Category: Discount Brokerage News

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Discount Brokerage Weekly Roundup – March 15, 2021

One look at the past week in March and daylight savings isn’t the only reason to be losing sleep. From the excitement of Bitcoin’s highs to the now-constant (like Pi Day) news of platform outages to Beyoncé’s smashing of a Grammy record, March has been full of surprises. Interestingly, it seems like Canadian online brokerages also picked up on this theme heading into the Ides of March.

In this edition of the Weekly Roundup, we review some of the newest features to sprout up at Canadian online brokerages and analyze the shifting landscape of financial services in Canada. From there, we dive into some strange and interesting signals surrounding the “new” retail investor and look at how they are impacting online investing. As always, we’ve got some interesting and…colourful…commentary from DIY investors in the forums and from Twitter.

Out to Launch: New Features Sprouting Up in March

March is synonymous with spring and, therefore, also with new and exciting things.

This year, there’s already much to look forward to. However, when it comes to the Canadian wealth management landscape, there are some interesting developments sprouting.

BMO InvestorLine Launches adviceDirect Premium

Starting first with BMO InvestorLine. This past week, BMO InvestorLine formally announced the launch of a new premium tier of their adviceDirect service offering. The new feature, adviceDirect Premium, is geared toward clients with $500,000 or more in investable assets and offers a range of new functionality, most notably enhanced planning and research resources.

Now over eight years old, adviceDirect has often occupied a niche role in the world of online investing. As a hybrid between the world of DIY investing and digital advice, it has evolved a number of times to find its identity as the “middle child” of the wealth management suite offered by BMO.

The timescale of the product is especially relevant given the context of what the product offers and the current state of online investing. AdviceDirect is unique in that online investors can contact a licensed investment representative to review their portfolio and to get additional insight on possible investment decisions. Although the investment rep does not necessarily have to put orders through, the key value driver is that a DIY investor can get an informed opinion about their particular investment picture and goals.

Prior to the mad rush into the markets instigated by COVID-19, the need for orientation to the markets was somewhat measured. Passive investing was all the rage, and the numbers of DIY investors who were new to trading or who wanted to get into investing were increasing at a manageable pace.

Fast forward to today, however, and the wealth management industry – in particular the online investing space – is filled with chatter centred around the lack of experience of investors entering the market. This past week, for example, a pair of articles essentially found that the kinds of questions new investors were seeking answers to reflected a significant lack of knowledge about the world of investing online. Of particular note was the following stat: “A Deutsche Bank survey found that almost half of U.S. retail investors were completely new to the markets in the past year. They are young, mostly under 34.”

While the Canadian online brokerage market is different, the overall trend of newer investors coming to online investing is likely similar. The takeaway: There are lots of new investors in the market who don’t quite know what they have gotten themselves into.

It is interesting, then, that adviceDirect has chosen to launch a premium product at this point. On the one hand, a premium tier is consistent with an overall trend for BMO InvestorLine to seek out clients with larger deposit amounts or investable assets. At a macro level, however, the timing couldn’t be better to bring on clients who would likely benefit from having a “voice of reason” available for consultation before making some big investing decisions. Investor forums now routinely have stories of DIY investors who bet big and lost considerable amounts of money by taking risky trades. Those risks far outstrip the management fees charged by the adviceDirect platform.

The online investing world has typically been a place where either you’re a DIY investor or you’re not. BMO InvestorLine’s latest enhancement to its long-standing hybrid model offering might have finally found itself ready for a world where “DIY” doesn’t imply an all-or-nothing proposition. The challenge, however, is whether or not adviceDirect can ramp up its marketing and appeal to DIY investors faster than other online brokerages or roboadvisors can.

Questrade Launches Mortgages

This past week, the line between online brokerages and banks got a little blurrier as two wealth management firms continued their push into banks’ traditional territory of mortgages and money transfers.

Starting first with mortgages. Questrade, which acquired Community Trust Co. in 2019, has been quietly building up to a formal launch into the world of offering mortgages. That day, it seems, has arrived, and last week, Questrade clients received the formal announcement that QuestMortgage has officially gone live.

For the moment, QuestMortgage is open to Questrade customers only. Given the current frenzy over real estate in Canada, however, it is likely that the timing of launching to all Canadians is on the minds of the folks at Questrade. The QuestMortgage prime rate is 2.45% at the time of publication, and a five-year fixed-rate closed mortgage ranges between 2.04% to 2.24%.

While these rates are higher than at other firms, the reality is that there will likely be a curious set of existing clients who either know and/or like Questrade and would be willing to see what a mortgage through QuestMortgage might be like. That said, one of the challenges of the bank-owned online brokerage approach is that service in one category of product tends to impact the decisions and perceptions in another.

This past week, for example, Questrade’s platform suffered an outage during trading hours, and, as a predictable result, lots of clients were understandably angry – including to the point of wanting to leave. If there are hiccups and issues during this rollout with Questrade clients, it could alienate existing clients, giving them cause for concern with the brand as a whole.

Wealthsimple Relaunches Cash Solution

Another big development in the world of money for Canadians came from Wealthsimple.

Typically, we would be referencing Wealthsimple in the context of online trading or even online investing through their roboadvisor service. However, this past week, Wealthsimple published an article in their Wealthsimple Magazine and sent out an email campaign highlighting their Cash app, in an effort (it seems) to ramp up the awareness of this new(ish) product.

What’s so special about Wealthsimple Cash? To start, it promised to enable instant money transfers between parties. And, going way back to the announcement of the cash feature in 2020, there are some other key features such as bill payments, ATM cash withdrawals, and a highly sought-after physical card.

As with the comment about Questrade venturing into mortgages, however, the rollout and client experience with one part of the brand will invariably influence the perception of the brand as a whole. There are now several apps in the Wealthsimple ecosystem, each representing a possible relationship with a consumer. As a result, a negative experience in one of these areas has the potential to cause someone to leave the whole set of products.

In the case of the Wealthsimple Cash app, there is already skepticism and negative sentiment brewing – in part relating to the delay in the rollout of the promised features that the Cash app was launched with. While Wealthsimple had hoped to be transformative with the technology and user experience (and, to be fair, the proposed user flow in terms of sending cash seems straightforward), ultimately it comes down to reliability and execution, which is where the current reviews and reactions from Wealthsimple clients stem from.

Despite the slow rollout of the most sought-after features, Wealthsimple is clearly going after the business domain of the traditional big banks in Canada. The convenience factor that emerges when individuals are able to manage multiple parts of their financial lives in one easy-to-use platform is a very powerful force. Equally powerful in Canada, however, is inertia. Individuals who are content to stay where they are because of a perceived amount of effort to change are not yet hearing the kind of enthusiasm about the Wealthsimple Cash feature that would induce them to switch. Though the banks might be safe for now, it’s clear(er) that the winds of change are starting to blow.

Neighbourhood Watch

If there’s one thing that living through 2020 has taught us, it’s that these are really unusual times. Just when traditional wisdom implies that things ought to zig, we see them zag. Nowhere has this been more true than in the world of DIY investing. What has started to emerge from a series of discussions about the world of online investing appears to be a sense of impending doom – almost as if there’s an iceberg in the water and the “new” stock market is the Titanic.

To be fair, there are perennial pessimists when it comes to the stock market. Since the Great Financial Crisis of 2008/9, naysayers have been waiting and calling for a massive correction in the markets. The same could be said for the sentiment post-March 2020. Looking at historical data on crashes and bear markets, however, paints a less dire picture than the market doomsday prophecies would imply.

That said, there appears to be an undercurrent of pessimistic conversation surrounding DIY investors who are new to markets and trading that is unlike anything witnessed in recent memory, such as in a pair of articles from this past week (here and here).

Some of the key takeaways paint a picture of the “new retail investor” who relies on social media for orientation to the markets and for trading ideas. Anecdotally, this would appear to be the case with communities on Reddit, such as Personal Finance Canada, growing to an exceptional size and rivalling traditional media sources for information on topics related to personal finance (including investing). At the time of publication, the Personal Finance Canada community on Reddit has grown to almost 480,000 members.

Data cited in a MartketWatch article (sourced from Magnify Money) is also consistent with this observation. It found that almost 60% of Gen Z and millennial investors (aged 40 and younger) were a member of an investment community such as Reddit. Also, just over 40% of respondents to the Magnify Money survey reported turning to YouTube for investing information.

This past week, there was also yet another hearing held in the United States, this time by the Senate Banking Committee, that put the commission-free trading model of Robinhood under the microscope and, with it, the activities of very active traders or investors.

Other insights from data being shared during the heightened scrutiny of Robinhood show that the majority of the high-volume trading is coming from a very small number of trading accounts. Approximately 2% of clients would be considered day traders, according to one report, which is shockingly small. A similar scope of influence was recently reported by Wealthsimple Trade about its client base, which revealed 14% of clients traded GameStop stock, with 81% of those who did purchasing seven shares or less.

What these different data points suggest is that there’s a very different type of trading behaviour taking place in the current markets. Specifically, with so many new investors joining the markets, with more time and access to some discretionary capital, and with new technologies and lower barriers to trading, the ability for investors to “pile” into a trade – and to do so quickly – the mindset of younger investors is decidedly different and is material to market behaviour.

For online brokerages, while COVID-19 lockdowns and restrictions persist, being visible on the channels that online investors are turning to makes sense. It is likely why, in Canada, aggressive advertising by Wealthsimple Trade shows up on YouTube, and Questrade commercials air during sporting events. What remains to be seen is how trading activity changes if and when working from home becomes less common for those younger investors. That said, the data shows that while there might be more excitement and engagement in markets overall, the ultra-active segment of investors might be vulnerable to retreating quickly if market conditions shift or macro conditions – like having to go back into the office – surface.

At the heart of much of what we’ve learned over 2020 and now 2021 is the growing power of the financial community of users on social media platforms. For online brokerages to remain relevant and go beyond commoditized providers of online trading services, job one still remains being able to connect people to the markets. However, not far behind is to figure out how to tap into the power of online communities of DIY investors.

Discount Brokerage Tweets of the Week

From the Forums

School Daze

In this post, an investor with two young children who wants to start saving for their education debates the relative merits of setting up two RESPs, a family RESP, or a high-interest savings account. A lively discussion ensues, with Redditors talking about everything from government grants and TFSAs to couch potato investing and what happens if the children decide not to pursue higher education.

No Time Like the Present

A 32-year-old with a spouse and a child is worried about having no savings for emergencies, retirement, or the child’s education and asks in this post how to start investing in the stock market. Redditors offer a wealth of suggestions – and reassure the nervous investor that age 32 is still relatively young to be embarking on the path to financial security.

Into the Close

That’s a wrap on another highly eventful week. With so many wheels in motion, the recovery trade and talk of stimulus in the US has put a spring in the step of the economy. It seems fitting that in a week following the Grammys, we’ll be watching some chart-toppers in the stock markets. While the choreography won’t compare, the drama is almost sure to be newsworthy.

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Discount Brokerage Weekly Roundup – March 8, 2021

March is here in full force. Even though the RSP contribution deadline for 2020 is now behind us, there is no shortage of activity taking place this month on the digital front. From Fraud Prevention Month to International Women’s Day to rising oil prices to NFTs to a bombshell interview from Oprah, there is a lot to tune in to. And one more thing: There’s still a global pandemic.

This edition of the Weekly Roundup leans into the convoluted but interconnected web of signals to pull out two fascinating stories on the online brokerage space in Canada. The first story looks at the deals and promotions for March but dives deep to provide context on the current state of deals activity against a new competitive landscape. And, speaking of competition, Canadian online brokerages that might not be concerned about a new entrant showing up any time soon may want to rethink that position as we profile the long and winding journey of one US online brokerage that is poised to make a move north of the wall. Of course, what would a Roundup be without comments and perspectives from DIY investors? Be sure to check out some thought-provoking conversations taking place in the forums and on Twitter.

Online Brokerage Deals & Promotions Update

It’s official. The 2020 RRSP season is officially over, and while the huge rush to ensure that money moves to the appropriate place by the contribution deadline has ended, the data analysis on the campaigns deployed by Canadian online brokerages is now in full swing.

Normally, the start of a new month is accompanied by a deals update that follows a standard format of recapping the latest deals and promotions offered by Canadian online brokerages, as well as discussing what deals are new and which ones have expired.

Contextually, however, 2021 is still very much an anomalous year when it comes to DIY investing and especially online brokerage promotions.

One of the most important insights to emerge over the past year at Canadian online brokerages is that there can actually be too much of a good thing. Normally, promotions and deals are used by online brokers to incentivize DIY investors – new and experienced alike – to consider choosing a particular brokerage.

Last year, however, we saw numerous online brokerages, especially around March and April, pull back or withdraw their offers altogether. It was the first time we had witnessed that happening in at least five to six years. The reason: Demand for online accounts was simply too high, and Canadian online brokerages were overwhelmed and opportunistic. If people were willing to pay (and also to wait), a promo probably wasn’t required to get them to sign up.

The dry spell in deals started to clear toward the tail end of 2020. At that point, we started to see a more normal course of activity, with multiple large Canadian online brokerages offering up cash-back promotions as part of their lead-up to RSP season. And then January 2021 happened.

Recall that it was just over a month ago that yet another surge of online investors poured into the world of DIY investing and trading, this time fueled by trading communities like Wall Street Bets and social media channels feeding a frenzy of momentum trading.

Data we reported on in the previous Weekly Roundup about Interactive Brokers, for example, showed that January 2021 resulted in a 221% month over month increase in new accounts and an almost 700% increase over the same period last year. The latest metrics released by Interactive Brokers from February revealed that almost 76,000 new accounts were opened during the month. While significantly lower (-35%) compared to January in terms of net new accounts opened, when compared to the same point last year, the number of accounts opened in February is over 400% higher.

In the Canadian marketplace, data from financial services research firm Investor Economics also shows that over 2 million online brokerage accounts were opened in 2020, up from just shy of 850,000 in 2019. It is thus not hard to triangulate that, for the beginning of 2021, and in particular RSP season, Canadian online brokerages have had another exceptional year in terms of volume of interest.

This backdrop is important when looking at the current slate of deals and promotions offered by Canadian online brokerages, especially with a view toward whether or not more promotional offers can be expected to show up in the near- to intermediate-term. Having deals from large providers such as TD Direct Investing, Scotia iTRADE, CIBC Investor’s Edge, and Qtrade Investor expire at the same time is enough to cast some doubts on what happens for the next few months.

The short answer is that it does seem like Canadian online brokerages are willing to deploy promotional offers between now and the kickoff to next RRSP season, which generally happens at the beginning of November. For anyone keeping score, that is about six months away. Here’s why we think that’s the case.

