assortment of shares that Robinhood has in its inventory. There are shares from a number of companies representing, where possible, high market capitalization in various ranges of share prices between $3 and $175. Interestingly here is the probability of getting stocks of certain value according to their terms and conditions:

Stock Price Range Probability Min Expected Cost Max Expected Cost
$2.50 – $10.00 98%  $       2.45  $       9.80
$10.00 – $50.00 1%  $       0.10  $       0.50
$50.00 – $200 1%  $       0.50  $       2.00
Total 100%  $       3.05  $    12.30

Fans who enjoy calculating the expected value can see that the acquisition cost for the referral ranges between $3.05 and $12.30 (which might average out to $7.68). Stocks received as compensation, according to users on Twitter, include Sprint, Sirius XM, Groupon and others.

Interestingly, in looking at the fine print, there were not the same kinds of restrictions on defining what or who could be considered a friend for Robinhood as there are in Canada. For certain Canadian online brokerages, such as Scotia iTRADE, the terms and conditions of the refer-a-friend program explicitly define who can be designated as a ‘friend or family’ member. By comparison, Robinhood’s referral terms are similar to that of Questrade’s referral program.

Robinhood is an online brokerage that has clearly excited a large number of investors in the US. Since launching publicly in 2015 they’ve already managed to open more than two million accounts, an impressive feat considering other online brokerages such as Interactive Brokers report have over 436 thousand accounts (as of July 2017) but who’ve been around much longer and are substantially larger in terms of valuation.

Interestingly, like Interactive Brokers’ latest moves (see above), Robinhood is also seeking to disrupt more than just the online brokerage space by also setting its sights set on the traditional banking world.

According to a quote by Vladimir Tenev, one of Robinhood’s cofounders in a recent article in Fast Company, “Anything that you would be able to get walking into your local Bank of America branch office, you should be able to get faster, better, cheaper, with a much better user experience, from Robinhood.”

Ultimately, Canadian DIY investors would like to know if it could happen here. Could Robinhood realistically make a move into the Canadian marketplace?

Perhaps the better question is “could Robinhood move into the Canadian marketplace before a Canadian online brokerage enables commission-free trading?”

The reality is that there are already signs Canadian discount brokerages are experimenting with commission-free trading in one form or another. Certain ETFs at several Canadian online brokers, for example, are already completely commission-free; purchases on all ETFs at Questrade and Virtual Brokers, and all trades of Canadian ETFs at National Bank Direct Brokerage for example, are commission-free.

Robinhood’s growth has demonstrated that DIY investors have been looking for a cost conscious alternative to existing banks/brokerages. With so many Canadians hungry for low cost financial services,  it seems inevitable that zero-commission trading, akin to the Robinhood model, will come to Canadians.

Discount Brokerage Tweets of the Week

Technical difficulties rattled investor nerves on Twitter this week. Mentioned by Canadian DIY investors were CIBC Investor’s Edge, Questrade, Scotia iTRADE and TD Direct Investing.

From the Forums

Spot the difference

One of the downsides of certain online brokerages is the foreign currency exchange fees that can add up when trading or converting currency for US trades. In this post, from Red Flag Deals’ investing forum, one user was nervous about an upcoming change by RBC Direct Investing in the way foreign currencies are exchanged. Fortunately, another user helped provide an important clarification.

Banking on advice

Thinking about the best route to manage one’s financial future means having to consider who should be ‘in charge’ of handling the decisions for investing. In this post from reddit’s Canadian Investor thread, an interesting discussion ensued when one contributor asked for opinions on going the managed advice route and whether there’s good value in doing so.

Into the Close

It’s hard to fathom that the week could get any stranger than it already has, but it’s Friday and by now, we know better. It is certainly challenging to seek out stories of courage and human progress and to remember the good that people can and do carry out. Just like investing – what people do in life comes down to choices, which is why having the freedom to choose is as valuable as it is. Heading into the weekend, take a deep breath and find a way to stay positive. Hopefully this will help…

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Discount Brokerage Weekly Roundup – August 11, 2017

With the chaos in the Oval Office and the specter of nuclear war being played out on the world stage, Canadian DIY investors may’ve seen this short week as a week to either be short, enjoy wearing shorts or perhaps change shorts. To paraphrase a reference to Game of Thrones, to some, chaos is a ladder. For Canadian discount brokerages, perhaps the most enterprising among them will be looking for a way to climb up a rung.

In this week’s roundup, we take a look at interesting data from the US that seems to show that there might be more DIY investors willing to venture into the market rather than retreat from it. Next, we highlight one upcoming event for DIY investors that might help offer some much needed perspective on how to navigate markets and how certain Canadian online brokerages are hoping it will help give them some much needed visibility with DIY investors. As usual we’ll review the latest tweets about Canadian discount brokerages and find out what was being said in the forums.

A lesson from Mr. Market

As any seasoned investor or trader knows, “Mr. Market” always has a lesson (or three) to share for those who are observant enough to pay attention.

Despite the political uncertainty in one of the world’s most important economies, it appears that rising markets are trumping ‘Trump’ and drawing more folks into the market faster than the rhetoric and prospect of instability are pushing them away.

One of the interesting data points that crossed our radar this past week came from US online brokerage TD Ameritrade in the release of their most recent trading metrics (from July 2017). Specifically, compared to this point last year, the number of accounts is up (+6%) as is the average number of trades per day (+10%). While the latter might signal more volatility, the former suggests that more individuals are either jumping back or are stepping into the market, despite some of the negative news dominating headlines.  Additional data from other brokers might also support this assertion.

Earlier this month, Interactive Brokers, another US online brokerage, also reported yet another increase in the total number of accounts (+21% y/y) as well as the number of Daily Average Revenue Trades (+15% y/y).

For observers of the industry, it may not be surprising that the continuing uptrend in the major US market indices would stoke investor interest in entering the markets or to incentivize greater activity.

That said, it is an important lesson to observe that in spite of the negative headlines dominating the news, that markets and their participants continue to carry on. Markets attract opportunists and for now, they continue to discount the risk (rightly or wrongly) of economies going off the rails.

Whether the sentiment in the US DIY investor market can help inform what’s going on in Canada is hard to say for sure. If Canadian investors are as confident as their Southern neighbours, however, Canadian discount brokerages may want to (or need to) step up their efforts to win the attention of Canadian DIY investors.

Heading into the fall, if the world is still around, it seems that Canadian online brokerages will be stepping up efforts with something all market participants pay attention to: bargains.

MoneyShow coming to Toronto

The 2017 Toronto MoneyShow will be taking place in just under a month from now. As with previous shows, this year will feature a full lineup of speakers consisting of market analysts, traders and more, each providing their particular take on the direction on the markets.  Though the show will have a familiar feel to it, there are a couple of interesting observations about this year’s MoneyShow that will highlight what’s hot with investors.

One of the first things that stands out about this year’s show is the attention given to one of the most popular stories: the cannabis sector.

At this year’s MoneyShow, there are seven presentations focusing on cannabis investments including topics on the world’s first marijuana ETF and a panel discussion on the Canadian cannabis industry. In addition to speakers and panel discussions, there will also be a handful of cannabis-sector companies exhibiting at this year’s show.

With dozens of publicly-listed companies in the cannabis space, it will be a challenge for many of these companies to stand out to DIY investors, so it is likely that publicly traded cannabis companies will be a more common site at investor conferences going forward.

