Category: Discount Brokerage News

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Discount Brokerage Weekly Roundup – August 10, 2020

There’s nothing quite like being able to stay cool on a hot summer’s day. Whether it’s with a cold beverage, a spot in the shade, or just taking it easy, everyone has their own preference when it comes to handling the heat. One group not sitting around resting this summer, however, is Canadian discount brokerages.  

In this summertime edition of the Roundup, we take a look at the most recent Canadian online brokerage rankings – who won and what interesting stories emerged from the rankings data. Also on the pool deck, a small but interesting development in the investor-education arena that may be a signal of things to come this fall. As always, the fan favourites of forum chatter and DIY investor comments from Twitter will help close things out.

Diving into the 2020 MoneySense Online Brokerage Rankings

This past week, MoneySense’s 2020 online brokerage ratings were in the spotlight courtesy of a press release from Qtrade Investor, the winner of the best online brokerage title in this year’s ranking. Although the results were published in mid-July, and there were mentions of the accolade on social media, the official press release provided additional context around the results and the win for Qtrade Investor.

This is yet another major recognition for Qtrade Investor in terms of rankings awards in the 2020 season. Earlier this year, Qtrade Investor took top spot in the coveted Globe and Mail online brokerage rankings, and in December of last year, Qtrade also earned first place in the Surviscor online brokerage experience rankings. Suffice to say, Qtrade has found itself atop (or close to the top of) many of the most important online brokerage rankings for the better part of a decade.

As with previous rankings, the data from this year’s MoneySense Canadian online brokerage review was generated by financial services research firm Surviscor, which also conducts its own set of reviews for the Canadian online brokerage industry. Data underlying the review comes from the synthesis of an extensive questionnaire, assessments of the platforms themselves, and tests of “service interactions” over the span of a year. Firms are scored across seven different sections, and the total score assigned is based on weightings in each category.

Though rankings are a staple presence in how online investors make decisions about online brokerages, their greatest appeal is also one of their biggest limitations. At the heart of the issue is that most online broker rankings simplify the analysis across a number of features, and many of the features being analyzed are highly subjective and therefore subject to interpretation. Also, different online brokerage rankings measure success differently. The methodologies are different, and what is being measured is often also different enough (and online brokerages themselves close enough) that small variations in how online brokers are scored can present differing results. Case in point, the fact that Qtrade Investor can appear first in three high-profile rankings (The Globe and Mail, MoneySense, and Surviscor) but not at all in the J.D. Power 2020 Canada Self-Directed Investor Satisfaction Study suggests that online investors turning to rankings do need to ask (or rankings creators need to report on) what the rankings measure and why all Canadian online brokerages are not included.

Although the headline of Qtrade Investor taking top spot in the most recent rankings is important, what also stood out as interesting about this year’s MoneySense rankings were the categories that were reported on. Specifically, the following:

Best online broker for feesDesjardins Online BrokerageNational Bank Direct Brokerage
Best online broker for user experienceQtrade InvestorQuestrade
Best online broker for ETFsQtrade InvestorNational Bank Direct Brokerage
Best online broker for market dataTD Direct InvestingQtrade Investor
Best online broker for mobile experienceQuestradeBMO InvestorLine
Best online broker for initial impressionsQuestradeTD Direct Investing + National Bank Direct Brokerage
Best online broker for customer serviceQuestradeQtrade Investor

One of the most highly prized categories for the discount brokerage space is, without question, commission fees. As such, the biggest surprise was in the fees category that saw two close online rivals, Desjardins Online Brokerage and National Bank Direct Brokerage, place first and second, respectively. Despite their strong showing in this category, their absence from the top spot in the overall ranking illustrates that, clearly, low fees are not the only factor at play in determining the rankings.

Another interesting observation in the latest MoneySense discount brokerage rankings is that the closest rivalry brewing among online brokerages isn’t at the bank-owned brokerage level but between Questrade and Qtrade Investor. Even though Qtrade Investor did take first place this year, they reclaimed the title from Questrade, who took top spot last year. Also, there were two important categories that these two firms competed closely in: user experience and customer service.

Interestingly, Questrade also took top spot for best initial impression and best mobile experience, which are key features for younger investors. In the current COVID-19-influenced market, these features are especially important to the new wave of active and engaged investors and traders participating in the stock market.

The third, and perhaps most controversial, point of interest is the decision on the firms not included in this year’s rankings: Interactive Brokers and WealthSimple Trade.

While the MoneySense rankings do target the “average” investor, the reality for the online investing marketplace in Canada is that these two firms are popular with DIY investors. And, given the firms’ popularity, one of the features of the rankings that would help clarify why these two firms didn’t fit the bill is some further explanation on what the “average investor” experience is characterized by.

The reasons cited for not including Interactive Brokers were that “it is not designed for an average investor and it simply has not fully Canadianized its offering.”  

To be fair, in the case of Interactive Brokers, founder and former CEO Thomas Peterffy has often characterized the Interactive Brokers retail client as typically more sophisticated than the “average investor” in terms of their knowledge about the markets and investing, as well as in the kinds of products traded and the volume of those trades. That said, the components that helped the brokerages in the coveted category of fees referenced options trading, a product that is more likely/appropriate for sophisticated investors. Further, of the five investor profiles used in the analysis, trading frequency would also (presumably) include a very active category. On those two points, it seems like decisions were made outside of what would be the “average investor.” Further (and as seen below, too, with Wealthsimple Trade), investors are hungry to trade US markets as much as they are Canadian ones. Without more information on what being “Canadianized” refers to, it is harder to understand the rationale for excluding them.