First, there’s the inevitable restart of the economy through the summer. While folks have been working from home, it has probably been a lot easier and less noticeable to nosey coworkers to have a trading window open or be trading online or watching stocks on your phone. When offices start reopening and individuals begin going to the office again – as will happen – the mechanics of being able to trade from work are going to become harder. That bodes well for deals and promotions since a more “normal” cadence of activity is likely to require online brokers to work harder to get individuals to pay attention to investing while those individuals go back to juggling life as usual.

Another reason we’re bullish on deals and promotions heading into the stretch between now and the start of November is that there is increased competition for incumbent Canadian online brokerages – especially from Wealthsimple Trade but also from potential new entrants looking to make a splash in the Canadian market (see next story below).

For anyone who’s spent any time on YouTube, Wealthsimple Trade’s barrage of advertising should be a clue that they’re heavily investing in spending big money to get attention. Wealthsimple Trade’s commission structure alone should garner them attention, but it was still fascinating to see them start to launch promotional offers at the tail end of 2020 as well as some even bigger promotions linked to referral offers mid-February 2021.

Larger or more well-known Canadian online brokerages may have a buffer against this advertising and promotional onslaught, but outside of three to four online brokerages in Canada, the rest of the field has to reevaluate a lot about how, when, and where they show up to Canadian DIY investors.

One viable option for online brokerages to compete is through offering deals and promotions on an ongoing basis, with different offers available at different points in the year. Another option is better marketing around offers that are already available – with a case in point being Scotia iTRADE. They have a promotion for commission-free trades that is bundled with a premium banking package offered by their parent brand, Scotiabank. Despite having traction with value-hungry consumers, this offer is relatively under-advertised to the general public.

On the good news front for DIY investors, there are still online brokerages offering deals and incentives for investors looking to get into the markets or who are interested in a new service provider.

Promotional offers from RBC Direct Investing – a major bank-owned online brokerage – are still available through the end of March, and BMO InvestorLine also launched a new cash-back offer to replace their RSP campaign. In the case of BMO InvestorLine, the minimum deposit amount on their new cash-back offer was raised to $25,000 and expires on June 1st, 2021.

Also, as stated earlier, it is bullish that a firm that currently has zero-commission trading is offering promotions on top of their ultra-competitive pricing. And considering Wealthsimple Trade’s aggressive marketing, it is unlikely that their competitors can afford to stay quiet for much longer.

Whether it is because of elevated trading activity, the dynamic nature of the restart of return to work, or the new competitive landscape for online brokerages in Canada, we believe that more Canadian online brokerages than normal will turn to promotional offers as a fast, effective way to stay relevant to DIY investors.

What the data from 2020 and early 2021 have shown is that large pools of DIY investors can quickly rush to market to get on board with a trading opportunity. Online brokerages looking to get ahead of the next big push, as well as to get in front of the big return-to-work shift, will likely be considering deals and promotions as a tactical way to be visible throughout these next few months. The takeaway: Investors who haven’t already joined the market can anticipate some interesting offers without having to wait until the fall to take advantage of them.

A Taste of Something Different: Signals Point to 2021 Arrival of Tastyworks in Canada

It started out, at least for me, in the Las Vegas airport on a journey back to Canada in 2014. I stared up at the TV in the departure lounge and saw a strange cherry logo alongside messages about online trading. It all seemed very Vegas, but the name tastytrade was something I made a mental note to remember.

Little did I know at the time that the combination of curious name and logo would potentially become one of the bigger stories in the Canadian online brokerage space in 2021.

What Is Tastytrade?

Back in 2014 and 2015, it was difficult to answer exactly what this firm was all about. After doing a little bit of research on tastytrade, it became clear that this brand was something different in the online investing space.

Launched in 2011, it was all about providing content on investing, with a heavy focus on options trading, mixed in with some fun and insightful segments. One thing it wasn’t short on was opinion and debate. But, they were American, and being in Canada meant that aside from an alternative to programming on CNBC or BNN, the talking heads on tastytrade probably wouldn’t have a direct influence on life here in Canada. At best, it seemed like a fun channel to tune in to for trading banter.

The next time tastytrade came back on my radar was October 2015. Back then, my hair, like the Weekly Roundup, was shorter, and the big news of the day was that TD Direct Investing had just “officially” joined Twitter. And, for good measure, one of TD Direct Investing’s early tweets: tastytrade would be coming to Canada for the first time on October 26th as a guest of TD Direct Investing.

I was fortunate enough to attend that first session at the CBC studios in downtown Toronto. In the before times, when travel and live events were a thing, investor education was also something Canadian online brokerages invested in far more heavily than they do today. Calendars on online brokerage websites were crammed with investor education events – which, at the time, is what this seemed like it would be.

Little did anyone know at the time how big of a deal it would be that the largest online brokerage in Canada was bringing a new financial brand north of the wall.

The session itself lasted the better part of a day. While spending a good portion of a day at an investor education event geared toward options was something I had done before (a couple of times), it was clear from the get-go this event was different.

First, it was impressive that instead of an education session, it felt more like a rock concert. There was fancy sushi (no boring sandwiches here), and the auditorium was filled with a community of fans who came to see and hear the founder of tastytrade, Tom Sosnoff, do his thing live. The energy in the room was unique. It could have been, in part, because attendees were actually part of the live broadcast of the tastytrade show. They could see that the personalities they tuned in to for options trading and market chatter were the same in person as they were behind the screen: funny, chill, and very smart.

While the actual segments of the shows were interesting, the most interesting thing to observe and experience was what happened during breaks.

Sosnoff was approached and literally encircled by a flock of adoring fans peppering him with questions about trades and options. He was able to engage an audience with a topic that most people – even back then – found opaque and mysterious. Again, this was Canada and it was 2015. No big rush to Robinhood, no GameStonks, no Reddit army. Whatever the following and fan base here, it was likely significantly higher in the US.

For TD Direct Investing, at the time, it was a big score to have tastytrade come to Canada. This event was a huge deal for their active options trading audience and, as it turns out, for their associates who ran the thinkorswim platform. Fun fact: Sosnoff created thinkorswim and sold it to TD Ameritrade in 2009 for US$750 million.

The next few years for tastytrade were spent continuing to grow and engage with their audience across the globe and launching their own online brokerage, tastyworks, in 2017. In the US online brokerage market at or about that same time, Robinhood was starting to make more waves among online investors. Not too long after the launch of tastyworks did we start to see comments left by DIY investors on SparxTrading.com that the best pricing for options trading was being provided by tastyworks. 

In a very short period of time, the tastytrade and tastyworks brands established themselves as a powerful force for active traders and investors who want to get the full experience of trading online, offering a unique community and great trading tools and user experience.

In a Weekly Roundup from February 2019, we spotted tastyworks’ rise in the US online brokerage rankings, where they appeared to be gaining ground on traditional online brokerage names in the space. Again, this was just two years after the tastyworks launch. The following interview from the Moneyshow in Toronto was also telling of the footprint tastytrade had developed in Canada by that time.

It wasn’t until 2020, however, that chatter around tastyworks coming to Canada started to pick up steam. To be clear, prior to 2020 the tastyworks team mentioned publicly that they intended to come to Canada. Unfortunately, regulatory and technology hurdles made coming here much slower.

Despite several suggestions in the past that didn’t quite work out, things seem different this time. The series of signals that the arrival of tastyworks in Canada is imminent seems to be growing. If we rewind back to January 2020, a tweet from the current Co-CEO and President of tastyworks, Kristi Ross, about the online brokerage coming to Canada was the first strong indicator big things were coming:

Then, in June, another interesting update, again from Twitter:

Then, in September, on Twitter:

We were primed to see a new online brokerage set up shop in the Canadian market before the end of the year, but it did not end up happening. As it turns out, though, the tastyworks folks were also busy with some big news of their own.

Tastyworks announced at the beginning of 2021 that they were being acquired for $1 billion by IG Group Holdings.

After about a decade, Tom Sosnoff had done it again, turning an idea about trading options and building a community of users into a multimillion-dollar payout. According to the press release, the management of the tastyworks brand was to continue on, but it did raise some questions about whether or not a move to Canada was still in the cards. That question, however, was put to rest in a video in early February:

Although the video clearly signals tastyworks’ own acknowledgement of yet another delay, this article from The Globe and Mail about tastyworks coming to Canada was published last week, lending more weight to the idea of tastytrade’s Canadian launch actually happening this year. One of the biggest questions will be “What is tastyworks?” and, in all likelihood, this article is but one of many to come that will seek to answer that question as the tastyworks and tastytrade advertising machinery ramps up.

The journey to Canada for tastyworks has been a long and winding road.

Since their first hints in 2018 of coming to Canada, the online brokerage landscapes in both Canada and the US have changed significantly, with the biggest change being the shift in commission pricing. As we’ve seen over the early part of 2021, however, just because a platform offers a great user experience and low pricing does not guarantee customer delight. There has to be something deeper.

For online investors, especially active ones, community is huge, and Sosnoff is well aware of this. Tastytrade is a financial content powerhouse, boasting an audience in Canada of 10,000 daily viewers and a global audience of about 900,000. These aren’t just passive viewers, however. Scan comments and forums relating to options trading and pricing conversations and tastytrade comes up a lot – and with a lot of (generally) positive emotion. It has a loyal fan base and a vibrant community.

For Canadian online brokerages, the move north by tastyworks will be an inflection point for the standard of online investor experience. Tastytrade content is engaging, entertaining, and educational. There are 20 shows that take place on the network. There is fresh content every day, and you can watch the founder and other members of his team trade throughout the day. They don’t just talk about this stuff, they actually do it. Add to that the price for trading stocks and options that tastyworks will bring, and the picture forming is that most Canadian online brokerages are staring at a potential game-changer coming soon.

The irony of the tastytrade and tastyworks journey coming to this point in 2021 is not lost on me.

When, seven years after the fact, an online brokerage can get you to remember the first time you ever saw their name (let alone on a return trip from Vegas), that says something about the power of the brand. The fact that TD Direct Investing set in motion the chain of events that led to tastyworks coming to Canada, and that I have been able to watch it unfold, is amazing.

Also pretty cool is seeing that having a penchant for disruption, a passion for giving online investors great experiences, and keeping your hair long can end up working out after all.

Discount Brokerage Tweets of the Week

From the Forums

Hitting Rock Bottom

In this post, a 40-something investor with a wife and children asks for advice on how to rebuild after a financial catastrophe – that he brought upon his family through a series of bad bets on leveraged ETFs. Hundreds of Redditors offer words of encouragement and advice on everything from investing in simple ETFs to being grateful for family during tough times.

Risky Business?

A new investor with a lot of money to invest for 20+ years asks in this post how risky an ETF is and wants to know if a HISA or GIC would be a better choice. Redditors have strong opinions on the matter.

Into the Close

That’s a wrap on another edition of the Roundup. As alluded to in the opening, there’s a lot happening this month, and the Oprah interview is just the tip of the iceberg. We’re still tuning up the new features on the SparxTrading.com website and are looking forward to upcoming enhancements. While we might not get Oprah as a guest contributor (just yet), we are looking forward to including more interviews with interesting folks in the near future. In the meantime, we want to wish our readers tuning in today (Monday) a happy International Women’s Day and a profitable week ahead!

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Discount Brokerage Weekly Roundup – March 1, 2021

Even though February is the shortest month of the year, it seems with all of the activity that it flew by even faster than normal. Of course, now that March is here, the theme of the month is going to turn toward spring, and that means some big changes.

In this edition of the Roundup, we roll out the long-awaited new website format for SparxTrading.com and, with it, lean into a whole new experience for DIY investors and industry enthusiasts looking for information on the online brokerage space. Also, this edition of the Roundup features a series of quick highlights of important news stories that we didn’t get a chance to feature throughout the month. As always, we close out with DIY investor comments from Twitter and the investor forums.  

SparxTrading 2.0 Goes Live

If you’re a regular reader of SparxTrading.com, you might have noticed something different. Like, very different.

Yes, the SparxTrading.com website is now in live beta, and while there are still lots of changes coming, we thought what better way to celebrate the end of RSP season than with the launch of a new website for DIY investors to be able to navigate the world of online investing with.

A lot has changed about the world of DIY investing since the launch of the original SparxTrading.com website (which happened in 2011). Events in the stock market in early 2021, as well as much of the activity after March of 2020, have put the conversation about trading online back into the spotlight.

While we didn’t know that there would be a massive catalyst for getting individuals interested in DIY investing, one thing hasn’t changed about that world: it’s still more confusing than it needs to be. With more than a dozen firms in Canada offering online brokerage services and solutions, figuring out what’s new, relevant, or helpful at any of these firms takes a lot of research, and oftentimes the information is presented in unique – and sometimes unintuitive – ways. So, to help sift through the maze of different providers, features, and pricing, we built SparxTrading.com.

The new website stays true to the original mission of speeding up the research process, but it has been updated for the world in 2021 and beyond. To start, one of the major considerations of the new website has been to streamline the number of menu options and focus on what many DIY investors rely on SparxTrading to help solve.

The new core sections of the website focus on Canadian online brokerage deals, reviews, comparisons, and news.

Unlike the world that SparxTrading.com first launched in, there isn’t nearly the kind of effort being put into investor education these days, nor is there a lack of reliable resources on getting oriented or started with trading online. As such, these sections have been removed from the site.

There are now several large, reputable, accessible organizations across Canada that provide unbiased and reliable advice on investing for beginners (such as GetSmarterAboutMoney.ca and InvestRight.org) as well as a number of communities online that help shepherd investors through the myriad of issues that come up in the normal course of tackling DIY wealth management.

Another notable change is moving away from relying on tables for most of the comparisons and instead utilizing a more dynamic interface that computes what users are most interested in.

In the deals section, for example, there are calculators and filters that enable users to specify which online brokerages are most relevant to them as well as which account types and deal types they are most interested in.

The online brokerage deals calculator walks users through a series of short questions to help identify the kinds of promotions that are most relevant to what they’re interested in. This saves time analyzing information that may not be of interest for those users who are more informed about what they want to do more research on.

We also revamped the design and navigation through the online brokerage review section. The new online brokerage reviews feature the quick info section that highlights to users some of the most essential details, like the standard trade commission pricing, as well as other features that are popular with DIY investors, like commission-free ETFs.

Also on the online brokerage review page is a revamped breakdown section that covers the account types offered by an online brokerage, their fees and requirements, their trading commissions, and their most recent and historical rankings. This data is helpful to DIY investors doing their research, and because it is standardized from one brokerage to the next, it makes it much easier to comparison shop.

Speaking of comparisons, this feature has been totally revised on the new SparxTrading.com website to enable users on mobile phones as well as on full screens to do complex research. The online brokerage comparison tool allows users to compare up to three online brokerages side by side. The primary filter that is used is the account type, since many online investors go shopping for a new online brokerage because they are looking for specific access points to invest online.