Another interesting observation is what Canadian online brokerages are up to at this year’s show.

For example, the presentations by BMO InvestorLine for their advanced trading platform – BMO Market Pro as part of the options trading offering may be a signal that BMO InvestorLine will be stepping up its efforts to compete directly against TD Direct Investing’s advanced options trading offering.

As a side note, for options enthusiasts, there will be a presentation by Montreal Exchange on the options trading simulator, Options Play, as well as what’s sure to be a large draw, an ‘up-close-and-personal’ session with Tom Sosnoff, founder of TastyTrade.

The fact that there will be at least four Canadian discount brokerages in attendance including BMO InvestorLine, Interactive Brokers Canada, National Bank Direct Brokerage and CIBC Investor’s Edge, is a signal that online brokerages are hoping to make a personal connection with attendees.

Interestingly, data from the MoneyShow demographic data of attendees show that TD Direct Investing (37%) is the most popular online brokerage with attendees by a factor of 3 over the second-most popular brokerage (Scotia iTRADE – 12%). Curiously neither TDDI nor Scotia iTRADE are listed on the exhibitors list (at the time of publication).

For DIY investors considering attending the show, the price of admission (free) is definitely ‘right’ however the tradeoff is that information about an attendee can be shared with companies exhibiting at or sponsoring the show.

Individuals who can’t make it to the show in person can also still participate. The MoneyShow Toronto will also be available in a ‘virtual’ show floor. There are streams available online to tune into what presenters have to say about topics of interest. Given the high level of uncertainty in the news, attendance and interest in figuring out how the ‘pros’ are approaching the markets will be popular draw and worth tuning into.

Discount Brokerage Tweets of the Week

It was a ‘quiet’ week by Twitter standards. Nonetheless, there were still many interesting comments. Mentioned this week were CIBC Investor’s Edge, Questrade, RBC Direct Investing, Scotia iTRADE and TD Direct Investing.

From the Forums

No Takebacksies

For DIY investors, navigating the maze of personal finance inevitably leads to some ‘teachable moments’. Case in point – this post from reddit’s Personal Finance Canada thread in which one DIY investor opened a Questrade RRSP only to realize it was not the right move. Worth a read to see how Questrade stepped in to help and what others had to say about the situation.

A Simpler Approach

In 2017 it is now possible to have a conversation about where money can be managed for what seems to be a much more reasonable rate. In this post, from reddit’s Personal Finance Canada thread, one user was curious about the ever popular TD E-series funds and how the DIY approach stacked up in terms of cost and convenience against the new comer Wealthsimple. Worth a read.

 

Into the Close

That’s a wrap on a very intense and very fiery week. From the battleground of Westeros to the battleground of social media, this week had its fair share of dragons. Heading into the weekend, however, it’s safe to say that there’s only one fire-breathing dragon that just about everyone is looking forward to seeing. Have a great weekend!

 

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Discount Brokerage Weekly Roundup – August 4, 2017

August is finally here and what a month so far. The Dow Jones touched a new all-time high, the US President’s popularity is finding a new low, and Canadian online brokerages are already stepping up their game in anticipation of the end of 2017. With only one month to go before September rolls around, a select group of Canadian online brokerages appear to be trying to capture as much of the spotlight before the DIY investing busy season begins its kickoff in the fall.

In this edition of the roundup, we look at the latest iteration of the deals & promotions being put forward by Canada’s online brokerages – including a rare sneak peek at one bank-owned brokerage’s offer set to launch next week. Following that, we’ll wade into the world of content marketing and the maneuvers that another bank-owned online brokerage is using to build out investor content and interest. From there we’ll see what DIY investors had to say on social media as well as in the investor forums.

The Chart of the Deal

As the calendar flipped to August this past week, the Canadian discount brokerage deals and promotions activity signaled that the news is still good for DIY investors shopping for an online investing account. Weekly roundup readers are in for an added bonus, however as, this edition of the roundup features an exclusive first look at a new BMO InvestorLine offer set to hit the tape next week.

First a recap. Heading into this month there was a little bit of turnover from Scotia iTRADE and Qtrade Investor, both of which had offers that expired.  Offsetting the decline was a new contest offering from Scotia iTRADE, which is profiled in more detail below, as well as an extension in the managed ETF department coming from BMO SmartFolio which extended its discounted management fee promotion through to the end of October.

From a numerical standpoint, however, the deals crop is still healthy, with 23 on the board for investors to choose from. An interesting observation, however, is that while there is participation from a wide array of brokerages in the transfer fee promotion category, it is a narrow group of online brokerages competing in the most popular segment with DIY investors: the cash-back or commission-free trade space.

This month (so far) it’s BMO InvestorLine, Desjardins Online Brokerage, Questrade and Virtual Brokers who are offering up either a cash-back or commission-free trade offer into the general marketplace. Scotia iTRADE, who previously did have an offer in this category, does offer a cash-back arrangement but this is done through its refer-a-friend program and as such is not quite part of the same group of offers as the cash back or commission-free trades open to the general public.

Drilling down further, it appears that the larger institutions, such as BMO and Desjardins, have offers targeting (or accommodating) individuals with higher deposit amounts (at least $100,000), whereas non-bank-owned brokerages such as Questrade and Virtual Brokers have offers with much lower thresholds to qualify. Interestingly, in the referral program category, there are two bank-owned brokerages, Scotia iTRADE and BMO InvestorLine and only one non-bank-owned brokerage, Questrade. It is the latter, however, which has an offer for deposits over $100,000 ($250 cash back).

Behind the Curtain: A look at BMO InvestorLine’s Upcoming Promo

For avid readers of the roundup, this month’s deals recap comes with an added treat, namely an exclusive first look at BMO InvestorLine’s latest offer that’s slated to go live next week (August 8th).

So, what’s under the hood of BMO InvestorLine’s upcoming cash back deal?

The latest promotion from BMO InvestorLine offers new or existing clients either $300 or $750 cash back depending on the deposit size. Deposits ranging between $100K and $249K qualify for the $300 cash back while deposits of $250K or more may qualify for the $750 cash back. In terms of timing, this new fall promotion runs from August 8th to October 31st.

This new ‘fall promotion’ replaces the outgoing summer cash back offer which offered up to $1200 in cash for deposits of at least $200K. While the new offer is not as high from a cash rebate point of view, it does have a lower qualifying deposit tier of $100K which opens cash rebate up to a wider user base.

What is interesting to note about this new offer, however, is that there are few extra perks that this promotion can be combined with which can increase the value by up to $250.

As part of their latest offer, BMO InvestorLine is willing to cover up to $200 for individuals switching from another online brokerage. The fact that BMO InvestorLine is now advertising their transfer fee coverage is somewhat new.

While it has been offered for quite some time, transfer fee coverage has not been widely publicized (BMO InvestorLine’s outgoing offer also advertised that users could also qualify for $200 in transfer fee coverage) by InvestorLine. A comparison of the current transfer fee offers shows, however, that $200 in transfer fee coverage is higher than any currently advertised transfer fee amount.

Another interesting feature of BMO InvestorLine’s latest promotion is that it can be combined with their “Refer a Friend” program. This means that new clients who are referred to BMO InvestorLine by an existing BMO InvestorLine client, can also receive an additional $50 in cash back (the referring party also gets $50 cash back for the referral). Currently, BMO InvestorLine, along with Scotia iTRADE, enable their referral offers to be combined with another promotional offer.