In the case of Wealthsimple, it also seems to be a controversial decision not to include them as a competitor online brokerage to incumbent discount brokerages because of limitations to certain features. Specifically, the article stated: “we do not see why a novice investor would even consider the platform as the cost savings of dollars per trade, in our opinion, is not worth the lack of guidance, education and market depth, to name a few, required by a novice or average DIY investor.”

As a mobile-first platform, they would arguably provide a strong mobile user experience (something that incumbent firms would be weak on by comparison) but rank poorly when it came to the non-existent desktop platform. Further, simply because other firms offer features that Wealthsimple Trade does not, it doesn’t mean the features being offered are done well.

It was the last portion of the sentence in reference to Wealthsimple Trade that really stood out, in which the article stated that the online brokerage did not provide what was “expected of a Canadian discount brokerage firm.” By some measures, the data would disagree.

The surge in new accounts opened at Wealthsimple Trade this year suggests that, perhaps, what the market of online investors expects from a discount brokerage is changing. And, therein lie the limitations of the online brokerage rankings: these rankings often contain built-in expectations of who can/should participate, based on eligibility criteria. The authors believe (and state) that, in their opinion, Wealthsimple Trade “is not worth the lack of guidance, education and market depth, to name a few, required by a novice or average DIY investor.” The counter-argument could certainly be that even if those features were present, if they were poorly designed, they would confer no advantage to an investor and therefore not justify the cost of inflated commissions.

At a zero-commission level, investors are savvy enough to know there is clearly a trade-off – and one that the market of online investors in the US has been happy to make. Here in Canada, though the numbers are small, they are worth taking seriously. Wealthsimple Trade has grown to about 180,000 users, for example.

Perhaps the most compelling challenge to the reasons for being excluded is found in the Wealthsimple Trade feature requests section. While desktop access is the most requested feature, nowhere on the requested list of features is “education” or “guidance” or “market depth.” The fact that actual customers have spoken and not mentioned most of the features that disqualified Wealthsimple Trade from being included in this ranking is important.

Finally, and perhaps most ironically, Wealthsimple hasn’t “Americanized” enough (according to features requested by their clients). So, the fact that Interactive Brokers hasn’t “Canadianized” enough seems to run contrary to what an important segment of the market is demanding, which is US trading access. The fact that Interactive Brokers does this extremely well – even for their Canadian clients – means that it is probably worth explaining further what “Canadianized” really means and whether it is grounds for exclusion.

National Bank Direct Brokerage Gets Back to Investing Basics

One of the interesting developments to surface this past week has been in the investor-content space – specifically as it relates to investor education. During COVID-19, National Bank, which is parent bank to National Bank Direct Brokerage, has significantly ramped up their investor content online, in particular doing video updates on the state of the economy and addressing questions about investing and personal finance.

While the majority of this content featured senior analysts, economists, or executives from National Bank, something new emerged this week on video as National Bank Direct Brokerage launched what seems to be a new series on the basics of investing on YouTube featuring the popular investing personality Larry Berman (featured guest of BNN’s Berman’s Call).

There aren’t too many Canadian investing “personalities,” but Larry Berman is certainly one of them. For many years, Berman has held his famous roadshows across Canada and was sponsored by Scotia iTrade and BMO ETFs. This latest development, in which he is offering exclusive content for National Bank Direct Brokerage, will undoubtedly leverage his recognizable and trusted presence in the online investing world on BNN in a new medium. What will be interesting to watch, however, is whether he will connect with younger audiences the way that he has typically connected with older investors who were the mainstays of his roadshows and who often call in to his BNN show.

With this latest development, it seems like investor content will once again become a place for Canadian online brokerages to come back to. The COVID-19 pandemic has likely changed the demand prospects for online trading. As such, appropriate content for investors will be more important and influential to finding and engaging online investors.

Discount Brokerage Tweets of the Week

From the Forums

Time Out

In this post, an investor turns to the forums to determine if they should sell now, particularly with gold at an all-time high, or wait a while to minimize their time off the market.

Dividend and Conquer

A DIY Investor wonders if it may be wise to focus on ETFs with high dividends. Fellow Redditors break down the mathematics and recommend instead focusing on total return in this post.

Into the Close

That’s a wrap on another week. The temperature isn’t the only thing starting to heat up – it looks like feature and promotion action at Canadian online brokerages is also starting to come back online after several months on pause. Suffice to say there are now even more things to tune in to, which is going to make justifying watching all the wonderful pet-driven content and dance videos that much harder. Stay cool!

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Discount Brokerage Weekly Roundup – August 4, 2020

Dessert-lovers, rejoice! This past week was a great time to enjoy the fruits of investing labour, with tech giant Apple announcing they will be initiating a 4:1 stock split, as well as the tech-heavy Nasdaq pressing into new all-time-high territory.

In this week’s Roundup, we report on the current state of the deals/promotions drought and consider what it may signal for the industry. From there, we continue to look at the role that promotions can play to attract new clients or help hang on to existing ones. As always, we’ve included the highlights from tweets and investor forums.

Striking Out on Deals

In case you needed to be reminded, it’s not still March, and August is (amazingly) here. Time isn’t the only thing that has been distorted this year, however.

For DIY investors, the stock market’s nosedive and subsequent meteoric recovery have all but defied conventional wisdom. And, regardless of why the markets may be continuing to push higher, the reality is they continue to do so. As a consequence, DIY investors are continuing to open new online brokerage accounts at a higher than “normal” pace.

Ironically, after years of facing margin pressure because of rising technology costs and declining revenues from price wars, online brokerages (at least those in Canada) did not seem to be prepared for the surge in interest when it finally came in. Business has been so good at Canadian online brokerages, in fact, that many of the systems serving new customers cannot keep up.

Customer service lines at Canadian online brokerages are painfully slow, and technology platforms have stumbled through the spring and early summer.