With so much information available to be compared, the results are compartmentalized for quicker research. Users can dive into information on account types, commission rates, options trading, deals and promotions, and mobile app ratings in as much or as little detail as they need to.

Finally, the deep-dive content that we know our readers enjoy has now been bundled under the “news” section of the website. Included in this category are blog articles and regular features like the Weekly Roundup, plus other articles on the Canadian online brokerage space. New to this section is the ability to filter posts according to the online brokerage that is mentioned in the article, as well as the ability to filter posts about deals and promotions and to filter for Weekly Roundups.

There are lots of new features and moving parts, so as we push forward from this beta launch, we’ll be working through the inevitable gaps and hiccups that accompany an ambitious overhaul. Users can also expect to see new artwork and a refreshed look and feel to the SparxTrading.com experience.

It will be interesting to hear feedback from you, the reader, and from users of the site. We’re excited to be actively working to deploy more new features to the website, to truly transform the experience that online investors will have when shopping for and learning about Canadian online brokerages.  

Let us know your feedback here!

Recap of Interesting Stories

There’s so much happening in and around the world of online investing that we don’t always get the chance to dive into every story that crosses our radar.

Questrade Moonwalks Journal Fee

Having covered the online brokerage industry in Canada for many years, we’re always interested to see history repeat itself. In this case, Questrade recently found themselves facing a bit of déjà vu when they announced they would be introducing a journaling fee – something that would impact the individuals typically looking to save money on currency conversions.

The outcry on investor forums, in particular on Reddit, was enough to get Questrade’s attention and prompt them to reverse course on deploying a journaling fee (at this time).

This isn’t the first time Questrade’s decision to launch a new fee has been met with discontent in online investor forums. In 2012, we reported that Questrade was intending to launch inactivity fees after building much of their brand identity around being the low-cost online brokerage (that also did not charge inactivity fees). The ensuing firestorm from online investors caused Questrade to first delay then modify the deployment of inactivity fees. Interestingly, it was just last year that they once again waived inactivity fees.

If there’s one thing 2021 has shown the investing industry, it’s that users on Reddit (and on social media more broadly) can have a significant influence on the decisions of the service providers in the online brokerage space.

It’s tough to imagine a scenario in which customers would be happy (or wouldn’t be unhappy) with a raise in rates or fees, but in addition to the hiking of the fee, there was also significant confusion and ire at charging users for pursuing an online channel instead of using the phone, especially given the current climate of wait times.

Interactive Brokers’ Accelerating Growth

It’s funny how time flies when you’re in the middle of breaking trading volume and account sign-up records. At least that’s what we think is the sentiment over at Interactive Brokers. This story has been simmering since the beginning of February, when Interactive Brokers released their trading figures for the prior month (January).

While it might have been overshadowed by the almost-end-of-the-financial-world, some exceptional performance metrics released by Interactive Brokers indicate how strong the surge in investor interest has been in the new year.

To put a finer point on it, Interactive Brokers saw a 221% increase in net new accounts on a month-over-month basis and an almost 700% increase year over year. In January 2021, Interactive Brokers reported opening 116,000 net new accounts compared to 14,700 in January 2020.

This surge in interest also was reflected in trading activity. Daily average revenue trades (DARTs) were up 43% month over month and 220% year over year. The convergence of a white-hot market for cryptocurrencies as well as volatility in the stock market likely contributed to the sharp increase in individuals opening up Interactive Brokers accounts.

With February’s stats on deck for release, it will be interesting to see how the stampede of interest into markets fared against the trading restrictions imposed by Interactive Brokers and others.

Wealthsimple Trade Launches Referral Contest

If there’s one thing that Wealthsimple Trade is not lacking, it’s creativity. In the final stretch of February, they launched their latest promotion: a contest to win $10,000. This new contest, which has six prizes of $10,000 up for grabs, links entries to the number of referrals individuals generate. As with several other online brokerages, Wealthsimple Trade also makes use of a referral program. In the case of Wealthsimple Trade’s referral program, the referring individual gets $25 and the referee gets $10.    

For most online brokerage referral programs, there isn’t much incentive beyond a modest cash bonus. As a result, the programs largely depend on a combination of an individual knowing about the program, having a positive experience with the brand, and seeking out the referral bonus. In the case of the new Wealthsimple Trade promo, $10,000 for a giveaway makes for a great incentive and headline. There has been a significant uptake in their referral program, with requests to use a promo code becoming more and more popular as evangelists and zealous users push the Wealthsimple Trade promotion, boosting the reach of the online brokerage.

Given the short time frame of the contest (it runs through March 15th) and the fact this is limited to a referral program, it will be interesting to see if the cost of the program ultimately ends up generating the kind of new client that Wealthsimple is looking for. If nothing else, the contest is a unique way to have the Wealthsimple Trade name become more familiar among the stakeholders who they’re targeting the most.

Discount Brokerage Tweets of the Week

From the Forums

A Helping Hand

In this post, a family member asks how to start an investing account for a relative with a disability. Fellow investors respond with helpful suggestions such as looking into Registered Disability Savings Plans (RDSPs), which offer matching grant money from the government.

Into the Close

That’s a wrap on a very busy month. With the RSP deadline just a few hours away (at the time of publishing), there’s also going to be a significant amount of turnover predicted in the deals and promotions section this upcoming week. March is also the beginning of Fraud Prevention Month and is host to both St. Patrick’s Day and the first day of spring. At SparxTrading.com, we will also be very busy polishing up the new website and working on new features. However busy February was, March is already shaping up to have its fair share of big stories. Here’s hoping the week, and the month, ahead keep you green.

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Discount Brokerage Weekly Roundup – February 22, 2021

Even though this past week was technically a short one in both Canada and the US, Friday couldn’t come fast enough for several online brokerages (and one Texas senator).

In this edition of the Roundup, we take a detailed look into what is sure to be yet another chapter in the history-making story of GameStop (and other meme stocks) and the impact on the superstar US online brokerage, Robinhood. Though we normally have two big stories to report on, this is a gargantuan story that is worth giving the whole spotlight to. We’ll check back in on some additional developments around the Canadian online brokerage market in our next edition. To maintain some semblance of tradition, we’ll also include highlights of activity on Twitter and chatter from DIY investor forums.

Errors of Commission and Errors of Omission: Robinhood Grilled Over GameStop

After a very big storm, you can expect a very big cleanup. And, after the very big storm that hit the online investing space in the US, there’s a lot to be cleaned up, especially in Sherwood Forest, aka Menlo Park, aka Robinhood headquarters.

The conversation about what exactly happened with GameStop, shorting, hedge funds, Robinhood, and payment for order flow continued this past week. Curious eyes were treated to a virtual gathering of members of the US House Financial Services Committee as they sought an audience with characters from the recent trading saga, to hear testimony and air some grievances about the events that unfolded for retail investors at the end of January.

Though this was not a formal trial, it did put a lot of actions “on the record” that would otherwise be able to be swept under the financial rug. On that note, it was a win for transparency relating to these events to at least have several of the key players involved answer for their part in “what happened.”

For Canadian DIY investors and online brokerages, it might be easy to dismiss this event as American political theatre rather than a consequential event; however, points that were raised in this inquiry could have serious implications for online investing in Canada.

Suffice it to say, there’s a lot to unpack from the five-hour-plus back-and-forth session. But to (ironically) paraphrase a Robinhood catchphrase, to keep things “digestible” for readers, we’ll narrow this story down to the most important points from the GameStop hearing.

Key Point #1: Who Was There and Who Was Not

By now, there are a couple of emerging celebrities in the GameStop stock story, and many of them were present at this hearing.

Top billing, of course, goes to Keith Gill, aka “Roaring Kitty,” who is a person of interest in this story given his role in being the “face” of the “squeezer” Reddit army who, through the power of online communities, were able to narrate their interest and point of view on why going long on GameStop was an awesome opportunity to make money.

Of greater interest to the world of DIY investing and online brokerages is the CEO of Robinhood, Vlad Tenev, who is now the face and name associated with the zero-commission online brokerage and who sits at the heart of so much controversy.

Also called to testify were Reddit Co-Founder Steve Huffman, Citadel CEO Kenneth Griffin, and “squeezee”/Melvin Capital Management Founder and CIO Gabriel Plotkin.

Of the many fascinating developments around “hauling in” individuals to testify before a congressional committee, it is noteworthy that senior executives from other online brokerages were omitted. These companies benefitted from the trading activities taking place during the GameStop run-up (many of them also make money via payment for order flow) and also implemented restrictions of various degrees for retail investors to be able to buy or trade meme stocks such as GameStop in late January. But, for better or for worse, Robinhood was in the hot seat on this one.

Certainly, important players were brought before the House Committee on Financial Services to elaborate on “what happened,” but placing Robinhood alone under the “online brokerage” microscope put the focus on their business practices and not on those of the industry they are part of, a move that misses a lot of valuable context.

That said, there is no denying that Robinhood has a significant retail investor client base, and many of those investors have smaller balances and are not as sophisticated or as experienced as the investors at some rival online brokerages.

In looking at the “big picture” of this particular hearing (and apparently there will be more hearings to come), one of the central figures in this fiasco was Robinhood. The business practices that are synonymous with Robinhood, which happen to be very important in their ascension, were also very much under scrutiny. Practices or features like payment for order flow, “gamification” techniques, zero-commission trading, and “democratizing” financial markets all came under fire – surprisingly – by the panel of committee members.

As troubling and perplexing as the testimony was, it seems like the biggest danger did not get any airtime. The most frightening portrait of events and systemic vulnerabilities that could impact many more stakeholders than just Robinhood customers came from the Founder of Interactive Brokers, Thomas Peterffy, who was not one of those providing testimony but who did appear in a TV interview to provide some food for thought. We’ll dive into that in just a moment.  

Key Point #2: Ducking Details Makes You Look Either Incapable or Guilty

Just to put it out there, getting grilled by a congressional panel about major mishaps in business practices isn’t going to be high on many people’s bucket lists (except for maybe a certain pharma-bro).

The unenviable position that Robinhood CEO Vlad Tenev found himself in seemed, upon final analysis, to be a crisis of his own making and potentially the result of not doing the requisite preparation. Either way, it wasn’t Tenev’s finest (four) hour(s).  

The first interesting takeaway is that Tenev always seemed to be in “commercial” mode – taking as many opportunities as he could to try to bring the focus of his answers to the mission of Robinhood. It often sounded more like a commercial for Robinhood than like he was directly addressing the questions he was being asked. His opening remarks are perhaps the clearest example of that.

Why that matters, however, is that during the course of the inquiry, there were some very (important) direct questions that didn’t seem to have been properly addressed. Too much time was spent – perhaps on purpose – talking about mission or esoteric elements instead of directly addressing the questions. This left many of the responses from Tenev sounding hollow or superficial. Here are some examples.

In an exchange with Rep. Cindy Axne from Iowa, the topic of user experience and design of the Robinhood platform garnered some informed scrutiny. With a background in digital design, Rep. Axne asked why design elements on Robinhood’s platform were intentionally built to look like or simulate a casino.

This is at the heart of “gamification,” which is a big part of what observers of Robinhood characterize as one of their most appealing features. Arguably, Tenev would be well versed in what has clearly been a huge differentiator for their platform since inception. For a firm to have worked so long and so hard at making the experience of investing seem “fun” – it raises the question of why there wasn’t a better response as to whether or not it is appropriate for an online investing platform to embellish user behaviour with elements to celebrate actions.

Tenev, who acknowledged using behavioural research as part of the standard course of business for designing refinements, stated flatly that Robinhood is against supporting “gamification.” Nevertheless, his statement that “we want to give people what they want in a responsible, accessible way” rings hollow against the features cited by Rep. Axne.

It seemed unclear that the majority of users, who Tenev cited as longer-term investors, would want the kind of features intended to generate the “excitement” that active traders crave.

Another important interaction (and arguably the most damning) took place between Tenev and Rep. Madeleine Dean of Pennsylvania. The basic crux of Dean’s line of inquiry tore a page from the classic “what did they know and when did they know it?” playbook.

Not surprisingly, it was the simplest yet most elegant way to piece together what happened when Tenev was first notified that Robinhood effectively got margin called and the subsequent decision to restrict trading in select securities.  

The full exchange is worth watching on C-SPAN, but as the clip below shows, when asked directly what mistakes were made by Robinhood – something that Tenev stated on several occasions that took place – he was at a loss to specify what those mistakes were.

Rep. Dean asked, “You admitted to making mistakes. Specifically, what mistakes did you make?” The silence leading into the response was deafening.

Further, another series of damaging “non-answers” came in the specifics of recounting what customers were told and when they were told it.

There was a concerning absence of awareness about exactly when and what communications were relayed to Robinhood clients in the days leading up to the restrictions as well as on the day of those trading restrictions being imposed. Tenev cited a blog post and social media posts being made but could not recount specifics on timelines for those or other client communications. Also, the shifting narrative on why stocks were being restricted from trading also made it seem like Tenev did not have a clear answer for users, which further adds to the uncertainty surrounding these events.

Finally, we would be remiss if we didn’t also point out the interaction with Rep. Alexandria Ocasio-Cortez of New York. It came well into the session, and while it seemed like most of the time was spent getting to a lead-up, the journey to the punchline read like a laundry list of Robinhood’s missteps. As for the punchline itself, Rep. Ocasio-Cortez pointed out the obvious conclusion that commission-free trading does not equate to free trading: There is clearly a cost to Robinhood users, which comes in the form of poorer execution.

Ever since that testimony, Robinhood and Tenev have been on a full-court press of PR moves. Since late January, the Robinhood blog has been busier than it has been in many months. The latest post appearing on the blog features a video of Tenev tackling some of the questions and sentiment coming at him/Robinhood. He is, interestingly, also more active on Twitter.

Key Point #3: We Didn’t Hear How Bad Things Really Were

While there are still more hearings ahead, the most troubling statement came from someone not at the hearing but who is also deeply familiar with market function.

Founder, and now retired CEO, of Interactive Brokers Thomas Peterffy appeared on CNBC to provide his take on the GameStop fiasco. And, true to form, he did not mince his words.

Peterffy stated that “we have come dangerously close to the collapse of the entire system” and that the general public, the US Congress, and financial regulators are unaware of just how bad things could have become.

To make his point crystal clear, he walked through the math on the outstanding shares of GME and how it would have been (almost) impossible, and likely catastrophic, for many counterparties to attempt to purchase GME stocks – which they would have been required to do by law – had GME stocks continued to climb in price. For further clarity, had options buyers collectively exercised their call options, they would have had to receive 270 million shares, but there are only 50 million shares outstanding.

In this nightmare scenario, clearinghouses would likely have collapsed or defaulted. Brokerages would then have been the counterparties responsible, and they too could have collapsed. It would have been nearly impossible to untangle the ensuing mess.