In addition to the self-directed investing promotion news, BMO SmartFolio, their online managed ETF portfolio service, also kicked off the month with an extension of their ‘no management fee’ promotion which offers the first $15K managed for free for one year.

The latest moves by BMO InvestorLine show that they’re continuing to target larger deposit sizes for their cash back offerings. With this fall campaign extending almost to November, it will be interesting to watch the response from online brokerage competitors to see if more cash back offers will be coming to the table. In particular, we will be watching to see just how long the bank-owned brokerage group will let BMO InvestorLine’s cash back promotion go unchallenged especially when competition for DIY investor attention and business is higher than ever.

[*disclosure note: SparxTrading.com has a referral program in place with BMO InvestorLine and BMO SmartFolio and may receive compensation for individuals opening a BMO InvestorLine account with code SPARXCASH or a SmartFolio account with code STSF and/or clicking through to the BMO InvestorLine or BMO SmartFolio websites]

Scotia iTRADE’s Making Content Happen

Many investors are familiar with the phrase: nothing ventured, nothing gained. As the world of online brokerages continues to evolve to rely more heavily on content to capture the attention and interest of DIY investors, the latest move by Scotia iTRADE appears to be yet another signal that they’re actively looking to sidestep some more traditional marketing in favour of something more content-rich.

This past week, Scotia iTRADE launched their latest foray into the content world, the #MyMakeItHappen campaign. Normally advertising or marketing efforts aren’t quite a story, but what is interesting about this particular approach is that Scotia iTRADE is looking for individuals to share their stories about how financial products or services are a part of reaching their personal milestones. Rather than take the approach of characterizing ‘personas’ the approach taken by Scotia iTRADE focuses on “life’s moments.”

In an environment where competition between online brokerages is quite fierce, and the service provided (trade execution) is fairly commoditized, the need to make things interesting, relevant and unique is what may ultimately sway individuals to try one brokerage over another. For Scotia iTRADE, this new campaign offers a fresh voice to online brokerages talking ‘at’ customers and instead lets investors talk to each other. In many respects, it’s a sign that the thinking has shifted to the “web 2.0” model of user generated content can offer deeper engagement than something an internal team could cook up.

Screenshot from Scotia iTRADE #MyMakeItHappen

Of course, to help incentivize individuals to participate, Scotia iTRADE has also incorporated a contest draw for one of three Apple iWatch series 2 smartwatches – something that will likely pique the interest of Apple fans (and perhaps a few Android fans as well). This contest is open to residents of all provinces except Quebec, and that, according to Scotia iTRADE, is because the current social media channel for Scotia iTRADE is offered in English only and would not provide the kind of user experience they would hope for their French speaking client base.

How things are supposed to work is that individuals can submit (for free) a story about they’re “achieving short-term investment goals, realizing long-term dreams – and everything in between.” This intentionally broad guideline enables many different types of stories to be shared and, frankly, will make for an interesting compilation assuming a large number or variety of stories are shared.

To control for the risk of essentially opening up a microphone to the investing public in Canada, Scotia iTRADE’s marketing team will review and curate the stories submitted. The terms and conditions themselves spell out what is or isn’t permitted, and the content will be policed so there’s a good chance that what makes it through is safe for general consumption. What will be interesting to watch for is if individuals share not just positive, inspirational messages but also realistic ones too – like being caught in an investment in a company that didn’t end up succeeding, or being charged high fees.

For Scotia iTRADE, this experiment, regardless of the outcome, will be sure to provide some interesting lessons in the world of content management, and especially in the world of user generated content.

We will continue to monitor this campaign as it progresses but for now, individuals interested in keeping an eye on what’s happening can follow the hashtag #MyMakeItHappen on Twitter or monitor the landing page for the contest. In all likelihood, many of Scotia iTRADE’s competitors will also be watching with intrigue to find out exactly what will happen next.

Discount Brokerage Tweets of the Week

An interesting blip this week as bank-owned brokerages saw an uptick in DIY investor chatter. Mentioned this week were Questrade, RBC Direct Investing, Scotia iTRADE and TD Direct Investing.

From the Forums

Looking for an online brokerage

This past week there was an interesting appearance of a couple of posts by DIY investors asking about online brokerages. One of these posts, for example, from reddit’s personal finance Canada section, looked at the pros and cons of familiar dance partners Virtual Brokers and Questrade.

Too much robo?

In this post on reddit’s personal finance Canada thread, one user asked when is it worth it to give the robo-advisor a try and when it is worth it to go it alone. For individuals on the fence or curious about robo-advisors vs DIY investing, it’s worth a read.

Into the Close

That does it for another week. A quick reminder that Canadian markets will be closed on Monday in observance of the Ontario Civic holiday. With lots of options to enjoy the weekend, hopefully you can have some fun with people that you enjoy spending time with (see pic below). On behalf of everyone here at SparxTrading.com, have a safe & enjoyable long weekend!

 

[*Editor’s Note: The article has been updated to include Scotia iTRADE’s as another online brokerage that enables their referral plan to be combined with existing promotions in provinces where the referral plan is eligible]

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Discount Brokerage Weekly Roundup – July 28, 2017

Separating news from noise is harder to do some weeks than others. This might have been one of those weeks. Despite markets responding to earnings and fundamentals, and despite economic news that shows Canada’s economy is now firing on all cylinders, there’s just one story that seems to Trump it all. For traders and investors, venturing forward into the unknown is a daily exercise, but the biggest lesson every trader/seasoned investor has learned is the value of risk management.

In this week’s edition of the discount brokerage roundup, we take a look at the balance between innovation and risk management. The first story, a tale of a new website roll out, showcases how a large bank-owned online brokerage navigates the challenge of being both familiar but innovative with one of their most important customer touchpoints. From there, we’ll do a lightning roundup with updates from the deals and promotions arena and some interesting news that could make a splash with DIY investors interested in ETFs. As always, we’ll review what DIY investors were saying on social media and the forums.

CIBC Investor’s Edge rolls out new website

When it comes to websites and design, the common theme among Canadian online brokerages appears to be less is more. This week, CIBC Investor’s Edge officially launched their new public facing website with a refreshed look, simplified menus and navigation and a more focused approach to reaching their core client base.

After being telegraphed to website visitors several weeks ago, the new website is finally here. For a bank-owned online brokerage, such as CIBC Investor’s Edge, designing for the online investor is a balancing act between ensuring the look and feel is consistent with the brand while also creating an experience that resonates with the fast-moving world of online investing.

So, in some ways the new website is a tale of two stories. Yes, the new CIBC Investor’s Edge website is a significant overhaul from its predecessor. Gone are the drop-down menus, the snapshot of the markets and tiny, text heavy pages. In their stead is a visually more modern, responsive and focused website that features the fun and approachable icons present in much of the broader CIBC marketing and imagery (like the penguins). That said, there is still a connection to some of the familiar imagery choices/styles in the headers and the site itself isn’t a bold departure functionally or aesthetically from its peers.

As with many redesign projects, there are lots of interesting angles to discuss. In this case, looking at the reorganization of the content on the website – which appears to be a substantial change – can provide a way to walk through some of the changes and what they might suggest about the evolution of CIBC Investor’s Edge in the fast-moving digital space.