The unlikeliest of all casualties amidst this activity: online brokerage deals.

At the outset of August, yet again, there have been no new official mass-market deals launched or offered for online investors that aren’t part of standing offers. While the beginning of a new month offers no guarantee that an online brokerage deal would launch, for the better part of the last decade, the beginning of a month has provided online brokerages the convenient starting point for a promotion. And for most of that time, brokerages seized on that opportunity.

After the conclusion of RSP contribution season (in early March), we have witnessed a steep pullback in the number of online brokerage deals and promotions being offered to DIY investors in Canada. It is no coincidence that this pullback coincided with the record trading levels and interest in opening online brokerage accounts, but it does beg the question: when demand for online brokerage accounts shifts so significantly, what else gets taken off (or put on) the table?

For the moment, Canadian discount brokerages appear to be content with the fact that demand for account openings remains strong enough that incentive offers are not required. Furthermore, promotions would only strain systems further and create additional backlogs for applications for accounts as well as delay the ability to get investors up and trading quickly. Though it sounds counterintuitive, the reality is that there really can be too much of a good thing.

Viewed from a slightly different perspective, however, the lack of deals activity during the past several months might be more a symptom of the lack of scalability of systems than some shrewd calculus to boost earnings. Conversely, the fact that Questrade has retained their cash-back (referral program) promotion and their standing commission-free trading deals implies that they have the technological capability and workflow to support bringing on a high volume of new clients.

In addition to the lack of new deals, there was one deal that officially met an early retirement last month: the referral offer from Qtrade Investor.

Removing a referral offer is an interesting decision on a number of levels. First, this category of deal enables online brokerages to determine how much they are willing to compensate individuals for a referral. Referrals are one of the most potent ways in which financial service providers can earn new business, and as such, it was curious to see Qtrade Investor pull the plug on this offer.

The second reason it was curious to see this promotional offer wind down was because of competition. With the Qtrade promotion now deactivated, this leaves BMO InvestorLine, Questrade, and Scotia iTrade (and, technically, Interactive Brokers) with a referral offer.

It is worth noting that Questrade currently sits unchallenged in terms of deals, so hands down they are getting an unparalleled amount of exposure for commission-free trade and cash-back offerings. For the moment, it appears that online brokerages are pushing their “switch to us” campaigns instead. Ads for TD Direct Investing, one of the largest online brokerages, have already surfaced again.

As distorted as time may be for many, there are (thankfully) hard deadlines for individual investors to contend with – such as the end of the calendar year, which is relevant for TFSAs and capital gains/losses. There is also the next RSP contribution deadline, in March 2021, which may seem far off now but which online brokerages must start early to plan for.

It is unlikely that online brokerages are abandoning incentive offers altogether, heading into the latter portion of their fiscal and calendar years, but there may be a much more cautious tone leading up to the US election (in November) and because of the general market dynamics of late.

More Than Just a Promo

Even though no official new offers were launched for Canadian DIY investors to start the new month, that doesn’t mean there weren’t some interesting developments on the promotions and deals front worth reporting about. In fact, quite the contrary.

One of the most exciting/interesting pieces of news on the promotional front was an article referencing a move by Interactive Brokers in which they telegraphed their intention to give away shares in their company to attract new clients.

Perhaps it is a move akin to Robinhood offering free stock in some big-brand public companies as part of the incentive offer to join Robinhood, but this doesn’t take away from the ability to get on the radar of investors by doing so.

Interactive Brokers’ decision to attempt to provide stock represents, in itself, the confidence in their own share structure and, most importantly, their own brand. Whether it succeeds or falls short of the intended goal, this latest move by Interactive Brokers is a reflection that promotions aren’t just limited to cash-back or commission-free trading – they can also take the form of equity. Though not something commonly done in Canada, with potentially a second online brokerage offering this up in the US, it might represent an interesting way to control the cost of acquisition of new clients while (in the case of Interactive Brokers) adding evangelists who, as shareholders, have additional incentive to see the brand succeed.

While the story about Interactive Brokers in the US prepping to issue shares as part of a new promotion continues, there was another development in the Canadian online brokerage space, with CIBC Investor’s Edge, that also highlights a different way in which promotions are being used.

Over the past two weeks, CIBC Investor’s Edge was in the process of rolling out a new trading platform that proposed to add a significant refresh to the platform’s look and feel, as well as to improve the functionality. Unfortunately, things did not go according to plan.

According to social media posts from Investor’s Edge clients, the rollout of the new trading platform caused significant interruptions to trading, so much so that they issued a blanket commission-free trade offer to all of those account holders who were deemed to have been impacted by the service outages.

An incident of this magnitude at a major (bank-owned) online brokerage is a rare event. However, the fact remains that the duration and magnitude of this impact are likely what drove the decision to waive commission fees for a two-week period.

Although it cannot officially be called “commission-free” trading the same way it is at other brokerages, it nonetheless does establish that one of the options available to online brokerages to generate goodwill with their customers is via commission-free trades. Of course, the premise in that offer is that the platform would be stable enough to enable DIY investors to be able to execute trades.

The takeaway for both Interactive Brokers and CIBC Investor’s Edge is that ultimately, the return on investment for these unique offerings has to be there for the discount brokerage.

In the case of Interactive Brokers, there are not many details available yet, but offering stock is a unique way to achieve a lower client-acquisition cost without directly impacting profits. With respect to CIBC Investor’s Edge, there is clearly an attempt by the brokerage to repair the relationship with clients who were negatively impacted. The math to keep these clients justifies this course of action, but it also flows upstream into investing in the technology to avoid (or minimize the risk of) outages.