If it sounds alarmist, consider for a moment what would have happened if Robinhood did have the capital on hand to meet the 10x margin requirement handed to it by the clearing firm.

What would likely have happened then?

It stands to reason that GameStop would, or at least could, have continued higher. What is not yet clear is the price that GameStop could have risen to before the financial system would have headed into an uncontrolled meltdown.

Would circuit breakers kick in? Could they even prevent the swell of interest that could have come at Robinhood if the online brokerage did have the requisite capital to manage the surge in settlement requirements?

In that light, it seems to be clear that it was a direct result of Robinhood’s failure to be properly capitalized for this scenario that probably helped save the financial markets from significant ruin. A happy accident in not being prepared ended up saving the day.

Peterffy positioned the current scenario and regulatory environment as needing repair to resolve this particular oversight. He called specifically for better tracking and reporting of short selling and changing the margin requirements.

Whether this is a “bug” in the system, which the new reality of social media enables users to exploit when trading, or this is a case of financial elites changing the rules of the game after being caught offside, it’s clear the rules of trading online have changed and are still too opaque to be considered “fair” for all.

Why Is This Relevant to Canadian Online Investing?

While it is still unclear what the repercussions will be in the US, the testimony shared thus far and the series of events experienced at the end of January can provide a few clues as to what Canadian online brokerages and DIY investors will be paying closer attention to going forward.

The first item that we’ve discussed a few times before comes back to user experience, and specifically how investor behaviour intersects with design features.

Robinhood’s mission was to “democratize finance” by making the experience of investing as accessible as possible. As their CEO pointed out to Rep. Ocasio-Cortez, they are also a private business with a fiduciary duty to act in the best interest of their corporation, which means they have to consider how to maximize revenues and, by extension, profits. At what point do those interests conflict?

User experience features that Robinhood is now facing increased scrutiny and legal action over relate to the idea of “gamification” – the kind of user interaction moments that might misrepresent important financial decisions for something like gameplay. Being encouraged to tap an app up to 1,000 times and getting confetti when placing a trade don’t sound like the kind of enhancements that make trading accessible. They do sound like things that make trading fun.

This hearing and testimony will almost undoubtedly be a topic of conversation among senior executives at Canadian online brokerages who know they have to make their platforms more appealing to a shifting demographic but who now will have to seriously reconsider putting in certain features (like confetti) and even talking about investing in a way that might communicate that investing can be too enjoyable.

With financial literacy about online investing being nowhere near where it ought to be for the general public, the conversation about investing responsibly is one that will need to balance being engaging while at the same time not crossing a line that makes it resemble a video game lacking real-world consequences.

Another important consequence for Canadian online investors, in particular, is where and how they communicate about investing in specific securities.

One of the key factors in the GME stock surge was the rapid and widespread dissemination of information – true or not – on social media and forums. These are areas that we at Sparx are continuously monitoring. Some recent statements by Canadian securities regulators suggest that they will be watching the chatter on securities and, most importantly, observing whether or not individuals who are talking up or down a particular security have disclosed whether or not they have a position in said security.

Finally, one other area Canadian online brokerages might want to pay closer attention to based on the activity taking place in the US relates to communications to clients. Rep. Dean from Pennsylvania had a simple but powerful test to subject Robinhood to that is equally relevant to Canadian online brokerages: What did they know and when did they know it?

The crushing phone wait times, the ongoing system interruptions, and even the errors in data reporting that arise are all systemically risky situations that are neither new nor immaterial to investors. Although they do not impact a specific set of stocks, these actions ultimately impede the ability of self-directed investors to fairly and efficiently trade the markets. And, if held to account, Canadian online brokerages will have to be able to answer those two simple questions when it comes to explaining why they have yet to fully resolve these issues.

There is already data showing even greater investor interest in trading markets this year than there was during March and April of 2020, which suggests even further stress on the systems of Canadian online brokerages that are already struggling.

The GameStop story is unique in that it focused on one specific stock, but it is already clear that huge retail investor surges can happen again. Whether it is for blockchain or cannabis or any stock whatsoever, any online brokerage that cannot meet the sudden spike in demand or, worse, cannot fulfill the basic requirement to provide efficient access to trade the stock market should be prepared to face scrutiny in two places: financial regulators and the court of public investor opinion.

Discount Brokerage Tweets of the Week

From the Forums

The FOMO Is Real

In this post and this post, investors ask about the wisdom of buying cryptocurrency. Their fellow Redditors express very strong opinions about whether buying crypto is smart, or just harmless fun, or the equivalent of wasting money at a casino.

(Im)Balancing Act

A Redditor with $40,000 in a TFSA invested it all in a healthcare company. That lucky decision paid off – to the tune of about $343,000. Now they don’t know how to invest this much larger amount. In this post, Redditors weigh in with their advice (and to express their envy).

Into the Close

Don’t be fooled by fewer days on the calendar. There was a lot of news for such a short week and much that we didn’t get to highlight. The events surrounding the GameStop saga are as fascinating as they are frightening. So, as a little bit of levity, here are puppies. Have a great week!

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Discount Brokerage Weekly Roundup – February 16, 2021

It’s fitting that after so much discussion about “shorts” in the news, we also now have a short(er) trading week upon us. With one fewer trading day, it also means the deadline for RRSP contributions is ticking closer, adding to the pressure that is evidently already building at Canadian online brokerages this month.

In this edition of the Weekly Roundup, we take yet another look at the customer service angle at Canadian online brokerages, this time zeroing in on another recent set of rankings that measure digital interactions. From there, we dive into some exciting new features being launched by Canadian brokerages that will help take some of the guesswork out of investing before and during retirement. As always, we’ll serve up a generous helping of investor commentary from Twitter and the investor forums.

Canadian Online Brokerages Struggle at Delivering Service Online

The drumbeat for better customers service among DIY investors in Canada is getting louder by the day.

Increased coverage among high-profile financial writers in Canada, as well as a number of studies by financial research firms, validates what we have been seeing for many months on social media: Most Canadian online brokerages are falling short on providing timely customer service experiences.

While data has been emerging this year that puts the issues faced by online brokerages in the spotlight, it is somewhat confusing for online investors since different studies measure different aspects of the “service” experience.

Both the actual wait times experienced by Canadian DIY investors and the unpredictability of what users can expect when reaching out as either a customer or an interested consumer have potentially far-reaching consequences to the industry as a whole. And, as the data shows, if these issues are not addressed, the recent online brokerage challenges taking place in the US could spill over to providers here in Canada.

The Story in Numbers

At the end of January, a couple of important Canadian online brokerage rankings were published. We covered The Globe and Mail’s online brokerage rankings in detail earlier this month, with a significant amount of time spent diving into the wait times that were measured at Canadian online brokerages in January (2021).

Online BrokerageWait Times (min)
BMO InvestorLine87
CIBC Investor’s Edge101
Desjardins Online Brokerage170
HSBC InvestDirect125
Interactive Brokers66
National Bank Direct Brokerage69
Qtrade Investor28
Questrade128
RBC Direct Investing90
Scotia iTrade179
TD Direct Investing58
Virtual Brokers7

For a quick refresh, the table above contains the average wait time data reported as part of the online brokerage rankings among the 12 firms that were reviewed. Interestingly, in a post by DALBAR on LinkedIn, additional information about the wait times was provided that illustrates the range of wait times at each firm. Readers of the Weekly Roundup post in which these numbers were thoroughly examined can appreciate why average values, on their own, might not convey the full picture. The study data cited by The Globe and Mail rankings reported the average wait times, but the graphic below adds additional context around those average values.

Aside from the 25x difference between the average of the lowest wait times (Virtual Brokers) compared to the highest average wait times (Scotia iTrade), one of the most striking trends to jump out is variation in wait times that occurred as online brokerages took longer to respond. At the far right of the chart shown above, five firms in particular stand out with highly variable wait time ranges:

Of these firms, it was most evident that Questrade had the highest range of wait times, which stretched from about 50 minutes to just under 300 minutes, with an average of 128 minutes. By comparison, HSBC InvestDirect had an average of 125 minutes but a much narrower range of wait times, stretching from just over 60 minutes to about 210 minutes. When ranges this wide are part of the service experience, it is essentially a gamble for DIY investors as to exactly how long they are going to have to wait before connecting with a service agent.

Another striking feature of the data on the chart is where Qtrade Investor landed in terms of wait times. Their “worst” wait time (of about 50 minutes) was approximately the best wait time that any firm behind them could achieve.

These data points are also important because of how they compare against another set of online brokerage rankings that focused specifically on service levels. Financial services research firm Surviscor also released online brokerage service rankings at the end of January and concluded that there were clear and persistent shortcomings in the response times of most Canadian online brokerages.

Unlike the DALBAR study, which took a snapshot of one week’s worth of telephone data in January 2021, Surviscor conducted 163 service inquiries per online brokerage between January and December of 2020 on contact forms, emails, and social media channels.

FirmResponse Time (hours)
Questrade2.90
Qtrade Investor4.02
Canaccord Genuity Direct11.15
National Bank Direct Brokerage29.38
RBC Direct Investing39.17
TD Direct Investing39.27
Interactive Brokers52.28
Laurentian Bank Discount Brokerage62.30
BMO InvestorLine76.10
HSBC InvestDirect77.55
Desjardins Online Brokerage89.75
Virtual Brokers91.68
Scotia iTrade94.20
CIBC Investor’s Edge104.17

The average industry response time in 2020 ended up being 55 hours, which was actually an improvement over 2019, in which response times across the industry averaged out to 62 hours. One of the most compelling points observed in the Surviscor analysis of service response times, however, was that service has been trending in the wrong direction for many years now, and although COVID-19 can certainly be considered a contributing factor, the data shows that even before the pandemic, meeting customer response times online was a challenge.

Change the Channel or Channel the Change

When comparing the data from the Surviscor and DALBAR studies, it’s clear that the kind of service experience a consumer can encounter with a Canadian online brokerage depends on the channel used, which is a big problem on a number of levels.

First, and perhaps most ironic, is that when it comes to online capabilities for service touchpoints at Canadian online brokerages, in spite of the hairpulling wait times, it is still faster (in most cases) to wait on the phone than it is to send electronic correspondence.

In fact, when comparing the magnitude of the difference between the phone and online channels, the range went from 1x (Questrade) to 786x (Virtual Brokers). Excluding the outliers, the average factor difference was 39x between phone and online interactions. One clear standout in both the digital and telephone categories was Qtrade Investor, which had the shortest wait time on the phone and the second-fastest response time online.

To Surviscor’s point, the digital interactions may have been deprioritized compared to phone channels because customers would be more likely to use the phone channels; however, as far as making a first impression count, most Canadian online brokerages would not get a flattering response.

A second important consideration is that for the financial services industry as a whole, trust is an integral part of consumer confidence.

Granted, DIY investors are flocking to the markets in droves because of perceived generational opportunities to build wealth, but when those same investors are hitting roadblocks to getting issues addressed or questions answered, confidence takes a hit. If you add issues of platform stability to that, then individual investors lose faith that financial services firms are up to the task of safely and reliably providing the opportunities for wealth creation that much of the marketing suggests is possible.

With just a few weeks to go until the RSP contribution deadline for 2020, this is prime time for DIY investors looking to online brokerages for RSP options. It is against this backdrop that the wait times experienced by Canadian investors stand out as something that could ultimately become a much more important component to online brokerage selection than has been the case in the past. Deeper than that, however, the notion of lag time is anathema in the age of online investing.

The recent Robinhood debacle that resulted in trading in certain securities being restricted has been blamed on wait times for trade settlement – a stunning vulnerability in the year 2021. For DIY investors in Canada, the clear and present risk to consider is an online brokerage’s capacity to meet a respectable service delivery standard, especially during times of market volatility or heightened interest (which is arguably when those systems are needed the most).

For Robinhood, not only did they suffer a blow in the court of public opinion, but they are also going to have to answer tough questions from lawmakers and face the wrath of an increasing number of lawsuits. Other than the growing chorus of complaints from Canadian consumers and financial media, there isn’t anyone holding online brokerages accountable for their service standards.

Ironically (again), the longer Canadian online brokerages take to address these service gaps, the more likely it is that the industry will find themselves taking centre stage in a mass media story or, worse, the focal point of a Reddit wave. Make no mistake, the clock on this story is most certainly ticking.

New Features From Online Brokerages Chip Away at Guesswork

After talking at length about where Canadian online brokerages are struggling, it’s a nice change of pace to shift the focus to areas in which they’re looking to innovate and deliver additional value to clients as well as to DIY investors more broadly.

Readers of SparxTrading.com know that we regularly engage with Canadian online brokerages on a number of new features and developments (case in point: our Look Back / Look Ahead series). Two interesting features that were brought to our attention from Canadian online brokerages are worth highlighting to readers.

BMO InvestorLine Launches a Checkup for Portfolios

With a tsunami of new investors joining the stock market, one of the biggest challenges many of them face is understanding how to answer a very basic question: “Am I on the right track?”

Fortunately for DIY investors, BMO InvestorLine recently announced a new online tool that helps investors analyze their current portfolios against a set of investor profiles, to see whether or not their portfolios are in line with their desired investment objectives.

The adviceDirect Portfolio Health Check tool is interesting for a number of reasons, but chief among them is that it is freely available to the general public to use, and it is both simple and fast to complete.

Individuals can enter details about their financial picture (no personally identifiable information is captured) and assess it on four key parameters: asset allocation, diversification, security ratings, and risk. In about three steps, users can quickly see where they measure up to their “personality” type and also see what they may want to consider changing in order to bring their portfolio in line with their respective investing personality type.

In terms of who might be interested, this tool appears to be built around investors (rather than traders) who are interested in taking a portfolio approach to building wealth. This means that the tool is likely to have mass appeal, and it serves as a great starting point to the conversation about whether or not the composition of a portfolio is on target.

From a business development standpoint, this is also an interesting and savvy move by BMO InvestorLine to be part of the conversation about wealth management. Analogous to mortgage calculators helping potential homeowners understand some of the mechanics around house purchases and borrowing, the adviceDirect Portfolio Health Check tool is a timely resource for anyone wanting to get a digital “second opinion” on how their investments stack up. This is entirely in line with their adviceDirect offering, which enables investors to consult with a licensed investment professional about recommendations but leaves the actual work up to the investors themselves to implement.

In a crowded landscape of online brokerages that would normally be focusing on commission pricing, this public-facing tool will enable BMO InvestorLine to be visible to the right kinds of investors at the right moment and, because it is free, for the right price.  

Looking in the RRIF-View Mirror

Against the backdrop of service enhancements at Canadian online brokerages, one important feature launched at the end of 2020 will help clients of RBC Direct Investing who are thinking about income when retiring.