From a design and user experience point of view, one of the most visible changes is the use of a top navigation bar without accompanying drop-down menu items. Likely a design choice that arose from a ‘mobile friendly’ web design, simplifying the menu in this fashion means that users will be scrolling more to find information on the page of interest and that many items from the previous site have been revised to be shorter or removed entirely.

The new menu breaks the website into the following categories:

  • Accounts and Investments
  • Platforms and Tools
  • Research
  • Pricing
  • New Investors
  • Experienced Investors

Previously the menu, at the top level, was broken into:

  • Getting Started
  • Benefits
  • Investor Profiles
  • Education Centre

So, at a high level, there is clearly a shift from talking about how, why and who, to talking about what, how much and who.

A recurring theme in the new website design is that there appears to be a tighter focus on the “investor” rather than the “trader”.

There are subtle things, such as the language choice to use the term ‘investing’ rather than trading as well as some more obvious things, such as the placement of registered account types at the top of the accounts and investments section or, in the platforms and tools section, a heavy emphasis on monitoring and research rather than execution.

Why this is interesting is because despite the pricing for commissions being attractive to very active investors or traders, there isn’t the same technical emphasis either on trading platform, charting or technology/execution that active traders might respond to and that competitor brokerages have. CIBC Investor’s Edge, at least through this website refresh, appears to be catering towards less active investors which means that their bank-owned peers who do have more sophisticated active trading platforms, such as TD Direct Investing, Scotia iTRADE or National Bank Direct Brokerage, might be able to attract these types of active clients who also seek the convenience and security of a large bank-owned brokerage.

Another feature that is clear in the new website is that the layout of the text is less crowded, easier to read and there feels like there’s enough information about the product/service to get a reasonable understanding of what it is without going into too much detail. Subtler, however, is also the use of language. For example, the section for ‘new investors’ explains more clearly and simply what accounts are available and how the process to get started works.

Of course, despite the website refresh and even a web-based experience to help populate the application forms, users cannot (yet) fully open an account online with CIBC Investor’s Edge. New clients still have to print, sign and send forms in or open the account in-branch. While this is certainly not news to the development team at Investor’s Edge, the new ‘norm’ being set by robo-advisors and even some online brokerage peers, is that opening up an account for investing online can be done entirely online.

Overall, CIBC Investor’s Edge’s new website is an evolutionary step forward into the new reality of online investing.

The website has a more modern looking interface as well as a tighter focus on the kinds of clients that CIBC Investor’s Edge might be trying to appeal to. Their commission pricing strategy has given them immediate relevance with almost all DIY investors, so the choice for many DIY investors really comes down to value added features and experience. Fortunately for CIBC Investor’s Edge, buy and hold investors do have a certain amount of patience with the process of investing and are always in the market for a good deal.

Lightning Roundup

Deals get a digital boost

With a new month around the corner, Canadian discount brokerage deals are set to roll over next week. Currently on deck for expiry are Qtrade Investor’s commission-free ETF offer for Canadian ETFs and Scotia iTRADE’s free movie points and free trades offer. The exciting news heading into the new month is that BMO SmartFolio has extended the deadline to qualify for its no management fee offer promotion through to the end of October. Also, another offer is in the pipeline at SmartFolio which we will release more details on in the coming weeks – stay tuned!

Questrade ETFs acquired by WisdomTree

Even though it may be summer, Questrade is busy making waves in the news this past week. Starting first with the big story, the acquisition of Questrade’s ETFs by WisdomTree Canada. Specifically, Questrade has sold its ETF division to WisdomTree in a tactical move to focus on the online brokerage and robo-advisor businesses.

In a quote to the Globe and Mail, president of Questrade Edward Kholodenko stated “After a careful review, we decided that we wanted to focus on our core direct online business as well as our roboadviser business, both of which have seen fast paced growth.”

Deeper in that same story, however, the mention that WisdomTree Canada and Questrade will be working in concert to provide educational materials to Questrade clients and that WisdomTree will be consulting on Questrade’s roboadvisor arm, Portfolio IQ is something that will be particularly interesting to watch evolve.

Another interesting stat, however, also caught our attention. This one was buried in the bottom of the press release in the ‘About Questrade’ section and stated “With 17 years of challenging status quo as Canada’s leading, non-bank online brokerage, over $5 billion in assets and more than 30,000 accounts opened every year, Questrade and its companies provide financial products and services: securities, foreign currency investment, and online wealth management.”

Some quick math suggests that over 500,000 accounts have been opened with Questrade since their launch (no mention of churn or account closures though), which is an interesting stat in and of itself.

What makes it even more interesting is another announcement from Questrade this past week regarding their designation yet again as one of “Canada’s Best Managed Companies.”

While that accolade is a great milestone, in a communication sent to clients there was also another reference to account openings this year, specifically that there have been over 40,000 accounts opened this year. Though it is unclear if this refers to trailing twelve months or year to date, regardless, it is again an intriguing stat considering the size of the Canadian market.

These stats are noteworthy because unlike publicly traded online brokerages in the US, there is very little publicly disclosed information about the number of accounts opened (or currently open) at each Canadian discount brokerage. Again, it warrants repeating that Questrade is referencing accounts opened, which is a combined figure across their managed wealth arm as well as their DIY investing segment and doesn’t report accounts that have been closed – or specify the more accurate stat of net new accounts.

The signals that Questrade’s robo-advisor and DIY investing units are going to get increased focus is certainly going to be worth monitoring. Add into the mix a relatively large US ETF partner and it could make for an interesting combination for both the bank-owned and independent online brokerages to try and maneuver around.

Discount Brokerage Tweets of the Week

A relatively quiet week by Twitter standards but there are a few interesting product launches and client experience feedback gems. Mentioned this week are CIBC Investor’s Edge, Questrade, RBC Direct Investing, Scotia iTRADE, TD Direct Investing and Virtual Brokers.

From the Forums

Premier choice

In this post from reddit’s personal finance subreddit, news of WisdomTree’s acquisition of Questrade’s ETF business raised an eyebrow or two.

Withhold the phone

Trading stocks internationally can sometimes come with a peculiar quirk – withholding taxes. This thread from RedFlagDeals’ investing forum started long ago on a withholding tax situation at Interactive Brokers but was revived again as DIY investors bumped into a similar issue once again in dealing with interlisted stocks in the US (and other international) markets.

Into the Close

So that was a crazy week. If there’s one interesting thing about investing and markets, it’s that people take risks – and many times those risks turn into failures. That said, there’s a bigger prize and despite what might be dominating the headlines this weekend, there’s some comfort knowing that there are lots of great people reaching for new heights. On that note, enjoy the following compilation of people being awesome – perhaps there might even be an idea or two for a great weekend project. Have a safe and enjoyable weekend!

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Discount Brokerage Weekly Roundup – July 21, 2017

If there’s a lesson emerging from the scandal in the US or from Game of Thrones, it’s that details matter. At least in the case of the US, the details are emerging and in the process, the spin doctors are working overtime to shape the conversation. While this may seem like a leap for the online trading world, in reality, the lesson for DIY investors when considering online brokerages is to try and see past the spin and to focus on the details.

Fortunately, this edition of the roundup is chock-full of details as we take a deep dive into the latest rating of Canadian discount brokerages to be published. From there we provide an update on the latest insight piece on one Canadian online brokerage’s venture into sustainable investing. Wrapping up this week will be a collection of the many interesting (and sometimes colourful) DIY investor conversations that took place on Twitter.