From the Forums

Bank of Dad

In this post, a Redditor asks for advice on the best way to teach his young son about investing, using $400 as the starting point. Fellow forum users suggest savings accounts, GICs, RESPs, and the ever-popular “Bank of Dad” – and lament wasting their childhood money on candy and toys instead of learning useful skills for the future.

Neither a Borrower Nor a Lender Be?

A Redditor asks in this post whether it’s a good idea to borrow money to invest in the markets right now. A long and lively discussion ensues, with commenters weighing in on everything from market crashes to midlife crises.

Discount Brokerage Tweets of the Week

Into the Close

With a shortened trading week for investors in Canadian stocks, all eyes for market action are now on the US market. As it happens, there’s all of a sudden a lot more sports around to distract/pay attention to. What this means is that there may be a gradual easing off of market participation by online investors since (SO MANY) sports schedules are intensely packed in. Could that be what finally tops out the market?

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Discount Brokerage Weekly Roundup – July 27, 2020

For anyone keeping score at home – July is almost over. The strange pace of time that COVID-19 has imparted on the world is equaled only by the strange behaviour in stock markets that, because of COVID-19, have seen major indices fall off a cliff then sharply rise close to the edge they fell from. For online brokerages, waves have taken on a different meaning this summer, and in looking down the track to the end of 2020 (thank goodness), preparation should be on the list of important summer activities.

In this edition of the Roundup, we look at one story with several important facets. The latest earnings from US online brokerages are in, but the real story appears to be not where we’ve been but rather where things go from here for online investors. Also on the docket, interesting chatter from DIY investors on Twitter and from the forums.

Breaking Fad: Is the Retail Investor Frenzy About to Expire?

The story on the meteoric rise in trading by “retail investors” over the course of the COVID-19 pandemic continues to gather steam. Ironically, while we’ve been covering this news since March of this year, the fact that it is now hitting the “major” news outlets could be a signal that the retail frenzy is about to lose considerable steam.

This past week, there were several major US online brokerages that reported their quarterly earnings. TD Ameritrade, E*Trade, and Interactive Brokers all showcased record-breaking performances in terms of trading activity as well as in terms of account openings and earnings. In contrast, although the largest online brokerage in the US, Charles Schwab, experienced similarly large volumes of activity, revenues and earnings missed estimates. All told, however, it was another eye-popping quarter filled with people coming in droves to trade stocks.

Not to dismiss the earnings and performance metrics, but much of this data is looking in the rear-view mirror at what’s already happened. At a time when so much news is happening so quickly, it’s important to stay on top of what’s actually taking place.

Beyond the numbers, however, the bigger stories emerging from the narrative around online investing appear to be in how different, and influential, stakeholders are covering the online brokerage space, and what that means for the near-term future for the industry in the US as well as in Canada.

The first interesting angle on the coverage of the retail-trading frenzy came from one of the most influential voices for investing and trading in North America, CNBC. And what stood out was as much what was said as what wasn’t.

Last week, online brokerage Robinhood was casually referenced as one of “the major online brokers” in an article by CNBC, and Interactive Brokers was not. Though this might have been just an omission (Interactive Brokers and Robinhood were mentioned as major online brokers in another article by the same author), the fact that Robinhood is now being counted among the “major” publicly traded online brokerages (even though it is not yet publicly traded) arguably reflects a step change in who they are as a firm and in the influence their clients have on market direction.

Whatever the calculus was, Robinhood’s vaulting to the status of “peer” of the much larger incumbents means that growth is happening much faster than anyone had planned for. Perhaps this is behind the decision to delay Robinhood expanding to the UK (for now).

Two important facts stand out as important context: First, despite the best account-opening numbers from any of the publicly traded online brokerages in the first six months of 2020, Robinhood handily beat them by adding over 3 million accounts. Second, Robinhood did this despite peer firms taking commissions to zero, meaning that consumer preference likely played a decisive factor in online investors picking Robinhood over Schwab or Ameritrade or E*Trade.

For US online brokerages, it should be abundantly clear that the rise of Robinhood signals that they cannot afford to discount “millennial” (or future) investors anymore and that platform adoption is going to be heavily influenced by user experience – in particular on mobile. While this shouldn’t be news to anyone in the online brokerage industry by now, the fact that so many online brokerages have seen their market share erode or be captured by Robinhood, especially in the millennial segment, means that other online brokerages are going to be playing catch-up.

Overlaying what’s unfolding in the US online brokerage market with the situation in the Canadian online brokerage space, it’s interesting to see which Canadian discount brokerages are putting a priority on design and user experience ahead of other long-standing “standard” features. Arguably, it’s a short list.

Both Wealthsimple Trade and Questrade have managed, from a feature and accessibility standpoint, to successfully reach and appeal to younger investors, and the former is clearly taking many of its cues from Robinhood. Like Robinhood in the US (but without the same degree of scale of impact), Wealthsimple (and especially Wealthsimple Trade) is being talked about in the media as it relates to investing online. Other Canadian online brokerages: crickets.

Perhaps the question that incumbent online brokerages on either side of the 49th Parallel need to wrestle with is given Robinhood’s gains with the millennial segment, how hard will it be for them to appeal to the older or more mature investor segment? Can existing online brokerages move down market faster than Robinhood can move up? Does the same hold true for Wealthsimple Trade, even though they still have lots to develop to compare fully with online brokers in Canada? Sounds a bit like an innovator’s dilemma if ever there was one.

The second interesting angle relating to the coverage and response to the retail-investor market comes from assembling the fragments of highly seasoned and influential voices in the online investing market. In particular, it was the notes of concern expressed by the head of the NYSE, the founder of Interactive Brokers, as well as a slide from the deck of Schwab’s business update showing sentiment among investors that paint a curiously grim picture just as the S&P 500 is within spitting distance of its all-time high.