Starting in December 2020, RBC Direct Investing enabled clients with Registered Retirement Income Fund accounts (such as RRIFs, LIFs, LRIFs, RLIFs, PRIFs) to be able to view payment details online, without needing to call or wait for a letter. In light of the wait times on the phone channel, this is a timely development.

To help navigate the most important details of a RRIF, the “RRIF View” provides a snapshot of a client’s plan, with information on the required minimum annual withdrawal amount and scheduled payment dates.

While this is a small development, it is an interesting example of a feature that is important to users who have this kind of account – it got a quick highlight as part of the Navigators series that publishes updates at RBC Direct Investing.

At this time of year, there is a lot of discussion about contributing to RRSPs, but there isn’t nearly as much information available on the next steps of funding retirement, in particular the variety of options available to individuals with an RRSP.

Fortunately, RBC Direct Investing also has a fairly good guide explaining RRIFs, which is helpful for individuals needing to navigate this new account type. With this new feature, RBC Direct Investing might also have the opportunity to spark a conversation about online brokerage platforms and the ease with which RRIF account holders can stay on top of key information.

Discount Brokerage Tweets of the Week

From the Forums

Timing the Market

A potential investor asks in this post whether they should wait until after the stock market crash – or at least massive correction – that many experts predict is imminent, in order to buy stocks at rock-bottom prices. Fellow Redditors share their strong opinions about the value of time in the market versus trying to time the market.

Up, Up & Away

From boredom to FOMO to a record bull market, there are many reasons that retail investing is surging in Canada right now. In this post, hundreds of Redditors discuss meme stocks, cryptocurrency, market bubbles, crashes, index funds, interest rates, and a whole lot more.

Into the Close

With the combination of Lunar New Year, Valentine’s Day, and Family Day, there have been many reasons to celebrate this past week, and Friday being that much closer certainly adds one more item to the list. There’s a lot of gripping drama playing out in the US this week, with the GameStonks trade under the microscope. With snow and cold showing up just about everywhere, including Texas, this is going to be a weird one. Hang in there.

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Discount Brokerage Weekly Roundup – February 8, 2021

February is now well underway. In case you might have missed it, a forty-something quarterback managed to nab yet another Super Bowl win, and for the moment, it appears that the forty-something-plus crowd on Wall Street managed to squeeze out a win over the younger investors – at least for now. History is in the making all around.

In this edition of the Roundup, we dive into the deals and promotions activities that Canadian online brokerages are up to. From there we analyze the fallout from the meme stocks push and contemplate what it should make Canadian online brokerages think about as we head out of this historic turn of events. As always, there’s thoughtful commentary from the investor forums and a selection of interesting tweets.

Forecast for Deals & Promotions: Mostly Sunny for February

The month before the official start of spring is a good news/bad news moment. Yes, better weather is around the corner, but no, it’s not here yet.

Fortunately for DIY investors, the forecast heading into the deadline for RSP contributions is filled with some bright patches, most notably that the Canadian online brokerage deals section is brimming with activity. If there is a dark cloud lingering over deals activity this year, it’s that several online brokerages have opted to stay on the sidelines rather than post an offer during RSP season for DIY investors.

In more “normal” times, not having a deal during RSP season would be unlikely. With the sustained interest by DIY investors in opening new accounts – especially given the recent run in “meme stocks” – many online brokerages are struggling to keep up with the level of demand and, thus, pacing themselves when it comes to bringing on new customers. It appears that there can be too much of a good thing after all.

For online investors looking to open an online brokerage account, February is the last month to be able to take advantage of the selection of offers. Most of the promotions in the cash-back or commission-free trade categories end at the beginning of March.

The current offers in the most enticing category for investors show that competition between the big five bank-owned online brokerages is fierce, with all of these discount brokerages putting forward competitive cash-back offers. Joining the bank-owned online brokerages in this category are Qtrade Investor and Questrade.

Curiously, mid-tier and newer online brokerages do not currently have a cash-back or commission-free trading offer, a signal that these providers might either be more strained by the substantial interest in investors coming to market or be pursuing a different strategy to attract new clients.

While deals and promotions are an effective strategy to attract DIY investors, another interesting way in which Canadian online brokers attempt to connect with new clients is via advertising – specifically on the world’s biggest search engine, Google.

As part of our proprietary research, we’ve reviewed recent search engine marketing tactics of Canadian online brokerages and found some fascinating results. One of the important findings is that there are fierce battles taking place between a small number of online brokerages on Google.

For example, it appears that Wealthsimple Trade is spending advertising directly on names such as Interactive Brokers, Qtrade Investor, Questrade, and TD Direct Investing. Alternatively, Interactive Brokers is advertising directly on Questrade, Wealthsimple Trade, and Virtual Brokers. It is especially interesting considering Wealthsimple Trade and Interactive Brokers couldn’t be more different in terms of user experience and intent.

Interactive Brokers is built, intentionally, for active traders. In contrast, when Wealthsimple Trade launched, it was built deliberately to support some trading, but active trading – and day trading in particular – was explicitly viewed as undesirable and something they stated they could intervene on if the trading activity would be deemed “inappropriate.”  

It is therefore interesting to line up the sentiment expressed in the messaging of Wealthsimple Trade’s help page on day trading with their advertising targeting investors interested in Interactive Brokers and Questrade.

With just three weeks to go until the RRSP deadline, Canadian online brokerages are likely to ramp up their efforts to win over investors, and the most likely place this will happen is with heightened “promotion” via online advertising – and yes, even during the Super Bowl.

In the February edition of the deals and promotions section, the big five Canadian bank-owned online brokerages are well represented, along with Questrade and Qtrade Investor. Of the online brokerages not on the current list of promotions, however, it appears that two popular names, Interactive Brokers and Wealthsimple Trade, are instead fiercely battling it out with one another on Google search advertising and likely other channels, such as Facebooks, as well.

That two very different brands are battling it out directly with each other is telling of the competitive dynamics in the current online brokerage market in Canada. It does raise the question, however, of when that competition will materialize into something more value-added to a client than a convenient link on Google.

GameStop(ped) Out

Oh, what a difference a fortnight makes in the stock market of 2021.

Just over two weeks ago, Elon Musk wasn’t just talking about launching rockets into space, he was also weighing in on the meteoric rise of “GameStonks.” Same with Mark Cuban, AOC, and so many more people who normally give commenting on the stock market a pass. What has been happening in the stock markets over these past few weeks, however, has been almost impossible to ignore.

The sheer weight of the interest in the “meme stock” phenom was fuelled by a combination of FOMO and a strange quirk of market physics. Since the surge in the stock price of GameStop (ticker symbol GME) and subsequent restrictions on trading it by online brokerages, there have been countless commentaries on exactly what happened and what underpinned the stunning move up and back down in the price.

To be totally transparent, this section is going to add one more commentary to the pile; however, we’re going to sidestep most of what has already been said about short squeezes, Reddit threads, and a cabal of powerful financiers and instead focus on some very important elements that look at the consequences and lessons learned for online brokerages as a result of this recent anomaly.

One of the first things worth stating, especially from our perch here in Canada, is that so much of this story is driven by what happened in the US stock markets. For Canadian DIY investors and Canadian online brokerages, however, the opportunity to make fast money was still just as tempting. What ultimately ended up getting in the way for Canadian investors were the numerous friction points, such as commissions for trades, lack of fractional trading, or time required to fund a new account, to name just a few. Which, all told, probably saved some heartache for some investors.

Nevertheless, in the cast of stock market characters surrounding the great short squeeze of 2021, perhaps the most interesting question that stands out is why, of all the online brokerages in the US that restricted trading in GameStop (and other stocks), did Robinhood find itself cast as the villain?

Data gathered from a variety of sources indicate that other online brokerages in the US restricted buying in GME shares, including Interactive Brokers, Webull, and E-Trade. TD Ameritrade (and Schwab) raised margin requirements. Even so, media mentions and social media conversations (and memes) have overwhelmingly been dominated by Robinhood and the fact that they instituted a temporary restriction on purchasing certain stocks.

One possible reason why Robinhood has been singled out is that it became somewhat of a rising star across 2020, attracting more accounts in the early portion of the year than most of its competitors combined. And, although most of its US online brokerage competitors offer zero-commission trading now as well, Robinhood is often associated with making trading more accessible – or, in their words, “democratizing” finance. For years, Robinhood has positioned itself as “anti-Wall Street” and cultivated the narrative of Robinhood as the champion of the small investor in a way that incumbent online brokerages did not. Scandal definitely makes for good TV, and in a world where entertainment options are limited, seeing a rising star have a fall from grace sounds like the plot of another enticing movie about stock markets.

When the carefully curated identity of Robinhood is juxtaposed against the expectations of retail investors that Robinhood is an online brokerage “for the people,” it is understandable that when those same people were not allowed to trade what they wanted to trade when they wanted to trade it, they believed that something was afoul. After all, retail investors believe – and are led by a number of sources to believe – that markets are free from interference by outside forces or entities.

And, while the broader market of investors was willing to give Robinhood a pass on payment for order flow in order to get commission-free trades, the optics of relationships between Robinhood and the very institutions that meme stock proponents sought to profit from (e.g. Melvin Capital and Citadel) cast Robinhood as pro-establishment, essentially violating their brand promise.

Perhaps the greatest insight into this situation can be illustrated in the descriptions of “what happened” by the current head of Robinhood, Vlad Tenev, and the founder and former CEO of Interactive Brokers, Thomas Peterffy.

In the immediate aftermath of the decision to restrict trading in GME, it didn’t help matters that the CEO of Robinhood could not articulate clearly why certain shares were frozen. That lack of clear explanation in the heat of a volatile market meant that retail investors were forced to jump to their own conclusions.

By contrast, it is worth noting a Bloomberg interview with Peterffy in which he clearly alludes to something that goes beyond a freeze on the trading of volatile stocks. Specifically, Peterffy positions as “illegal” the fact that individuals were piling into a name (like GME) to perpetuate and accelerate a short squeeze.

Putting the continuity of the business first and catering to clearing and settlement requirements are prudent activities, and it seems reasonable for people to assert that Robinhood and Interactive Brokers, as companies, would need to stay in business.

That said, younger investors or investors who sought to drive systemic change via “sticking it to the shorts” found themselves on the wrong end of a lock on buying, and the short squeeze that was taking shape ended up fizzling out.

Robinhood has made no secret of their intentional pursuit of younger investors. What seems to be clear, however, is that these “younger investors” have a very different view of wealth creation and investing (trading) than “boomers” do.

And herein lies the issue for all online brokerages. Currently, there are different audience segments that have very different views on financial services and the roles that online brokerages ought to play when it comes to facilitating participation in the stock market.

Aside from mobile app or website design, another important attribute of younger investors is where they go to learn about investing (Reddit or forums). Also, they seek out highly volatile (high risk, high reward) stocks, for a mix of excitement and wealth creation. When combined with the gamification of user experience and a reduction in commissions, the result is a powder keg that, given the right environment, will explode.

Younger investors also bring with them the beliefs and capacity to call out “injustice” or perceived hypocrisy on very public channels. While older investors did use forums to learn from and engage with one another, and occasionally to voice their discontent, it was rare to find social justice narratives or “greater good” themes driving investor choices. The recent events have shown that social media channels, including Twitter and Reddit, move exponentially faster than anything before and include sections like “tl;dr” to cut through the “boring analysis.”

Unlike their US counterparts, Canadian online brokerages did not suffer as significant a backlash from DIY investors, in part because they did not explicitly prevent buying or trading in the meme stock frenzy. That said, Canadian online brokers were not unscathed either.

Platform outages or delays in executing trades from a number of brokerages – along with popular online broker Wealthsimple Trade taking the unusual step of specifically labelling certain stocks very risky, such as GameStop and BlackBerry – did set off a smaller firestorm here in Canada. In particular, investors were upset that an online brokerage would take the position to designate any stock as “too risky” to trade, especially if it met listings requirements on a supported stock exchange.

It is still too soon to say how things will ultimately pan out for online brokerages as a whole. There are, however, some immediate lessons for the online brokerage industry to take heed of.

Regardless of being either an established name in finance or the latest fintech, financial services at their core are predicated on trust and confidence. Among the “older” generation of retail investors, that trust was established in the form of size and stature. Bigger equalled better. Among the “newer” cohort of investors, it could be argued that faster is better.

What is common to all investors, however, is that reliability matters when choosing an online brokerage, if for no other reason than to know what to expect. Nobody likes uncertainty, especially Canadian DIY investors. The events over the past few weeks have made it clear that newer online brokerages will have a much harder time making up for the fact that they don’t have anything to offer other than the promise of a brighter future. At least the established online brokerage brands have either the reputation of their parent brand or their history in the space to point to as a signal that they are stable.

Another really important takeaway from the events of the past few weeks is that the conversation that takes place online, in particular in forums and on Twitter, cannot be and should not be dismissed. Whether it is regulators or other entities who do this monitoring, the fact that retail investors could take a coordinated action on trading specific stocks is remarkable.

The consequences to the industry were made clear: Ignore the crowd at your peril.

We live in a world where individuals such as Elon Musk can become incredibly influential, and based on their whims and caprices on Twitter or Reddit, there can be massive investor behaviour shifts. The events of the past few weeks highlight that, going forward, the online investing industry will have a massive PR problem.

Even here in Canada, where much of the negative press around the events of the past two weeks focuses on platforms and connectivity, online brokerages are going to have to do better because of the circumstances in the US. More advertising is not going to do it, nor will telephone meetings. The bottom line is that investors now look to Robinhood with a suspicion it has never had to meaningfully contend with before. That’s something for Canadian online brokerages to think about as they race to design new interfaces and experiences to connect with investors.

Discount Brokerage Tweets of the Week

From the Forums

What Goes Up?

In this post, an investor wonders if the recent mania in the stock market perhaps signals the end of an epic bull market, which leads to a lengthy discussion that touches on corrections, crashes, business cycles, and much more.

Preaching to the Converted

The devil is usually in the details, and for DIY investors looking to avoid getting dinged with trading commissions, this post about “the catch” when it comes to using commission-free online brokerage Wealthsimple Trade offers up an important lesson.

Into the Close

With yet another Super Bowl win to add to his record, there’s no denying that Tom Brady has been defying physics in the NFL. Credit where credit is due, though (and no, not a margin call pun), there’s definitely something to be said for putting in the effort and seeing the results. As the shine comes off the short squeeze trade, it will be interesting to see how traders fare without wanting to put in the work. Valentine’s Day is just around the corner, and so too is Lunar New Year, so the good news is that this month is filled with even more reasons to celebrate.

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Discount Brokerage Weekly Roundup – February 01, 2021

So. Much. To. Unpack. Unlike most pundits this week, we’re not going to talk about GameStonks, at least not in the kind of depth we normally would. No, for the moment we’ll save the commentary for the forum chatter and DIY investor feedback from Twitter.