A Q’rious result: Non-bank-owned Canadian online brokerages earn top marks in MoneySense’s latest rankings

For many DIY investors and those looking for a quick answer to the question: “who is the best online brokerage in Canada?” the answer appears to have evolved over the years. The shift appears to evolved from finding a singular ‘best’ online brokerage, to providing a category-based approach to report on discount brokerages who are the best at particular features.

Such is the case in the latest MoneySense ratings of Canadian online brokerages, which were published this past week. Based on data supplied by financial services research firm Surviscor, the latest online brokerage rankings suggest that when it comes to the “best overall” experience for online investing, non-bank-owned online brokerages are edging out their larger and better financed competitors.

Starting first with the ‘winners’ (beware the spoiler alerts). BC-based Qtrade Investor earned the top pick as best overall brokerage followed by Questrade which earned the runner up title of ‘honourable mention’.

In the bank-owned brokerage category, BMO InvestorLine and Scotia iTRADE tied for top pick with no runner up (or ‘honourable mention’) reported.

For followers of the MoneySense online brokerage rankings, there is an air of familiarity about the winners this year compared to 2016. Both Scotia iTRADE and BMO InvestorLine were rated as the best and ‘runner up’ bank-owned brokerage, while Qtrade Investor and Questrade took first and second place in the non-bank-owned online brokerage category respectively. So, as far as the top contenders are concerned, things look largely the same as they did last year. A few notable changes, however have shown up in the 2017 analysis.

This year, for example, the category of “user experience” was used instead of “ease of use”; “best for ETFs” was also introduced given the popularity of ETF trading choices now available and the popularity of these instruments with DIY investors and finally, the category of “best overall” replaced the category of “top independent brokerage.”

 

2017 2016
Category Top Pick Runner Up Top Pick Runner Up
Getting Started Questrade TD Direct Investing BMO InvestorLine Virtual Brokers
User Experience Questrade Qtrade Investor Scotia iTRADE Questrade
Fees & Commissions CIBC Investor’s Edge

Questrade

 Qtrade Investor

Virtual Brokers

 Questrade Qtrade Investor
Customer Service Qtrade Investor Desjardins Online Brokerage Qtrade Investor Scotia iTRADE
Reporting & Record Keeping BMO InvestorLine Qtrade Investor Scotia iTRADE BMO InvestorLine
Market Data TD Direct Investing Qtrade Investor TD Direct Investing Credential Direct
Best for ETFs Questrade

Virtual Brokers

 National Bank Direct Brokerage n/a n/a
Best Overall Qtrade Investor Questrade Qtrade Investor (best independent) Questrade (honourable mention independent)
Best bank-owned brokerage BMO InvestorLine
Scotia iTRADE		 Scotia iTRADE BMO InvestorLine

 

A quick scan of the results between last year and this year will show some new faces in certain categories, but by and large, this year’s MoneySense online brokerage rankings show a high degree of similarity to 2016. Nonetheless, as we’ve mentioned time and again on SparxTrading.com, when it comes to evaluating the online brokerage rankings, it is important to look at the details and critically evaluate the findings to ensure a more thorough understanding of what’s behind a rating or ranking.

Diving into Details

Perhaps one of the most immediate observations is that there are some brokerages that make multiple appearances across different categories. Specifically, although 9 different brokerages were mentioned in at least one category this year, either Qtrade Investor or Questrade were first or second a combined 9 times out of 17 possible mentions.  And, while that does make sense given the overall rankings of both of these online brokerages, when compared to the profile of results from 2016, it is notable that for the bank-owned online brokerages, Scotia iTRADE is far less visible in the top or runner up spots in 2017 than in 2016, despite landing a tie with BMO InvestorLine for top bank-owned online brokerage.

Ratings of Canadian discount brokerages according to MoneySense online brokerage rankings, 2017
Source: MoneySense online brokerage rankings, 2017

A closer look at the 2017 results reveals that of the top two bank-owned online brokerages, only BMO InvestorLine managed to achieve the best in the category of reporting and record keeping while Scotia iTRADE did not make a top pick or runner up in any of the categories mentioned. Curiously, despite TD Direct Investing placing in top spot for ‘market data’ and runner up for ‘getting started,’ it did not make the cut for best bank-owned brokerage or even ‘honourable mention’ according to the results.

Shut out from winner or runner up circles from this year’s rankings were Credential Direct, HSBC InvestDirect, Laurentian Bank Discount Brokerage and RBC Direct Investing. Also overlooked again this year was Interactive Brokers Canada, which was excluded from consideration and almost certainly would be a challenger in the fees & commissions, getting started, and market data categories.

One of the most crowded categories, curiously, was the commissions and fees spot.

Fee-ling crowded

Top pick for fees this year was a tie between CIBC Investor’s Edge as well as Questrade, while honourable mention (another tie) went to Qtrade Investor and Virtual Brokers. Given that commission pricing changes at CIBC Investor’s Edge appears not to have dramatically changed since we first reported the drop 2014, it was strange to see Investor’s Edge disappear from the 2016 ratings (while it did appear in 2015) but reappear in 2017. Likewise, commission pricing at Virtual Brokers has been restructured so that there is now standard commission structure pricing of 9.99 per trade, but Credential Direct (with standard commission pricing of $8.88), which was cited alongside CIBC Investor’s Edge as low cost by MoneySense in 2015, seems like it would have made the cut.

The takeaway: commission pricing is low at many Canadian online brokerages and one of the important factors to consider is whether there are any ECN fees or not. While the MoneySense ratings do not disclose a full methodology of how fees and commissions are calculated, the big picture shows that DIY investors who want to buy based on commission pricing do have a number of choices for good value.

Of course, the commissions and fees category is not without some controversy in this year’s ratings. A concern that we noted with the standard commission reporting, however, is that Scotia iTRADE’s “basic online equity” commission pricing is listed as $9.95, a condition which is true only if clients have more than $50,000 in assets at Scotiabank entities.

If having at least $50,000 in assets is the qualifying definition for standard commission pricing at Scotia iTRADE, then HSBC InvestDirect should have their rate posted as $8.88 rather than $9.95. Conversely, if having the minimum deposit to open an account is considered the threshold for ‘standard pricing’ – which we would argue should be the case – then Scotia iTRADE’s standard commission pricing would be at least $24.99 per trade – almost 4x that of CIBC Investor’s Edge and easily double the $9.95 at most of Scotia iTRADE’s bank-owned brokerage peers.

Again, without methodology detailing how these were calculated, the inclusion of Scotia iTRADE as a top pick with standard commission pricing so far above its peer group and no top pick or ‘honourable mention’ in any of the categories makes it a strange result. Unlike 2016, where Scotia iTRADE does appear in 3 categories as either top pick or ‘honourable mention’, this year’s inclusion in the winner’s circle at the bank-owned brokerage level seems less obvious as to why that would be the case.

To be fair, we’re not trying to penalize Scotia iTRADE. In fact, we noted that there were some notable discrepancies from Scotia iTRADE’s details (at the time of publication) that would be of value for potential clients to take note of and which could shift the scoring in Scotia iTRADE’s favour. Specifically, Scotia iTRADE is better at customer service availability and investor education support than the MoneySense comparisons would imply.