Consider the following:

In a recent interview with CNBC, the president of the NYSE, Stacey Cunningham, stated: “I am excited to see the retail investor engaging in the market, but I’m also concerned if they’re not doing it with information and also not understanding the risks associated with it, because you certainly don’t want to see retail investors get hurt because they didn’t understand that markets can go in both directions and they can go pretty quickly.”

In an interview with CNBC regarding earnings, Thomas Peterffy, founder of Interactive Brokers, labelled the action in the current market environment as “crazy” and characterized trading levels as unsustainable over the near term.

According to the latest business update from Schwab, investor sentiment continues to track lower despite markets’ substantially rebounding from their lows.

Finally, there’s the growing chorus of experienced market observers, analysts, and influencers who are also increasingly skeptical of markets’ powering higher and the sustainability of that move.

Aside from the latter (typically pundit) view, there is a cause for concern when individuals representing businesses that would directly benefit from more trading state they’re concerned about the levels of trading taking place.

While the pace of retail-investor activity is almost certainly going to decline, when and how rapidly is simply a waiting game. It will be interesting to see whether or not the decline will once again entice investors back into the market the way the first drop did in March or, as the concerned voices seem to suggest, whether retail investors will get badly burned by a contraction. Regardless, any kind of volatile downward move is likely to generate significant trading activity and put pressure on technical as well as service systems across the online trading ecosystem.

There is already discussion of preparing for a second wave of COVID-19 outbreaks here in Canada, and with the current situation in many states of the US unpredictable (or just dire), the risks for continued pandemic-related economic (and health) impacts seem likely. What this directly means for online brokerages in Canada is that their trading systems and customer service delays should be prioritized to be fixed, because there are a lot of nervous investors holding into these rallies.

Indeed, DIY investors must also be prepared for market volatility. The track record for most online brokerages in Canada during March was that there were untimely delays or outages during massive volatility days. Time has passed but investors (as shown in Twitter comments) tend to remember moments when their online brokerage platform or customer service experience let them down.

As much as commission cost and user experience are clearly going to be driving the bus when it comes to DIY investor interest, uptime (aka reliability) and wait time are going to keep clients on the bus, even (and perhaps especially) when the road gets bumpy. If things go awry for online investors in the US, at least they can cite not having to pay commissions, but here in Canada, the expectations for performance and reliability are directly tied to the price. And, in a world where commission price exists (in spite of zero-commission alternatives), there is little room (or patience) for things going wrong.

Discount Brokerage Tweets of the Week

From the Forums

The Grass Is Always Greener

A Redditor asks if there’s a benefit to investing in Canadian versus American ETFs in this post. Commenters break down factors such as commissions, exchange rates, and long-term market patterns to tackle this big question.

A Rare Stake

In this post, a potential investor asks for advice on whether or not they should buy shares in the company they’ve been at for the past two years. Fellow forum users give their perspectives and offer insights into the company’s possible motives.

Into the Close

That’s a wrap on what has been an insightful few weeks in the online brokerage space. While the US market has dominated the headlines, there’s still activity taking place among Canadian brokerages, which will start filtering back into the mix. In the meantime, with gold and bitcoin creeping past key psychological hurdles, and more stimulus money in the works (in the US), it looks like the music is still going for just a bit longer.

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Discount Brokerage Weekly Roundup – July 20, 2020

Elon Musk isn’t just a fan of shorts this summer. He’s also taken a pretty long view on bringing big ideas to fruition. As markets continue to press higher despite what appear to be doom-and-gloom messages about the real economy, it seems like the distant future is being priced in rather than the immediate one. Curiously, the thesis of looking past the current crisis is one that online brokerages appear to be doing, understanding (and hoping) that things will get resolved in due course.

In this edition of the Roundup, we take a look at a curious (but perhaps predictable) development at the largest online brokerage in the US and examine what their latest earnings report portends for the industry in the US and here in Canada. From there we’ll take a look over a different fence, at a popular Canadian robo-advisor that is clearly taking its cues from what’s working in wealth management (and online investing) in the US. As always, we’ve collected stories and reactions from DIY investors in the past week from the forums and on Twitter.

Online Brokerages See Weakening Earnings

There are some things that seem like a good idea, until they don’t.

This past week, the first in an upcoming wave of financial reports from US online brokerages was released, and the financial results were, um, not good.

The largest online broker in the US, Charles Schwab, reported their financial performance for the last quarter, and despite seeing record levels of new account sign-ups and record trading volumes, earnings came in lower than estimated.

This past quarter, Schwab added another 552,000 new accounts (excluding the 1.1 million accounts that came their way via the USAA acquisition), which was just over 9% less than the 609,000 new accounts opened the previous quarter. Nonetheless, a million new accounts in half a year is a staggering number when looked at across the past six months (although Robinhood managed to open 3 million new accounts in half that time). Also incredible was the daily trading volume, which clocked in at 1.62 million daily active trades, an increase over the 1.54 million daily active trades from the previous quarter.

With more clients and more trading, things should be rosy for an online brokerage, except for one small detail: Commissions for trading are now at zero.

What the new reality of operating in a zero-commission world translated into for the largest online broker in the US was that on the top line, Schwab missed on revenue estimates by a little ($40M USD), at $2.45 billion. However, when all was said and done, the bottom-line earnings of 48 cents per share was well short of the forecasted 53 cents per share. While this quarter may be disappointing on its own, when viewed against where Schwab was at last year, revenue is down 9% for the same three-month period, and net income is down a whopping 28%.