There’s plenty on the menu for this edition of the Roundup. In fact, there’s so much to say about the latest online brokerage rankings from Rob Carrick at The Globe and Mail that we’ve decided to focus this edition on the wealth of data and insights the latest edition has delivered. To keep things on point with the conversations happening online, we’ve also included highlights from the forums and on Twitter. Get comfy – this is going to be a long (but fun) ride.

The Unsettled Elephant in the Room

We can safely say this up front: This current market is unlike anything we’ve ever seen before.

Specifically, the mobilization of massive waves of investors pouring into stocks that are heavily shorted and being able to generate shockwaves through the capital markets. Never before, or at least not in recent memory, have so many people learned so much about shorting, squeezing, margin, clearing, and settlement as they have in this past week.

Moreover, the lesson in what matters most to online investors – content and community – came courtesy of Reddit, a website that eschews modern aesthetics.

An almost incalculable number of lessons are to be learned from the time we’re living through (especially as DIY investors), so we won’t be covering these in this edition of the Roundup because there’s simply not enough time and space this week for all of it. In fact, in compiling the reactions online to the Canadian discount brokerages via Twitter, the software we use crumbled under the sheer volume of the conversation, taking with it hours of work sifting through visceral and convulsive reactions by online investors (traders) to the trading of GameStop, AMC, Blackberry, and others.

For now, it’s sufficient to leave this video as a tongue-in-cheek summation of events.

Rest assured, as the dust settles (probably faster than trades from Robinhood – had to do it), the spotlight will move to the seismic shift in trading behaviour we’re witnessing right now.  

2021 Canadian Online Brokerage Rankings: Spotlight on Service

Now in its 22nd edition, The Globe and Mail online brokerage rankings, authored by Rob Carrick, are one of the most popular rankings available for Canadians who are shopping around for a new online brokerage or are simply interested in making sense of trends in the DIY investing space.

This past week, the latest edition of the rankings was published, and this one is by far one of the most interesting editions yet.

Fair warning, this post is going to be a long one, in part given the historic nature of current market conditions but also because of additional data added to this year’s review that doesn’t ordinarily appear in it.

What Goes Into the Online Brokerage Rankings?

Over the past two decades, there have been numerous changes to the review, ranging from what time of year it gets published, to the criteria used to evaluate brokerages, to the accessibility of the reviews themselves. These small changes make comparing absolute performance from year to year a challenge, so as a result, one of the best ways to understand the meaning of these reviews is on a relative basis. Contextually, there are important changes or factors that arise over time that make up part of how online brokerages get evaluated.

An important factor to note in the assembly of the rankings is that this review is based on data from the prior year. Or at least that’s how things used to operate. While the bulk of the 2021 online brokerage rankings are based on data from 2020, there is a significant addition to this year’s results: telephone customer service wait times that were collected in mid- to late-January of 2021. The data, which was supplied by financial research firm DALBAR Canada, tested the telephone wait times at all Canadian online brokerages.

It bears mentioning that the likely reason behind including telephone customer service experience stems from the many (many) complaints from online investors over the past year and especially in the latter portion of 2020 (and early 2021) concerning reaching an online brokerage by phone. If there is one thing that Rob Carrick’s reviews and commentary on the online brokerage space in Canada have evolved into, it’s a barometer for some of the most salient issues (and frustrations) faced by DIY investors.  

With some important context out of the way, let’s dive into the results themselves to see what the scores looked like across the board this year, who was included (and who was not), as well as some of the important drivers of success in this year’s rankings.

Results from the 2021 Canadian Online Brokerage Rankings

To help put this year’s results into context, the table below compares the most recent set of scores to those of the past two years (2020 and 2019).

Online Brokerage202120202019
BMO InvestorLineBB-B
CIBC Investor’s EdgeC+CC
Desjardins Online BrokerageCCC-
HSBC InvestDirectD+D+C-
Interactive BrokersB+B+B+
National Bank Direct BrokerageBBB-
Qtrade InvestorAA+A
QuestradeB+B+A-
RBC Direct InvestingBB+B
Scotia iTradeBA-A-
TD Direct InvestingA-AA
Virtual BrokersBB+A

One of the first things that jumps out is in relation to first place in these rankings and which online brokerage scored the best: Qtrade Investor.

For the past three years, Qtrade Investor has achieved the highest score in this ranking and, in 2019, had to share that accolade with Virtual Brokers and TD Direct Investing. Since 2019, however, Qtrade Investor has handily outscored its rivals – including last year, when it scored an A+ rating. This year, Qtrade did earn the highest mark, an A, but it was a lower score than last year. No stranger to the podium, Qtrade Investor has been voted best online brokerage by The Globe and Mail 12 times in the 22-year history of the rankings.

Coming in second this year was TD Direct Investing, which is one of Canada’s largest and most popular online brokerages. As with Qtrade Investor, TD Direct Investing saw their score in 2021 drop from 2020, in this case falling to an A- from an A.

Third place, interestingly, was a tie between Interactive Brokers and Questrade, both of whom received grades of B+. One of the reasons this is an interesting result is because Interactive Brokers was, for many years, not included in The Globe and Mail rankings since they primarily catered to more active investors and traders (as opposed to the “everyday investor”) and they lacked an RRSP offering, which they now currently do offer. Since 2019, Interactive Brokers’ score has remained fairly level at B+, but Questrade has seen their score slip slightly, from an A- in 2019 to B+ in both 2020 and 2021. This year, however, that B+ was good enough to tie for third place.

While the middle-of-the-pack experience has largely remained intact, HSBC InvestDirect has consistently remained at the bottom of the rankings for the past three years. Despite their low commission rates, international access, and award-winning client service, several factors that matter more to these ratings, such as mobile accessibility, impacted the scores.

Also of note this year, only two of the 12 Canadian online brokerages covered this year improved in their scores relative to last year. BMO InvestorLine raised their score from a B- to a B, and CIBC Investor’s Edge improved from a C to a C+. In contrast, five online brokerages dropped in scoring compared to last year, the most notable among them being Scotia iTrade, which went from an A- to a B. Another interesting negative trend showed up for Virtual Brokers. In 2019 they tied for the highest score, an A that year, with Qtrade Investor and TD Direct Investing. In 2020, however, they slipped to a B+, and in 2021 they scored a B.

Not on the list of Canadian online brokerages reviewed for this ranking was Wealthsimple Trade – a notable absence given both the visibility and the popularity with younger investors. This is not the first review that the newest kid on the online brokerage block has had to sit out. However, in the context of Wealthsimple Trade’s features, pricing, and volume of interest, not to mention sheer growth in numbers, DIY investors are likely curious about how the brokerage would fare in the rankings framework.

As far as grades go, a comparison to 2019 shows that performance across the board has, on a relative basis, worsened. The strongest drivers for scoring on The Globe and Mail brokerage rankings have always leaned toward the experiences of “everyday investors” rather than more-active traders. This year, the ranking criteria are based on:

  • Convenience and security
  • Cost
  • The investing experience
  • Tools

Importantly, a big part of the convenience and security component of this year’s results included phone access, something that has been a major pain point throughout 2020 but especially into the end of the year.

Call Options

To address this timely topic, in addition to relying on data generated from 2020, this year the online brokerage rankings included telephone wait time data supplied by financial services research firm DALBAR Canada – and those results were also fascinating.

One of the first, and most glaring, results from that snapshot is that wait times in January at online brokerages averaged out at 92 minutes, with a standard deviation of almost 52 minutes. The importance of reporting the standard deviation here is clear because, while an average wait time of 92 minutes is bad enough, it doesn’t accurately convey how bad things are right now for DIY investors trying to contact customer service.

For a more accurate view, there’s going to be a little bit more math required.  

What the overall average of wait times doesn’t convey is that the data has a couple of very clear outliers at both the short and the long ends of wait times. To help put this into perspective, the shortest wait time average was 7 minutes (Virtual Brokers), and the longest was 179 minutes (Scotia iTrade). That works out to almost 26x more time spent waiting to speak to someone at Scotia iTrade than at Virtual Brokers.

Online BrokerageWait Times (min)
BMO InvestorLine87
CIBC Investor’s Edge101
Desjardins Online Brokerage170
HSBC InvestDirect125
Interactive Brokers66
National Bank Direct Brokerage69
Qtrade Investor28
Questrade128
RBC Direct Investing90
Scotia iTrade179
TD Direct Investing58
Virtual Brokers7

These two extreme data points suggest they were outliers, and outliers tend to add noise or skew the more realistic picture. The next outlier in the data was Qtrade Investor, with an average wait time of 28 minutes – which is still long by most reasonable standards but is significantly lower than the next highest online broker, TD Direct Investing, where telephone wait times were 58 minutes on average.

Excluding the wait times of Virtual Brokers and Qtrade Investor as outliers, the average wait times at 83% of the Canadian online brokerages worked out to be 107 minutes, more than double what it would be if Virtual Brokers and Qtrade Investor were included in the analysis. Even more telling, the standard deviation drops to 42 minutes. At the upper end of the wait time range, if we exclude Scotia iTrade, with a wait time of 179 minutes, and Desjardins Online Brokerage, with a wait time of 170 minutes, a much more accurate view of wait times emerges.

The average wait time drops from 107 minutes to 91 minutes (about a 15% decrease), and the standard deviation drops from 42 minutes to 26 minutes (a 38% decrease). This represents 66% of the data, or eight out of 12 online brokerages.

Wait TimesAverage (mins)Standard Deviation
 (mins)		% of Brokers Represented
All Brokerages9252100
Shortest Outliers Excluded1074283
All Outliers Excluded912666
3 of Big 5 Banks (outliers excluded)93725

In light of the above data (that excludes outliers at the upper and lower extremes), and assuming a normal distribution, 68% of the time, calling an online brokerage in Canada in January would have resulted in a wait time of between 65 and 117 minutes. And 95% of the time, or 19 times out of 20, the wait time for a DIY investor would have been between 39 and 143 minutes. And 99.7% of the time, a Canadian DIY investor would have waited between 13 and 169 minutes. In other words, getting served quickly would be more because of good fortune than because of the system working as it should.

Let that sink in for a moment. These are private, profit-driven, million- or billion-dollar brands (in some cases) that are posting these kinds of numbers. For illustration, three out of the big five Canadian bank-owned online brokerages posted a remarkably consistent range of wait times: 93 minutes with a standard deviation of 7 minutes. On a peer-to-peer basis, this highlights how far ahead TD Direct Investing’s scores (with wait times of 58 minutes) would be relative to the others and how far behind Scotia iTrade sits. In either of these two cases, these would be considered so far outside of a statistical norm that it is not by accident that they’re achieving these numbers.

Imagine the frustration, dropped calls, and erosion in trust that occurs when an on-demand world meets a two- or three-hour wait time. And this doesn’t even factor in waiting by online chat.

It naturally raises the question: What are Virtual Brokers and Qtrade Investor doing so well, which causes them to be able to answer the phone so fast (relatively speaking), and what are Scotia iTrade and Desjardins Online Brokerage doing so poorly? One possible conclusion points to a capability of being ready to scale up, as pointed out in the Influencer Edition of the Look Back / Look Ahead series.

Now, to be clear, these numbers do not indicate whether or not issues were resolved, just how long it took for someone to answer the phone. Also, these are snapshots in time, and there is no comparable data taken from similar time periods to benchmark against. The fact that these tests added to the caller queue means they affected wait times, even if the impact was slight, so the numbers do need to be treated with some caution.

Even so, it is cause for concern for DIY investors to see that wait times can be meaningfully measured in hours instead of minutes. Coming into the peak season for RRSP contributions, it means that volume will only increase, as will frustration levels. If there are any outages, huge rallies or crashes in the market, or other market-moving events, then RRSP contributions via telephone are going to be nearly impossible at most Canadian online brokerages. 

Of course, telephone service isn’t a major selling point for a lot of online investors. In fact, many will never have to deal with a client service rep on the phone, but there are some things that can happen only by talking to a representative. For a portion of the DIY investor population, that translates into being forced to wait.

That said, there are indications that this is clearly an issue of concern to certain online brokerages and that relief may be on the way.

Relief for Long Wait Times

First, in an interesting interview by Preet Banerjee with BMO InvestorLine’s president, Silvio Stroescu, there were some fascinating insights on the impact of the past year on this online brokerage. According to Stroescu, the huge influx of demand for online investing accounts, as well as from investors looking to “upgrade” their accounts, took customer service wait times from an average of five minutes in early 2020 to about 40 minutes in 2021.

The numbers reported by Stroescu for 2021 are still much higher than he was happy with, and in the interview he did explain a number of steps that BMO InvestorLine is undertaking to close the service gap. In fact, as early as this past summer, Stroescu mentioned that BMO InvestorLine undertook significant hiring and ramp-up to provide additional service support. Nevertheless, the observed results of DALBAR’s numbers and reported numbers of Stroescu all point to a significant wait time for online investors calling in.

Another interesting piece of news came from Questrade, in advance of the RSP season rush, in the form of a client email. In that email, they acknowledged that “longer wait times are the norm with all brokerages at this time,” that over the past year they have doubled the number of client service specialists, and that in the “coming weeks” they are slated to add over 100 customer service agents.

Putting the Pieces Together

Clearly, there’s much to digest from the data in this year’s edition of the Canadian online brokerage rankings by The Globe and Mail’s Rob Carrick.

So much of the story that started in March of 2020 was about the volume of activity as well as the influx of individuals who wanted to trade on the market. The impact on Canadian online brokerages, in terms of service as well as stability, has been clear. The statistics point to a systemic lack of capacity to be able to address the surge in interest in online investing coupled with technology and operational shortfalls.

What, as a DIY investor, is especially worrisome about the online brokerage experience is that it has taken so long to remedy the capacity issues. Markets rely on confidence, and confidence comes from certainty. The relative stability of scores in the Canadian online brokerage space points to a “business as usual” pace that was moving far too slowly, or did not plan adequately, for the kind of strain that ultimately emerged over the past year. That said, at certain online brokerages, the persistent wait times point to a much deeper issue and lack of prioritization of client service. Conversely, some other brokerages have clearly shown the capacity to keep up somewhat reasonable wait times.

The qualitative commentary this year was in line with previous years; however, one of the great features for investors trying to get a quick answer on comparing features is toggling comparisons for key items like commission-free ETFs, high-interest savings ETFs, and performance reporting.

As much as we have said about this year’s rankings, there’s also a lot that we haven’t yet covered, including the reactions of investors to this data. This year’s rankings generated almost immediate reactions by readers, with the dominant theme being wait times at various brokerages.

With the latest rankings data in hand, it won’t just be hedge funds feeling the squeeze this year. The online brokerages in Canada now have added pressure to solve the customer service wait time issue and win back the trust of investors. Failing to do so quickly would almost certainly, at this point, raise the prospect of additional regulation and compliance to mandate accessibility and accountability.