For example, the customer service hours which on the table on MoneySense are listed as Monday to Friday, 8:30am to 5:00pm (no timezone specified) whereas according to the Scotia iTRADE website contact section, the hours are listed for client support are Monday to Friday, 8:00am to 9:00pm ET and Saturday from 8:00am to 6:00pm ET. Offering service on a Saturday is something that stands out for Scotia iTRADE so, though the MoneySense category does list hours which might correspond to new account openings, it doesn’t necessarily reflect the experience that existing clients could expect to receive nor does the category clarify the meaning of “telephone services.”

Another point of concern appears under the ‘buyer beware’ category in the MoneySense breakdown where it states Scotia iTRADE has “weak educational material.” The characterization as “weak” seems highly subjective and inconsistent with the fact that Scotia iTRADE has not only had a long-standing focus on investor education but even on the relatively recent redesign of their website, they committed to having education as one of the four main menu choices. Further, Scotia iTRADE also has learning modules on basic topics related to trading and platform orientation, and more importantly, they have an extensive calendar of educational events (such as webinars) that are presented frequently and regularly throughout the year. For a claim of ‘weak’ educational material to be applied to Scotia iTRADE to be substantiated, even on a relative basis, it would mean that the vast majority of Canadian online brokerages ought to be called out for the same ‘buyer beware’ drawback and even more so for not having these webinar/seminar supports in place.

Wait a minute, Mr. Postman

Another interesting aspect of the rankings and ratings is the customer service response times on email across the Canadian online brokerage industry.

Surviscor regularly monitors the email response times for Canadian discount brokerages and has reported this data as part of its Service Level Assessment (formerly the Customer Email Responsiveness program) scoring. Included in MoneySense’s online brokerage rankings this year was a particular focus on email performance, and in particular, how poor the industry (with a few exceptions) is doing when it comes to responding to requests via email.

The range reported from this year’s analysis was substantial. Qtrade Investor was the quickest to respond with an average of just under 2 hours while Laurentian Bank Discount Brokerage came in at 113 hours.

Canadian discount brokerage email response times
Source: MoneySense online brokerage ratings, 2017

Given the staggeringly high variation, it would have been nice to have the standard deviation and number of emails sent to each firm reported. Averages, in and of themselves, are of limited value when trying to figure out “what’s normal” or representative of a service experience. Another unknown which would add more context would be knowing how many emails were sent (was it 3 or 30?), when they were sent (Friday nights, weekends or during market hours)? and what qualifies as a response (did the question get answered or was the note simply acknowledged as received?).

Another interesting observation was that the figures reported for Desjardins Online Brokerage’s response time in the dynamic chart supplied show it at 9 hours, which is the same for RBC Direct Investing. That is relevant because Desjardins Online Brokerage managed to score as a ‘honourable mention’ for that score while RBC Direct Investing did not. It is likely the case that the reported chart is rounding numbers (since Qtrade Investor was reported in the text to have an average under 2 hours but is reported in the chart as 2 hours) but this clarification is one that becomes important, since rounding to the nearest hour is a significant amount of time in an online world.

For the Ratings

For many DIY investors, including readers of MoneySense magazine, navigating the maze of Canadian online brokerages is both time consuming and complicated. Ratings such as the latest online brokerage comparison provide a handy way to understand the strengths and limitations of particular Canadian online brokerages.

While the latest ratings don’t necessarily “rank” numerically where particular online brokerages stand,  the MoneySense online brokerage nonetheless showcase a ‘top pick’ and an ‘honourable mention’. So, those DIY investors looking for a recommendation can find a brokerage worthy of consideration. In fact, a particularly nice feature for this year is the comparison tool which enables side by side comparisons of online brokerages.

All that said, as has been stated many times on SparxTrading, it is important for readers and users of discount brokerage rankings to have clarity on what the categories being used mean as well as how they’re measured. The MoneySense online brokerage ratings rely heavily on data sourced from Surviscor’s analysis and as such, it might be useful to point readers to the methodology sections on the Service Level Assessment (which explains some of how the email testing is done) and also on the assessment for categories like user experience or commissions and fees.

In sum, Canadian online brokerage account shopping can be as simple or complicated as DIY investors want it to be. To help make the task of figuring out what other rankings or ratings are saying (such as the MoneySense brokerage rankings or those from the Globe and Mail), we’ve added all the ratings received by a Canadian online brokerage onto the profiles of each individual brokerage (accessible in each online brokerage’s profile page).  The best news for DIY investors coming out of these rankings, however, is that competition amongst brokerages is pushing at least a handful of them to put forth their best effort into winning new clients and keeping existing clients satisfied.

Socially responsible investing in the spotlight at Scotia iTRADE

For many investors, there is a growing trend towards thinking carefully about the impact and nature of where profits come from. Socially responsible investing is definitely gaining in popularity with investors and even this past week, there were headlines that major robo-advisors in the US were moving into this space by adding the SRI into their portfolio offerings.

For DIY investors in Canada, however, there’s at least one online brokerage who’s taken the leap to provide a tool to research and analyze companies according to their environmental, social and governance (ESG) components. Earlier this year, Scotia iTRADE became the first Canadian online brokerage to launch this ESG tool for their clients.

This past week, we profiled this tool in detail and provided a highlight of some of the issues that DIY investors might want to consider when using this tool, as well as whether this tool – itself a measure of controversy, might in fact also be a source of controversy in the Canadian online brokerage landscape.

The ESG screener and associated reports enable DIY investors to investigate the ESG rating of hundreds of companies listed on the TSX in order to learn more about whether those companies fit within the investor’s goals of socially responsible investment decisions.

Of course, while socially responsible investing is an idea that many can get on board with, in reality the definition of what this means and how it works exactly are important to know.

In the world of DIY investing, in particular in Canada, there has been a discussion as to the nature and types of tools that order execution only brokerages can provide. Separately, events in the US with respect to fiduciary duties of money managers and advisors have also helped to colour the debate on social responsible investing – namely that it introduces a bias that may be at odds with the duty or objective to maximize the monetary benefit to the investor.

Click to read the full story in the blog here.

Discount Brokerage Tweets of the Week

This week it looks like outages and advertising were the topics of choice for DIY investors on Twitter. Mentioned this week were Questrade, RBC Direct Investing, Scotia iTRADE, TD Direct Investing and Virtual Brokers.

Into the Close

That’s a wrap on another week. Now that the weekend is here, hopefully there’s some sunshine to enjoy. Of course, for GoT enthusiasts, there’s plenty of winter to look forward to on Sunday and lots of watercooler talk on Monday. For a more real-life GoT experience, however, be sure to tune into CNN as the intensity level of the drama that is US politics ratchets up. On that note, now that ‘Spicey’ has left the building, here is a fun collection of memes commemorating the departure.


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Discount Brokerage Weekly Roundup – July 14, 2017

If there’s one thing Canadian investors heard a lot about this week, it’s that interest rates are coming. Also, winter is coming. While the latter is something Game of Thrones fans will be clamouring over,  ironically it’s the former that will get Canadian discount brokerages pretty stoked. After years of being forced to operate with lower commissions and volatility, interest rate increases will provide a bump to earnings. Not without a sense of irony, however, the rise in rates might make online trading slightly less attractive to DIY investors. As such, online brokerages are going to have to get even more creative about improving services and their image if they want to weather that storm.

This edition of the roundup keeps it light and easy. First, we kick off with a recent post about digital innovation at Canada’s largest bank-owned online brokerage. From there we look at the performance metrics of a popular independent brokerage and why the math on trading activity points to some interesting developments with active traders. Also on tap, there’s lots of chatter to share from DIY investors on social media and in the investor forums.