Even so, commissions don’t drive most of the earnings at Schwab anymore – instead, fees and interest revenue do. Nonetheless, it appears that structurally Schwab saw an opportunity to deepen its business in the online brokerage market by acquiring TD Ameritrade (and their assets as well as clients). Incidentally, as reported in their financial performance release, the deal to acquire Ameritrade has received regulatory clearance to proceed.

Despite the miss in terms of revenue and earnings, it appears there is a longer game at play, namely to massively scale up.

Schwab’s assets under management are now $4.11 trillion dollars (that’s trillion with a T) and continue to generate substantial revenue at healthy margins. For the time being, Schwab appears to be able to weather the storm of lower interest rates. However, it’s clear that zero-commission trading has challenged Schwab to find new revenue sources. The silver lining: their competition has to, too.

With the latest numbers coming out of the US, the fact that an online brokerage the scale and profile of Schwab is struggling to meet revenue and earnings forecasts suggests that Canadian discount brokerages will likely not be in any more of a rush to lower their commissions, least of all to zero.

A conversation this past week on BNN focused on the US online brokerage market and whether commission-free trading would or could gain traction here in Canada. The key takeaway in this segment is that Canadian online brokerages do not feel the pressure to match, in terms of pricing or offerings, what Schwab or Robinhood are currently doing in the US.

So, despite there being investor appetite and desire to see more commission-free trading here in Canada, there is no catalyst for online brokerages to do so at this time. That said, when investor appetite to wade into the market subsides – which the latest data on account openings suggests is taking place – online brokerages here in Canada are going to have to work especially hard to capture and hold the attention of folks who may have become accustomed to outsize returns in short amounts of time.

The next few weeks will be instructive to the direction for the rest of the year. We’ll be watching what happens with the largest players in the US discount brokerage space for clues on how Canadian discount brokerages will have to respond when/if another drop in commission pricing occurs.

Wealthsimple Makes Token Gesture to Launch into Crypto Trading

There’s no doubt that in the US online brokerage space, Robinhood has made a name for themselves not just for the low cost of trading but also for being agile around releasing new features and reimagining the user experience of an online brokerage account. From the time they launched in 2013 through to this year, Robinhood has grown its customer base from zero to over 12 million users and its valuation to $8.6 billion.

It is perhaps no accident, then, that Robinhood serves as an example of how to successfully connect with a younger audience of investors and why financial services providers in Canada (and the US), especially those in the wealth management/online brokerage space, would want to pay attention to the kinds of features being released by Robinhood.

In Canada, Wealthsimple appears to have followed in the footsteps of the US online brokerage when it comes to focusing on a younger audience and the user experience and attempting to democratize finance by making it “easier” and more accessible for most investors.

One clear parallel between Wealthsimple and Robinhood was the launch by Wealthsimple of their direct investing solution, Wealthsimple Trade, which charges no commission to buy or sell stocks. This past week, yet another parallel between these two firms emerged when Wealthsimple announced they would be exploring the launch of cryptocurrency trading.

Trading in cryptocurrencies was something that Robinhood launched in 2018 – right around the height of the crypto craze – and they have been rolling it out across the US since then. Two years into cryptocurrencies, much of the initial hype has died down, but it’s clearly a value driver for Robinhood clients curious or interested in trading it. Given the recent volatility in both Bitcoin and Ethereum, cryptocurrencies are finding their way back into the spotlight, so it is a good time for Wealthsimple to be launching their new trading platform.

In true Wealthsimple fashion, however, trading in cryptocurrency on their platform isn’t ready just yet, but that has not stopped them from garnering interest ahead of the release. As with their Wealthsimple Trade product, Wealthsimple has created a waitlist for interested parties to sign up for cryptocurrency trading when the trading feature becomes available.

In the highly commoditized environment of discount brokerages (and wealth management more broadly), what makes one brokerage stand out over another is going to become increasingly important. Pricing is still a place where this can happen – specifically commission pricing per trade – however, the other key value driver is in features, which is where Wealthsimple launching a cryptocurrency trading platform significantly differentiates them from their peers.

Perhaps another good piece of news for Wealthsimple is that they have close to two years to study what has happened with Robinhood’s cryptocurrency experience, to hopefully make this as smooth a deployment as possible.  

Whether or not cryptocurrency picks up any time soon, it appears that because they will offer direct trading of cryptocurrenies, Wealthsimple will have ample room to run unchallenged by Canadian online brokerages, a rare situation in a highly competitive landscape.

The combination of a mobile-first mindset, a sound content strategy, low pricing, and a deliberate investment in aesthetic appeal means that Wealthsimple has raised the bar on most, if not all, online brokerages in Canada to step up or risk getting left behind.

Despite joining the crypto-trading party very late, Wealthsimple doesn’t have to be original to be considered innovative in the Canadian online brokerage space. They simply have to move faster than their peers at getting in-demand features up and running, which by this latest announcement it appears they’re managing to do.  

Discount Brokerage Tweets of the Week

From the Forums

The Graduate

A recent graduate turns to the forums for some clarification on the pros and cons of index funds and ETFs in this post. Fellow Redditors explain the advantages and disadvantages of each and offer insights into how timelines can impact one’s investment plans.

The Tortoise and the Hare

In this post, a curious Redditor ponders the age-old question of whether staying on a steady course is better than “splurging” on a potentially high-growth stock.

Discount Brokerage Tweets of the Week

Into the Close

It’s been an interesting ride thus far, with markets continuing to press higher despite a worsening health crisis in the US. In the online brokerage space, this week will put a spotlight on earnings from other big online brokers and some business updates. Despite the summer weather outside, it seems like we’ll be glued to our screens as more news continues to break.