Discount Brokerage Tweets of the Week

From the Forums

Up & Up & Up

After so many years of the markets doing well and interest rates dropping, one investor wonders in this post if a market downturn is now unlikely, if not impossible. Other Redditors share their strong opinions on whether the stock market can stay up forever.

Into the Close

That’s a wrap on just one of the several big events that transpired this past week. Looking forward, there’s a new month, which means a deals update is on its way, and there will likely be no letup from the buying army of retail investors who’ve firmly locked into all sorts of shorted stocks, including silver. Buckle up for volatile times ahead.   

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Discount Brokerage Weekly Roundup – January 25, 2021

Looking at the calendar, it’s hard to fathom that we’re almost through one month of 2021. Time, it appears, is moving quickly as events unfold, and it seems fitting that, like a good Bernie meme or Tom Brady, what’s old can be made new again.

In this edition of the Weekly Roundup, we focus on the relaunch of the Sparx Trading newsletter and on why there are some important (and timely) elements that we’re putting together for folks interested in online investing. Next, in keeping with the close-out of the month, we’ve collected the stories that we wanted to focus on in January but haven’t had the opportunity to do so yet. Enjoy the medley of stories we found interesting throughout the month. Finally, we wrap up with commentary from DIY investors in the forums and on Twitter.

Don’t Call It a Comeback (But It’s Cool If You Do)

After being dormant for the past seven years, the SparxTrading.com newsletter has officially been rebooted. And, it feels great to be back (on email).

In that time, a lot has changed about the landscape of the Canadian online brokerage industry, and yet, remarkably, there are still some things that have yet to change. Throughout that time, however, there have been a few constants at SparxTrading.com, chief among them the Weekly Roundups and the deals and promotions updates.

We live in a world where people now communicate much more with short videos than with email, so why would we think to a) (re)launch an email newsletter, and b) do so now? Let’s dive into both of those questions below.

One of the biggest constraints for any content creator is resources, and dialing back the clock to 2014, SparxTrading.com and the parent company, Sparx Publishing Group, were much smaller. Today, Sparx Publishing Group has grown to over 15 team members, which enables our team to do some pretty creative and amazing work, including to help take Sparx Trading content to a new level of awesome. Happily, it’s not only the team that’s grown here at Sparx but also the audience of the website and, in particular, the Weekly Roundup.

SparxTrading.com is one of the longest and most continuous sources of coverage on the Canadian online brokerage space, and it turns out that DIY investors appreciate the content being produced. Interestingly, the Weekly Roundup has actually become required reading across the online brokerage space, with many folks at online brokerages tuning in to stay on top of what’s happening in their industry. Also pretty cool: Some rather prestigious research firms that charge a pretty penny for their insights and research on the Canadian online brokerage space use our content to stay on top of the activities and trends.

All told, it’s been an amazing journey to get to this point. There is value being created for audience members, and meaningful change for DIY investors, which arises as a result of the forum we’ve created. Of course, things could always be better. And, with the relaunch of the monthly email newsletter, we think it will be, as this format will help to address the challenge of staying on top of the huge volume of news with highlights of the latest developments, delivered to subscribers’ inboxes.  Here’s a full rundown of what’s inside.

First, something fun. We love the imagery of the bull and bear, and so we thought we’d capture these two important stock market characters in fun and interesting ways. The kickoff to the newsletter is in line with that sentiment, bringing a familiar trope back to life from the famous scene in the movie Say Anything.

Of course, superfans of the Sparx Trading universe can check out the Sparx Publishing Group Instagram feed for more fun, movie-inspired posts featuring the bull and bear. Some favourites include:

  • Dirty Dancing
  • The Sound of Music
  • What to Expect When You’re Expecting
  • Weekend at Bernie’s
  • Ghostbusters

In addition to a fun start to the newsletter each month, readers can expect to get down to business with updates on the biggest stories from the Weekly Roundups from the previous month. To help keep things quick and easy to digest, we’ll be picking the top two or three stories to feature, with links back to those stories for folks who want to dive into more detail.

There’s also a news section that will include quick updates from Sparx Trading as well as other timely announcements that would be appropriate to flag for our readers’ attention. The reboot version of the newsletter featured an announcement about the upcoming influencer edition of the Look Back / Look Ahead series for this year.

Finally, another reboot inside of a reboot is the relaunch of Mark to Market, a stock market–themed comic developed here at Sparx. Originally published in 2013, Mark to Market is being relaunched to coincide with the launch of the new newsletter, and the origin story and episodes will appear on SparxTrading.com, specifically as part of the blog, which will also be getting a major overhaul in the coming weeks. For some quick context, however, Mark to Market is an edutainment piece, made for DIY investors and stock market enthusiasts, to help assist in navigating the maze of products, services, and providers that self-directed investors encounter. It is especially timely given the surge of interest in online investing that took place in 2020, particularly among new investors.

The relaunch of the Sparx Trading newsletter is one in a number of new initiatives this year. That said, it also highlights the fact that in the world of DIY investing, there are trends and cycles to the investor experience. Email, while not groundbreaking, is still an effective channel to reach a good portion of the audience that relies on or is curious about online brokerages in Canada. Think of it as the Tom Brady of communications channels: still pretty much a reliable delivery mechanism.

If you haven’t already done so, subscribe to the newsletter, and be sure to check out what’s coming up in the next episode!

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Lightning Roundup: Other Interesting Developments

After the time distortion that was 2020, it’s amazing to see that January of 2021 is almost over. Much has happened during the month, so this is our chance to shine a spotlight on stories and items that we didn’t get the opportunity to explore more fully during the month. While we’re not going to dive deep, here is a quick highlight of the stories that crossed our radar in January that will be worth watching as the year proceeds.

Gaining Wait: Customer Service Wait Times Raising Tempers

Nobody likes to wait in line, but Canadians are generally a polite bunch and willing to put up with a bit of a queue to resolve important matters. So, when tempers flare and stories emerge of wait times consistently stretching beyond two or three or four hours on the phone just to talk to a representative at an online brokerage, it’s only a matter of time before it hits the news. This is a story that has been a long time in the making; however, it’s gaining momentum among the popular media channels – including The Globe and Mail – and we predict even more to follow. Customer wait times at online brokerages in Canada have ballooned to almost incredulous levels, so much so that this story could gain traction with consumer and investor protection agencies. Can markets operate fairly and efficiently without market participants being able to connect to online brokerages in a reasonable time frame? The most widely impacted clients are those who need to talk to brokerages by phone (and now even online chat is impacted). Check out this story from The Globe and Mail’s Rob Carrick for a clear articulation of the problems DIY investors are encountering when trying to connect to their online brokers by phone.

Getting a Taste for More: Tastytrade Gets Acquired

Buying up online brokerages is all the rage in the US. Schwab bought up TD Ameritrade, Morgan Stanley acquired E*Trade, and now, one of the newer kids on the block, Tastytrade, has been acquired by the UK-based IG Group for $1 billion (USD). Tastytrade was founded in 2011 by Tom Sosinoff, the founder of Thinkorswim (which was acquired by TD Ameritrade for $600 million), and it has earned a reputation for engaging content and a focus on options trading – something that has exploded in popularity through 2020. It will be interesting to see how or if this impacts the plans for Tastytrade to come to Canada. Originally, something was telegraphed for early 2021, but this latest development means that someone else is now pulling the corporate strings, and the move into Canada could be delayed or rethought. Alternatively, a much bigger entity backing Tastytrade could also spell more ambitious opportunities. The details of the transaction reveal that IG Group is ponying up a billion dollars for over 105,000 active accounts (roughly $9.5K per account – yikes). That billion-dollar figure is made up of $300 million in cash and $700 million in stock, which ends up making the shareholders in Tastytrade 14% shareholders in IG Group.

Let’s Talk About Trades

The end of a year is a great opportunity to reflect back on big milestones or achievements. One interesting thing that has started to emerge courtesy of Robinhood that has found its way into content schedules among Canadian online brokerages is more attention being given to (and actual reporting on) the popular stocks traded by DIY investors. There was a whole lot of controversy stirred up when sites that monitored Robinhood’s publication of these figures emerged. However, in Canada, the timescale and scope of coverage of “what’s popular” didn’t bring with it the same scale of attention or a rapid enough timeframe to make the same kind of waves as that same information would have in the US. Over the course of the year, we’ve noticed the spotlight shining on popular trades from 2020, with the most recent example coming from RBC Direct Investing.  

Influencer’s Gonna Influence

What happens when you get some of the most informed minds in the Canadian online brokerage space to collectively weigh in on trends and developments related to the online trading experience in Canada? This week, readers will find out.

The new Influencer Edition of Sparx Trading’s Look Back / Look Ahead series is set to go live this week, and it features contributions from Rob Carrick of The Globe and Mail, Michael Foy from J.D. Power, and Glenn LaCoste from Surviscor. Each of these contributors has been researching the online brokerage space in Canada for many years, and, as a result, each has a uniquely qualified perspective on the DIY investing experience from a variety of vantage points.

Be sure to follow Sparx on Twitter for the first notification of the launch of the new series! Also be sure to check out the online brokerage version of the Look Back / Look Ahead series to get up to speed on what the industry voice is.

Discount Brokerage Tweets of the Week

From the Forums

Ch-Ch-Ch-Ch-Changes

In this post, a Redditor shares a screenshot about the new pre-market trading hours being offered by one Canadian online brokerage. Fellow Redditors rejoice – and request even more improvements, including after-market trading hours, an improved app, better customer service, and reduced fees.

Engineering a Lucrative Life

A 23-year-old engineering grad with a good job, $100,000 to invest, and zero experience in the markets asks in this post how to get started. Hundreds of fellow Redditors weigh in with advice on everything from couch potato investing to company-matched RSPs.

Into the Close

That’s a wrap on the end-of-month edition of the Roundup. There’s lots of interesting work going on behind the scenes, and the start to 2021 is filled with all kinds of welcome surprises, including Tom Brady making it into the Super Bowl again (some would argue that’s no surprise). Speaking of surprises, there are plenty of earnings slated for the week ahead, and it seems like folks in the US government, starting with the President, are back at work. It’s going to be a full week, so here’s hoping you start on a positive note and finish on a profitable one!

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Discount Brokerage Weekly Roundup – January 18, 2021

Normally we talk about news that has happened – but considering the gravitas of the week ahead, it seems fitting to weave in some discussion of the future, this week in particular. As of the publication of this edition of the Roundup, there’s certainly a nervous energy in the news; however, if there’s one thing the online brokerage world has come to realize throughout 2020, it’s that volatility attracts opportunity.

In this edition of the Roundup, we take a look at how one Canadian online brokerage is playing into the volatility forecast by offering extended hours for clients to access markets and also is telegraphing some interesting signals about a possible very big year ahead in terms of new features. From there, we figuratively dial into the latest performance metrics from one US online brokerage – and await being able to literally dial into an earnings conference call, which falls on the eve of the inauguration of President-elect Joe Biden, for clues on the global state of online investing. In keeping with the usual diet of (mostly) healthy banter, we wrap with DIY investor conversations on Twitter and the investor forums.

Questrade Launches New Features & Teases a Big Year Ahead

It’s the early bird that gets the worm – or so the saying goes. When it comes to tapping into market-moving news, especially when that news takes place before the official start to the market trading day, being able to place orders and have them filled is an opportunity to get into potentially interesting trading opportunities a lot earlier than others.

This past week, Questrade announced the launch of a new feature: pre-market trading. Several Canadian online brokerages already offer this feature (as well as after-market trading), but for active traders, access to trading US-listed securities starting at 7 AM EST is bound to get some folks excited to be able to make moves on important news items, potentially ahead of the pack.

Trading outside of normal market hours is not without its risks, though. There is far less liquidity and far fewer participants outside normal market hours, meaning that bid/ask spreads are often very far apart. To mitigate the impact of this kind of volatile price movement, only limit orders are permitted, and the ECNs that can be selected to route the order to are ARCA or NSDQ. To accommodate the change, Questrade also updated the hours for their trading desk to now start at 7 AM EST.

Online, the reaction to the announcement was generally positive; however, it was clear that online investors had mixed feelings about trading outside of normal market hours. As such, the impact of the announcement will, likely, appeal to a smaller segment of users, those who are comfortable with the realities of extended market trading.

On a separate note, Questrade has also been ramping up the communications online to clients, which included a heartwarming milestone. Specifically, in 2020 Questrade was able to donate over 1 million meals to feed hungry Canadians via Food Banks Canada. Interestingly, and perhaps something that they might want to let more folks know about, Questrade donates a day’s worth of meals to Food Banks Canada for every new account opened.

Doing some further digging online this past week also revealed some interesting new features being telegraphed by Questrade representatives on Twitter. In response to customer service questions about mobile experience and the recent decommissioning of the Morningstar research features, it appears that two important developments are on the horizon.

In terms of the latter, it seems that a handful of clients were none too pleased at the removal of a research feature; however, Questrade reps did confirm that something “better” would be coming in its place.

In terms of mobile experience, which is a clear battleground issue among online brokerages in Canada, Questrade also hinted at plans for a new mobile app in the works for 2021. User sentiment on the Questrade mobile app is also starting to reflect the desire for change – at least for some categories of power or active users.

As we referenced in our recent Weekly Roundup, getting the user experience right for online investing is no simple feat. There are multiple categories of users, including those who like the predictability of knowing where things are, so making changes is a risk if user journeys or navigation takes a drastic turn. Ultimately, it should be great news for DIY investors; however, creating new things at the expense of shoring up existing features (e.g. customer service wait times) can make for volatile times for client support. A simple scan of Twitter posts over the past week points to that being the case.

Even though Questrade was playing it close-to-the-vest in the Look Back / Look Ahead (when it came to the looking-forward part), it’s clear that there’s a lot in the pipeline for 2021. In fact, taking a high-level view, with this many significant projects coming to market in the year ahead, this could signal a critical year for Questrade that brings with it even more surprises as it continues to compete in a potentially more crowded field. Finding the balance between promising new features to keep people excited and ensuring that these features hit the mark (and work properly) is also prudent. Kicking off the new year with this much news, however, is a clear indication that Questrade is hoping to have lots of positive things to say in 2021.

Interactive Brokers Latest Metrics & Earnings Call to Provide Clues on Marketplace Direction

With all of what’s been going on in the US, and what is poised to unfold this week, this is a great opportunity to tune in to one of the most informative trading bellwethers that has emerged over the past two years. Specifically, the Interactive Brokers earnings conference call, which is scheduled to take place on January 19th at 4 PM EST.

The primary purpose of the conference call will be to review the quarterly earnings for Interactive Brokers, which in this case happen to be for the fourth quarter of 2020 and, as such, will provide not only the performance of the quarter but likely a view on the year as a whole.