Behind the screens: A look at digital innovation with TD Direct Investing

What does it take for a Canadian online brokerage to compete in a digital world? It’s that question that prompted us to find out how Canada’s largest online brokerage, TD Direct Investing, is navigating such a rapidly evolving world.

In a fascinating interview with Richard Wilks, associate vice president, self-directed and advised client digital capabilities at TD Wealth, we took a ‘behind the screens’ look at how exactly an online brokerage with the size and scale of TD Direct Investing manages to improve its stable of digital platforms while at the same time keeping pace with the speed of change that is forcing financial firms to compete on a fintech playing field.

Frequent readers of the roundup, and especially those paying attention to social media and forums, will recall the flare ups when things have gone off the rails during the roll out of WebBroker. In this in-depth look at how TD Direct Investing stick handles platform development and maintenance, however, it becomes clear that all online brokerages in Canada are tasked with the same challenge: being able to innovate while also providing stability of delivery and service. In fact, because change is going to happen so rapidly, and so often, the culture of many of the largest financial firms in Canada is evolving to become responsive to technology shifts. The notion of what constitutes ‘perfect’ has changed from ‘being error free’ to ‘can this be addressed quickly’

One of the interesting angles to the technology story is how increasingly important the digital experience will be as a benchmark of quality when selecting an online brokerage. Now that smartphones have enough computational power, accessibility and screen real estate, most if not all, of the core functionality of online trading can be taken care of with a mobile device – including service requests.

For Canadian discount brokerages, competing against “robo” style automation means that DIY investing is going to have to feel like less work, and to achieve that will take continuous investment in technology and, most importantly, listening to clients.

And, while commission price is always going to be something that DIY investors consider when selecting an online brokerage, there is a value that is attached to having secure, reliable and user-friendly technology.

Check out the full article on digital innovation at TD Direct Investing here.

Tale of the tape: Interactive Brokers’ trading metrics post some interesting numbers

If there’s one thing that investor’s love about charts (unless they’re short of course), it’s when they go up and to the right.

For Interactive Brokers, the chart of customer growth continues to do just that. The latest figures on account growth for June 2017 show that Interactive Brokers now has 428 thousand clients, an increase of 20% relative to last year and 2% higher than in May. Keep in mind that this is net of any clients who left so it is an impressive number for Interactive Brokers to have reached.

Interestingly, even though they added 9.8 thousand accounts in June, which was close to double the 5 thousand that were added in April, the total number of DARTs (Daily Average Revenue Trades) for IB (368K trades) in April (used for comparative purposes) was only slightly lower than in June.

This touches on an interesting development for one of the most ‘active trader’ focused segments of the market, namely why, despite the growth in the number of clients is trading activity in terms of cleared DARTs not increasing proportionally? And, if active traders in the US are not trading as much, is the same true for Canadians?

With interest rates on the rise and markets continuing to press higher in the US, it will be interesting to hear what Interactive Broker’s leadership has to say on their conference call next week. The message so far has been that the lower volatility in the markets, in part due to algorithmic and high-frequency trading, means that active traders have shied away from trading this market. Stay tuned as there may be a few more gems on what comes out of the conference call.

Discount Brokerage Tweets of the Week

Interesting conversations were on Twitter this week as DIY investor’s gave their colourful opinions on technical hits and misses. Mentioned this week were Credential Direct, Questrade, RBC Direct Investing, Scotia iTRADE and TD Direct Investing.

From the Forums

Putting Norbert on the spot

When it comes to currency exchange for DIY investors, Norbert’s Gambit is a handy tool to have in the toolbox. That said, there is one Canadian discount brokerage that it doesn’t seem necessary to use it, at least according to this post from reddit’s Personal Finance Canada section. Click to learn more.

Take my money

Funding an online trading account seems simple enough. Or at least it should. In this post from redflagdeals.com’s investing forum, one user was looking to fund a TD Direct Investing account and got many creative suggestions on how it could work.

Into the Close

That’s a wrap on yet another wild and wacky week in the markets. Despite all of the noise around what’s happening in the oval office, markets continue to push higher. It’s hard to look away from the political drama but in case you missed it, there’s a great tweet that sums up the hijinks of the week in the way that only a tweet can. Looks like Jon Snow isn’t the only one who knows nothing. Have a great weekend!

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Discount Brokerage Weekly Roundup – July 7, 2017

Oh boy, where to even begin? With the warm weather upon us it seems like real estate sales in Toronto are melting like ice cream left in the sun for too long, and the world’s attention is turned squarely on the meetings between world leaders for the G20. Of course, there are so many headlines that it’s easy to miss some of the stories that aren’t being generated 140 characters at a time. Paying attention to the slow and steady stories can be quite revealing, however, especially when it comes to Canada’s discount brokerages.

In this ‘trend’ filled episode of the weekly roundup, we kick things off with a look at the latest website update being telegraphed by a bank-owned online brokerage and what might be coming down the wire for the second half of the year. From there, we take a very interesting look at some possible macro factors swirling around the online brokerage industry in Canada that could substantially reshape and redraw an already dynamic landscape. Fortunately, we wind up the roundup on a familiar note with tweets from DIY investors and the latest chatter from the investor forums.

CIBC Investor’s Edge telegraphs an upgrade

Summer is a great time to do renovations and upgrades, and not just around the house. This past week, CIBC Investor’s Edge posted a notice on their website indicating that some updates and upgrades are in the works for their website front end.

screenshot of CIBC Investor’s Edge

But it wasn’t just the announcement that caught our attention, it was also a survey that popped up while on the homepage. Specifically, an online survey that sought out feedback from CIBC Investor’s Edge clients on certain features and functionality related to their online experience as well as the overall satisfaction with certain components of the CIBC Investor’s Edge offering.

If some of this sounds familiar, it is because in April, another online brokerage, Credential Direct, also posted a user survey to help provide guidance on functionality prior to launching their new website. Unlike the survey in April, which was focused on how individuals would locate certain information on a new website, the survey by CIBC Investor’s Edge seemed to looking for satisfaction with experience and taking a top down approach to establishing where improvements might be required.

In the first half of 2017, in fact, that there appears to be renewed interest and resource being devoted to improving the online user experience, especially at the bank-owned brokerages. Several website launches, staffing up in digital content and experience and a general shift towards releasing features to market more quickly all signal that Canada’s discount brokerages are gaining ground and learning from the ‘fintech’ model that is gaining a foothold in the wealth management space.

That said, it also points to the likelihood that changes are going to be more frequent and prevalent. For the last half of 2017, there are strong odds that we’ll see some very big announcements from certain discount brokerages on new website roll-outs of their own.

In the meantime, we’re excited to see what CIBC Investor’s Edge unveils and the accompanying response from DIY investors and clients on the new website format.

Beware of active lifestyles

Unlike some of the more obvious changes and developments in the Canadian discount brokerage space, there appears to be a handful of ‘macro’ trends that might steer the news and behaviour in the near future.

What does that elusive opener refer to exactly?

Over the past few months, the regulatory landscape around the Canadian online brokerages appears to be shifting. There are two forces at play from different government entities that could drastically reshape how DIY investors access online brokerages’ services and, perhaps, severely constrain the DIY investor space as a whole.