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Discount Brokerage Weekly Roundup – July 13, 2020

With COVID-19 very much in focus, it appears that time is being measured more in phases and case counts than in actual calendar days or traditional time. Despite the uncertainty (or perhaps as a result of it), discount brokerages in Canada find themselves in a unique position to learn from what is happening in the US to plot out the next important steps to take in the second half of 2020.

In this edition of the Roundup, we pull out the telescope to peer into the second half of 2020 and see what interesting data points from investors and online brokerages could provide insights into what to expect from Canadian discount brokerages in the remainder of the year. From there, we recognize the bold decision that one bank-owned online brokerage has taken to include an often-overlooked group and hope that this is the start of a new design choice among brokerages going forward. As always, we’ll wrap up with chatter from DIY investors on Twitter and in the investor forums.

The Next Chapter: Where Might Canadian Online Brokerages Go Next

With the first half of 2020 now well behind us, it’s time to start looking ahead at what trends could impact online brokerages here in Canada and in the US.

It almost goes without saying that the biggest force still at work is COVID-19, followed by the US presidential election.  And, while there is justifiable cause for alarm at the human toll of this crisis, the giant voting machine that is the stock market is placing its bets that though things might be bad, the future (at least for some sectors) stands to be brighter than it is today.

For US online brokerages, the heightened uncertainty in the stock market should translate into continued earnings strength from commissions (for those that charge them), payment for order flow, and margin interest. The historically low interest rates suggest that the cost of borrowing for margin trading (to amplify results) will be, on a relative basis, more affordable. In sum, the macro picture for online brokerages in the US appears to be bullish, as investors continue to wade into the volatility rather than shy away from it.

Among Canadian discount brokerages, the thesis supporting robust performance appears to be similar. Strong trading volumes combined with trading commissions holding steady mean that online brokerages are going to be generating healthy revenues, and for Canadian banks (those that have online brokerage arms), this could be an important bright spot against a backdrop of challenging economic conditions. Across Twitter, the comments over the past few months by Canadian DIY investors reflect heightened enthusiasm for making fast money, as well as the tools/platforms and user experience to facilitate doing so. As such, active trading platforms – along with associated data feed packages – have likely seen record levels of interest, and brokerages that don’t currently have these features in place are likely losing the patience or the business of clients who wish to keep a very tight pulse on the market.

For the better part of this year so far, Canadian online brokerages have been surprisingly quiet when it comes to advertising campaigns or major feature release announcements. As we referenced in last week’s Roundup, it is unlikely that the final half of 2020 will see Canadian brokerages maintain their “wait and see” approach – there are simply too many important opportunities at stake.

Some interesting data out of the US online brokerage market also seems to support the macro case for Canadian brokerages either ramping up advertising to close out 2020 or seriously considering doing so.

One of the first important indicators of this is a recent sentiment survey by E*Trade Financial, released last week. In that survey, it found that in Q3 of 2020, bullishness among DIY investors has increased 34% (13 percentage points) compared to Q2 of 2020. Importantly, over half of investors (51%) believe that markets will rise through the end of the year – a remarkable feat considering how much markets have rallied from their March lows.

Another interesting factor for online brokerages in Canada to consider (though this data point also originated in the US) is a comment regarding online investing made by Interactive Brokers founder Thomas Peterffy in an interview with Bloomberg. Specifically, Peterffy pointed out that even once the pandemic stabilizes, the interest in online investing has likely been sparked in many investors who will want to continue. In other words, the die has been cast for the return and prominence of active online investors. For Interactive Brokers in particular, Peterffy highlighted that unlike with Robinhood, the clients of Interactive Brokers tend to be more sophisticated in nature, with a better understanding of what they want and how to manoeuvre around various market opportunities.

From a macro perspective, the US market heading into the second half of the year will also provide some important information regarding the consolidation of players on the field. On July 21st, online brokerage Charles Schwab will provide their summer update and likely include information about the progress of their acquisition of TD Ameritrade. Incidentally, Interactive Brokers is also announcing their earnings on the same date. The Schwab/Ameritrade merger will create a behemoth in the online brokerage space in the US, something that appears to be necessary to fend off a growing number of competitors. Other deals on the radar in the latter half of 2020 include the acquisition between Morgan Stanley and E*Trade.

On the technology front, it will also be interesting to see what US online brokerages roll out in the near term that may influence how Canadian online brokerages ultimately decide to deploy the historic revenues they are generating from trading activity.

One clear winner for online brokerages in the US has been fractional share trading – something that has ignited interest by younger investors to participate in the stock market in record numbers. Another interesting feature gaining traction is investor-oriented content. Online brokerage Robinhood has clearly put significant effort into their podcast, and it is gaining momentum with their target demographic. Almost all major US online brokerages have robust online/digital content strategies, and the brokerages making outsized gains have clearly demonstrated the value of these during the COVID-19 pandemic. By comparison, online investor content among most Canadian online brokerages is extremely limited, static, and often inaccessible.

Already, Canadian DIY investors on Twitter are calling out Canadian online brokerages for features that exist in the US but do not exist here – whether that be zero-commission trading, fractional shares, innovative technology, or incredible DIY investor content. Seeing as how three of those four options would require massive technology investment or significant revenue erosion, one likely battleground for DIY investors in the next half of 2020 will be in content.

RBC Direct Investing: A More Inclusive Approach

One of the unique consequences of covering the Canadian online brokerage market in detail for almost a decade is that you get to see how the market has evolved over that time. This past week, we spotted a small but important detail on the RBC Direct Investing website that we hope signals a shift in the way in which online investors are depicted.