The latest stats released by Interactive Brokers about their performance over the final month of the year also reveal some very interesting numbers, which seem to indicate incredibly strong participation in trading.

Among the numbers we pay close attention to is the growth in client accounts, which for Interactive Brokers was 56% higher than at the same point last year and 3% higher than the previous month. The exceptional growth of their client base over the past year has fueled a surge in revenues and is likely, in part, responsible for their growth in valuation. Reinforcing that inference, Daily Average Revenue Trades (DARTs) are up 198% year over year and about even on a month-over-month basis.

Given the profile of the traders who operate on the IB platform – i.e. active and professional traders – it was also interesting to see the acceleration of buying into the end of the year, which lines up with the surge in bitcoin-related activity and with the market action overall.  Thus, it will be of interest to see what the view is on the near to medium term for business conditions for online brokerages (in the US) and, potentially, as a pulse on online investing around the world. Interactive Brokers’ international footprint gives it a unique window into what trends are emerging with online investors the world over.

Recall that entering periods of high volatility, Interactive Brokers has raised the margin borrowing requirements to control its risk exposure. On two of those recent occasions, that has seemed to foreshadow some significant moves in the market. What jumps out in the numbers supplied by Interactive Brokers in terms of trading metrics is that it appears that traders were heavily selling into the end of the year – which is a little strange given where the index has risen to. It might be a case of profit-taking, or fast money in and out of a bitcoin rally; however, the magnitude and direction of activity suggest smart money may have cashed out.

For online brokerages, 2020 clearly settled the debate on volatility being good or bad for business. Historically, passive investors would shy away from huge price swings in stocks, in favour of a steady approach to buying. Interestingly, the dynamics of the marketplace have changed – perhaps tilted far in the other direction – where lots of new investors have flooded into the market looking for rapid fluctuations in price (upwards). The following video on social media might presage where markets head from here; however, when lined up against the backdrop of Interactive Brokers data, moves higher in the market heading into RRSP deadline season could make this a stretch over which even more investors seek out new investment accounts.

Discount Brokerage Tweets of the Week

From the Forums

Oh, Brother!

In this post, an investor asks whether they should acquiesce and allow their brother to open a second RESP account for their son. Is it just “free money” from the brother? Or a potential financial (and familial) nightmare? Fellow Redditors have strong opinions on the matter.

Ethics Over Profits?

Horrified by what happened in for-profit long-term care homes during the early days of the pandemic, this investor asks in this post how to make sure that none of her investments are in these types of businesses. Her fellow Redditors explain how to check this information and debate whether ethics and politics (and the resulting emotions) should be kept separate from investing.

Into the Close

This is going to be an unforgettable week. With so much on the line, there’s no question that eyes will be glued to the screen and folks will be tuning in to the news. So, let’s hope things go as smoothly as possible for our friends in the US, including our furry ones. Stay safe and good luck!

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Discount Brokerage Weekly Roundup – January 11, 2021

Sometimes you just have to call a spade a spade. 2021 is shaping up to be more of a hangover than a do-over. Now that we are just over 2% into the new year, the road ahead is clearly bumpy. Thankfully, with talk of new promos and the finer points of design choices, we have much brighter news to report than most of what’s been flying (or not flying) around on social media.

In this post–coup d’état edition of the Roundup, we provide a refreshing piece of good news as multiple online brokerages launch new offers and reset the game clock on existing promotions for DIY investors to take advantage of heading into this year’s RRSP deadline. Next, we weigh in on an interesting conundrum for the online investing experience: innovate quickly or stick to the basics? Happily, we’ve got some interesting forum chatter and informative commentary from DIY investors on Twitter to close out on.

Deals Activity Shows Cash Is King

If there’s one thing we could all use right about now, it’s a healthy dose of positive developments. Fortunately, the January deals and promotions section has been filling up with just that – especially for online investors looking to score a deal on an online investing account ahead of the RRSP contribution deadline.

Kicking things off is the great news that RBC Direct Investing has jumped back into the deals and promotions section with a cash-back and commission-free trade offer. After the conclusion of their go-to commission-free trade promotion at the end of 2020, it seems that RBC Direct Investing made a resolution to start off the new year with something bigger and bolder for DIY investors this RRSP season.

Beginning this January and lasting until the end of March 2021, RBC Direct Investing is offering a tiered cash-back promotion. The cash-back amounts range from $50 (for deposits of $5,000) up to $2,000 (for deposits of $1 million or more). In addition to a cash-back amount, all deposit tiers qualify for 10 commission-free trades that are good through to the end of August 2021, leaving ample time for individuals to use this bonus.

We were also eagerly awaiting what BMO InvestorLine would launch early this month. Their previous promotional campaign expired in early January, unlike many of their peer firms’ deals, which expired at the end of December, so it was interesting to see what BMO InvestorLine would do given the clear trend toward cash-back offers from their competitors this year.

Fortunately for DIY investors, BMO InvestorLine has shown up with a relatively competitive offer and significantly dropped the qualifying deposit amount for the lowest tier of the deal from their usual range of $25,000 to $50,000. As with their previous cash-back offer in the fall, the new cash-back offer is a tiered promotion; however, this promo features deposit tiers starting from $15,000 (which offers $150 cash-back) up to deposits of $1 million and more (which offers $2,000 cash-back).

In addition to the launch of new offers this past week, we also saw several offers have their expiry dates officially updated. Notably, there were a couple of offers from Questrade – their five-free-trades offer, as well as their one month of commission-free trading, saw their expiry dates move to December 2021. Also, the refer-a-friend offer from BMO InvestorLine was extended another year, with the new expiry date falling on January 6th, 2022.

If there’s one clear trend this year when it comes to online brokerage deals and promotions, it’s that cash is king.

All of the big five bank-owned Canadian online brokers have a very competitive cash-back promotion now live, with most of them expiring at the beginning of March (RBC Direct Investing’s is the only exception, finishing at the end of March). That said, there are some patterns that emerge in the offers that are worth exploring further.

First, it was interesting to note the trends at the extreme ends of the deposit tiers.

At the lower end of the deposit spectrum (generally under $25,000), all of the big bank-owned online brokerages had some kind of offer in place. RBC Direct Investing had the highest offer, with a cash-back award of $50 and 10 commission-free trades, an offer that their only rival at this deposit level, Scotia iTrade, was well behind (Scotia iTrade offers $25 cash-back). Interestingly, BMO InvestorLine, who lowered their deposit threshold to qualify for a deal down to $15,000 (compared to the $50,000 minimum deposit for their fall campaign), went significantly higher than any of its peers with an offer of $150, which is 50% higher than what TD Direct Investing offered ($100).

Meanwhile, at the higher deposit levels ($500,000+), there appears to be a whole new battleground forming.

To start, almost all online brokerages with cash-back promotions have an advertised offer for deposits of at least $1 million. The one online brokerage that does not, however, is TD Direct Investing. This seems like a remarkable decision given the value of the prospective clients at that level, and while for portfolios of $1 million or more the deal isn’t the first thing that a shopper might consider, all else being equal, three direct competitors are willing to pay $1,000 more for the business.

It bears mentioning that the appearance of $1 million as a deposit tier used to be a headline maker; however, this deposit tier has almost certainly become the new-normal top-end deposit. That said, it was also fascinating to observe that Qtrade Investor created a new top-deposit tier for individuals bringing over at least $2 million. Given that the bonus Qtrade Investor is offering for this deposit tier ($2,000) is the same amount that rival online brokerages are offering for deposits of $1 million, it seems as if this tier was a clever way in which to stand out against their competitors. While the dollar amount for the bonus isn’t higher, the deposit tier is, which makes Qtrade Investor appear to be larger than their bank-owned peers. Further, there are no other non-big-five-bank-owned brokerage competitors to Qtrade Investor at these higher-level deposit tiers.

Aside from extreme deposit tiers, it was also fascinating to observe which segments were sought after by specific brokerages.

For example, neither BMO InvestorLine nor TD Direct Investing saw value in putting offers into market for prospects with less than $15,000. Additionally, in the deposit range between $15,000 and $500,000, BMO InvestorLine is aggressively pricing their cash-back bonus. With the exception of the $25,000 tier (in which TD Direct Investing has the highest cash-back offer), BMO InvestorLine either has the highest amount or is tied for the highest amount of cash-back (at the $100,000 deposit tier with CIBC Investor’s Edge).

With several key names still on the sidelines heading into RRSP season, we suspect that there might be a few offers still to come to market; however, it is unlikely that the current prices will be significantly outbid across pricing tiers. Instead, if an online brokerage is contemplating launching a cash-back offer, it is more likely that they will stick to the average offering in that tier or find a way to combine cash-back with commission-free trades to have a more competitive offering.

Thankfully, the deals and promotions news for Canadian DIY investors is actually improving in 2021 – and that was coming off a strong close to 2020 in terms of offers.

Most of Canada’s largest online brokerages have the most popular offer type (cash-back) available, which makes this an opportune time for anyone considering opening an online investing or online trading account to get the maximum benefit for doing so. Of course, we’re curious what some smaller or lesser-known online brokers are going to do in terms of promotions, but from now through the end of February we expect the focus to be on marketing and advertising.

Mind the Generation Gap: User Experience for Online Investing in the Spotlight

There’s no question that the picture of the world we’re living in exposes divisions nearly everywhere we look. In the world of online investing, although it is not nearly as polarizing, there is a significant challenge for online brokerages to contend with: trying to balance providing the kind of user experience younger (read Millennial and now Gen Z) investors expect with that preferred by the existing (and likely higher-asset-bearing) clientele comprised of “boomers.”

Originally, this second story of the Roundup was going to focus on only one topic – either the myriad of recent legal woes experienced by Robinhood while the Weekly Roundup was on hiatus, or an article published by Rob Carrick in The Globe and Mail at the end of December explaining to baby boomers how they can manage their investments using online brokerage apps. In diving into the comments of the Carrick article, however, it became clearer that the story of Robinhood’s regulatory troubles and the realities of mobile apps for older clients represent two sides of a user-experience coin. Hence, they’re both the focus of this particular story.

Starting first with Robinhood’s journey back into the spotlight at the end of 2020. Without question, for most of 2020, it was an incredibly positive year for the balance sheet of the scrappy “zero-commission” online brokerage in the US. At the outset of the COVID-19 pandemic in North America, and for the better part of the first half of 2020, Robinhood saw its client base skyrocket. Stunningly, Robinhood added more new clients in that timeframe than many of their peers – in fact, arguably adding more clients than most of their competitors. In 2020, Robinhood added 3 million new customers to its ranks in the first four months alone, it grew to 13 million users, and it currently sits at a valuation of more than $20 billion (USD). What has helped Robinhood skyrocket in users over 25x in seven years has been a combination of zero-commission stock trading prices as well as a user experience designed around being mobile-first and appealing to younger investors. Clearly, they are onto something.

That growth, however, was not without missteps. Whether it was the botched roll-out of their “chequing account” or multiple trading platform outages, their hypergrowth in 2020 exposed many of the leaks in the system running at full tilt. There was the tragic news of the suicide of a young investor who, because of the way information was presented on his account page, believed he had lost over $700,000 (USD) from a failed trade; there were security breaches with client accounts getting drained; and there were outages in times of heightened volatility.

This past December, however, there were consecutive regulatory arrows slung at the online brokerage, first in the form of a $65 million (USD) settlement with the Securities and Exchange Commission (SEC) for misleading customers about how Robinhood made money from selling order flow to high-frequency trading firms. Also, from securities regulators in Massachusetts in December, the charge that Robinhood resorted to “aggressive tactics to attract inexperienced investors, its use of gamification strategies to manipulate customers, and its failure to prevent frequent outages and disruptions on its trading platform.”

Given the meteoric success of Robinhood coming into 2020, and certainly throughout the year, it has clearly had an impact on the online brokerage industry as a whole in North America and is helping to shape the trading and user experience here in Canada as well. The emergence of Wealthsimple Trade, and their use of tactics similar to the ones that Robinhood used to fuel their own growth, is perhaps the most striking illustration of the Robinhood effect in Canada. More specifically, however, the issue at hand is the interface that users of online brokerages use in order to access their online investing experience, as well as the features they prioritize. Which brings us back to the article posted in The Globe and Mail at the end of December.

As part of the requisite research for the upcoming edition of the popular online brokerage rankings, Rob Carrick dove into the various Canadian online brokerage mobile apps to test-drive what the investing experience was like with all of them. While the article itself provides a useful overview of where mobile apps from Canadian online brokers shine and where they fall short, it was especially interesting to wander through the comments and reactions.

It was clear that “boomer investors” were the intended audience for this piece, and as such, the comments turned up what seemed to be significant resistance to the notion of trading on a mobile app – or to active trading in general – as well as the much greater pain point of the phone experience, which has nothing to do with the online interface and everything to do with customer service staff actually answering the phones at online brokerages in Canada. And therein lies the conundrum for online investing.

When it comes to designing features and capabilities, there has clearly been a shift away from cramming everything that could be done or said on an online investing interface into a more streamlined interface. That is a significant departure for almost a generation of online investors who’ve been accustomed to lots of menu options, features, and information on a landing page and who’ve generally not had a “mobile” interface to contend with, preferring to use a web-based interface instead.

By comparison, the “mobile first” approach to user interface design is highly constrained by the viewing area and behavioural inputs of a smartphone. To put it plainly, designers for phone interfaces need to decide what the most important functions and features to make available on mobile apps are.

Thus, it seems mobile apps reflect the collision course of the newest innovative design aesthetic – something that younger cohorts of investors and clients favour – and the functionality and user experience of managing wealth as a DIY investor. This is both a challenge and an opportunity for Canadian online brokerages.

From a business standpoint, the balancing act between building a technology and user environment for the future versus creating an environment that meets the needs of stakeholders today is what Canadian brokerages need to wrestle with. Based on the feedback accruing from Twitter and DIY investor forums, it appears that neither group – the newer investors nor the established and seasoned ones – is likely to find the perfect experience in one place.

The current slate of lawsuits and regulatory challenges facing Robinhood is likely going to put user experience for investors – especially in mobile environments – under the microscope. At what point does making investing more approachable, plain-language, and enjoyable cross the line into something bad? At what point is change necessary to enable more people to participate in wealth creation? The regulations have been formed, for better or for worse, based on historical notions of what investing ought to be, and, thus, to a degree, what it should look like.

Robinhood, along with the platforms and interfaces that emulate it, represents drastic change. Rules and established norms represent order. There is clearly a middle ground to be struck, but firms that seek to draw a line of best fit through different user groups, instead of building around those groups, risk being “forgettable.”

The real prize, it seems, is achieving more thoughtful customization at scale or accepting being very good at being niche, even if it does mean being “boring.”

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