On the one hand, there is the issue raised by IIROC on the nature of what Canadian online brokerages (as order execution only entities) can provide in terms of tools or features that cater to investors. Specifically at issue, is what constitutes a recommendation and how much autonomy an individual investor may have in deciding what is or isn’t appropriate for their own investing objectives. While this is an important point, part of it has been covered in a previous roundup which serves as a prelude to this second, and perhaps more disruptive issue.

For the last few weeks, the story of the Canada Revenue Agency’s purported ‘crackdown’ on TFSA windfalls has been gathering media attention and investor ire.

Although this is not the first time that the CRA auditing TFSA account compliance/performance has made news, what is making the news is the rather large sum of $75 million that has been flagged for collection, an indication that efforts to regulate TFSAs has escalated. Before proceeding, there is an important caveat to state, and that is that the CRA ensuring that individuals don’t abuse the tax system is ultimately a net benefit for everyone. That said, the TFSA is a very interesting (and recent) vehicle for wealth building and it is that wealth building that finds itself at odds with a tax system (and it’s rules) for investors that was developed well before the democratization of information on and about securities (such as stocks).

And, while there are lots of very interesting angles to the evolving TFSA crackdown story, at the heart of the issue for DIY investors and for financial advisors, wealth managers and ultimately for online brokerages is what exactly constitutes ‘trading’ versus ‘investing’.

Without delving too far into the past, the CRA has published guidance on the subject of what may or may not constitute a trader but for many DIY investors and the industries that service them, the definition has been far too open ended. From an armchair analyst’s point of view, the issue appears to be ensuring that capital gains should get treated differently than business income, so separating what counts as either is crucial to administering the tax-preferred treatment that capital gains get.

To do so, the CRA has set out a multi-part test when evaluating what does or does not constitute business income or capital gains. That said, it is worth stating that according to the CRA’s documentation, business income is classified as anything derived from an “adventure or concern in the nature of trade.”

While, from the CRA’s perspective, this approach might afford the flexibility to evaluate cases on the merits of particular facts, the counterpoint is that is has created tremendous uncertainty. And, if there’s one thing that efficient markets disdain, it’s uncertainty.

As a result of the somewhat vague test of what could or could not constitute an “adventure or concern in the nature of trade” situations like the following can arise.

The popular DIY tax software Turbo Tax, published an article entitled “How to calculate capital gains when day trading in Canada” which spoke to interpreting how to log investment transactions in TFSAs as follows:

“TFSAs are purchased with after-tax dollars, without any taxation upon withdrawal. There are no restrictions on taxpayers using day-trading techniques for investments, and profits realized can be declared and taxed as capital gains.”

Clearly, if individuals are DIY investors, there’s a reasonably good chance they may also want to use software that helps to take a DIY approach to taxes. In fact, there are examples of some Canadian online brokerages who’ve offered incentives such as discounts on this software as a sign up bonus, so there’s a good chance resourceful individuals might turn to such a document to help figure out how to populate their tax returns.

In this case the language used in the article might lead some people to believe that they can use ‘day-trading’ in the same way as a capital gain. A reading of the CRA guidance, however, seems to contravene that statement. For example, with regards to short selling which the CRA guide explicitly states:

“The gain or loss on the “short sale” of shares is considered to be on income account.”

Clearly, anyone with a margin account who decides to short a stock needs to consider treating such a transaction differently for tax purposes than does anyone going long on an investment – but good luck to DIY investors trying to stumble across this information easily.

As a counterpoint to the information provided by Turbo Tax, recent articles, such as the one in the Financial Post by noteworthy taxation expert Jamie Golombeck state:

“Under the tax rules, if a TFSA carries on a business then it must pay income tax on its business income.”

Considering the points above, one very interesting angle is the moving target on what constitutes an active investor, specifically because this impacts how Canadian online brokerages communicate to DIY investors considering opening an online investing (or trading) account – including a TFSA.

The table below shows that an “active” investor is being communicated differently depending on the discount brokerage. For the CRA, and in the case cited in the Golombeck article above, it may not be interpreted the same way by everyone and that is highly problematic.

Trading level 30 trades per quarter 150 trades per quarter
Bank-owned online brokerages with offers or incentives at these levels NBDB, RBC Direct Investing, BMO InvestorLine; Disnat Direct, HSBC InvestDirect Advance RBC Direct Investing, TD Direct Investing, Scotia iTRADE, BMO InvestorLine
*some firms may appear twice as they have offers in each tier.

Add to this, the fact that there are also incentives that are being offered to individuals (such as discounted commissions or waived platform fees) depending on the number of trades executed. The range is quite extraordinary, going from 30 trades per quarter to as high as 150 or more per quarter.

Of course the other issue with being an ‘active’ investor is the time spent researching and following markets, as well as the level of knowledge of the markets. Both of these components are used in the test to establish whether an individual is considered to be generating business income or is eligible for the capital gains exemption. To do due diligence, however, does require time and effort – even in passive portfolios, to rebalance, read and generally know what you’re buying into.

Finally there’s the pricing for data feeds for active trading platforms. For business (such as sole-proprietor) investing/trading accounts, the data feed costs are significantly higher than for individual accounts, which means that the true cost to active investors who may not want run afoul of the CRA criteria is actually quite high. That’s bad news for the online brokerage industry who would now have to communicate the value proposition of being an active trader, doing so outside of the TFSA (potentially) and incurring huge data and platform fees.

Interestingly these two issues, that of the suite of services offered by order execution only (OEO) firms and what the CRA appears to be doing with TFSAs might actually intersect.

The fact of the matter is there is insufficient clarity on several fronts: what determines ‘trader’ or ‘investor’, the degree to which an individual who opens an account with an online brokerage firm can or cannot decide for themselves as to the level of ‘appropriateness’ of executing a particular transaction and the implication for them doing so in a TFSA.

In fact, it seems like there is a slight misalignment between the list of criteria put forward by the CRA in terms of “knowledge of securities” and the KYC rules put forward by securities regulators that would enable an individual investor to perform transactions in TFSA. On the one hand, individuals may be taxed for knowing too much about securities but on the other hand they may not be able to access tools from their online brokerages because they might not know enough.

In this case, it begs the question, does something need to change about the way TFSA accounts can be used by online brokerages? According to the Golombeck article cited above, the CRA’s position appears to be that TFSA’s are not that special.

That said how do the CRA’s tests for being considered a trader (for tax purposes) mesh with securities regulations that require online brokerages to determine, at some level, the degree to which an individual would be knowledgeable enough about securities to open an account and appreciate the extent of risk associated with online investing?

There’s certain to be much more debate on these issues ahead as the CRA had opened the can of worms of counting ‘wins’ in DIY investor TFSAs as business income but not necessarily equally considered losses obtained through the same set of activities as ‘business losses’ (if they have, it’s not been as widely reported).

Similarly, reconciling tax requirements with securities legislation is sure to come up especially if it can potentially hurt DIY investors in their journey to save for retirement. This very tangled set of issues will be fascinating to watch unfold, and as usual for DIY investors, the playbook seems to suggest: be ready to change.

Discount Brokerage Tweets of the Week

A somewhat quiet week by Twitter standards. Mentioned this week were CIBC Investor’s Edge, Interactive Brokers, Questrade, Scotia iTRADE and TD Direct Investing.

Into the Close

So much for keeping it short. Well, on the topic of shorts (not the trade but summer attire) have a great weekend and hopefully enjoy some of that summer weather while it’s still here!