Specifically, on the RBC Direct Investing website, an image of an individual in a wheelchair was positioned alongside the caption “I Want to Be a Confident Investor.” In the almost-decade-long coverage of the Canadian online brokerage space and the scores upon scores of generic business imagery placed on the front pages of DIY investing websites, it would be difficult to identify at any point the inclusion of a person with a disability on the homepage. It is certainly worth commending RBC Direct Investing for doing so in this case, even though the inclusion is not in the main image (yet). The reality is that persons with disabilities get little to no recognition or acknowledgement in the often “aspirational” imagery associated with online brokerage websites.

For that reason, RBC Direct Investing deserves a significant “hats off” for being (probably) the first major online brokerage in Canada to be more inclusive in their imagery choices, by including a person with a visible disability. Here’s hoping it inspires other online brokerages to do the same.  

Discount Brokerage Tweets of the Week

From the Forums

A Whole New World

A Redditor looking to improve their financial literacy turns to the forum to ask for advice in this post. Forum users offer resources for tackling debt, defining financial goals, and starting to invest.

It’s All Greek to Me

In this post, a first-time investor confused by the variety of ETF options turns to the forum to ask for direction. Fellow Redditors offer advice on how to approach seemingly confusing options and reiterate the merits of keeping it simple.

Into the Close

With another round of earnings season just about to kick off, there are going to be even more numbers in the headlines that traders and investors will have to keep their eyes on. And with little in the way of encouraging news at the moment, here’s hoping for some nice surprises in the earnings and outlooks.

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Discount Brokerage Weekly Roundup – July 6, 2020

Whether it’s the first or fourth of July, where and how you might have celebrated depends in large part on where you happen to find yourself.

In this edition of the Roundup, we keep things short and sweet, like a great helping of soft-serve ice cream. First, we take a peek at the deals and promotions for July and see how they differ from June. Next, we scroll on over to the launch of an updated mobile app for a leading Canadian online broker. As always, there’s lots to ponder from the investor forums as well as from Twitter.

New Month, Same Deals

With the second half of 2020 now officially underway, there are lots of questions investors and online brokerages are asking as far as what the rest of the year holds for investing online. One of the biggest questions is around volatility and whether the trading volumes that were the norm in the first part of the year will continue to feature prominently into the end of 2020.

As has been covered extensively through the Weekly Roundup since March, volatility in stock markets has also pushed up trading volumes to record-breaking levels. The prevailing theory is that the combination of individuals being forced to shelter in place, the absence of sports betting, and the distribution of government support payments have all converged into a perfect storm of retail investors flooding into the market to try to take advantage of some kind of rally in heavily battered stock prices.

The knock-on effect of all of this, however, has been that interest in opening an online trading account at an online brokerage has been so strong that most Canadian online brokerages have opted to shelve their promotions for the summer. In the most important deal categories to DIY investors (cash-back or commission-free trades), Questrade has become the sole online brokerage with active promotions.

Crossing the threshold into the latter half of the year, it is hard to imagine Canadian online brokerages standing on the sidelines for much longer before jumping back into the promotions race.

First, Questrade represents an increasingly tough competitor for other Canadian discount brokerages to defend against. Whether it is in investor forums, TV commercials, or social media, there’s a good chance that new investors looking for an online brokerage are going to run into mentions or even recommendations for Questrade. By leaving Questrade unchallenged, other online brokerages are enabling this already popular brokerage to build market share and attract investors to a conversation about investing.

Second, should any of the factors that caused the rush of investors looking to set up accounts abate, discount brokerages would almost certainly have to aggressively ramp up their marketing efforts – including adding promotions. To further challenge the financial services space as a whole in Canada, several large Canadian banks have also elected to pause their advertising on Facebook. Unless Facebook remedies their enforcement of curbing hate speech, it will be a challenge for online brokers to find a way to scale up their messaging and advertising during COVID-19.

Finally, the end of the year is typically when the ramp-up to RRSP-contribution season starts. Layer in a year in which there is almost certainly going to be a good portion of tax-loss selling and realizing of capital gains, TFSA maneuvering, and more, and DIY investors will be doing a lot more with their accounts through the end of this year. Of course, in order for online investors to want to stick with their current brokerage, it means the service experience at online brokerages has to be very good, and right now, based on comments from Twitter, there aren’t a lot of good customer service stories for Canadian discount brokerages.

It’s clear that nobody can fully predict the scale and scope of how COVID-19 will unfold in Canada or the US. Tied to that uncertainty is the business need to attract new clients via marketing and incentives. As the rest of the economy in Canada starts to fire up again, and people begin to come out of isolation, so too, hopefully, will the Canadian discount brokerage deals.

Teaching an Old App New Tricks – TD Direct Investing Launches Updated App

When mobile investing apps first arrived, they were heralded as the future for individual investors to gain even more freedom when wanting to trade, whether in line at Starbucks or hanging out poolside with a drink in one hand and a phone in the other. Mobile trading was truly going to be the next “big thing” with DIY investing. Arguably, now that apps and being able to do just about everything on a mobile device have become the norm, that sentiment of trading almost entirely by mobile app is closer to the original vision.

In June, TD Direct Investing unveiled the latest updates to their mobile app, which focused on investor education. TD Direct Investing’s mobile app now provides access to their online learning centre, which is filled with content to help investors get up to speed on a number of topics related to investing.

Among the more interesting capabilities is the ability to cast video lessons directly to TV – something that could offer up that perfect balance of autoplay TV series and educational content.

Of course, TD isn’t the only one that has conducted a refresh or added features to their mobile trading app this year. Virtual Brokers and RBC Direct Investing are the others. Thus, it seems like multiple Canadian discount brokerage who haven’t yet worked on improving their current app design/build will be busy figuring out how to build a mobile app for the current world.

With summer now upon us, it is the perfect opportunity both to learn about investing and investments as well as to be out and about. The latest wave of mobile upgrades at TD Direct Investing enables users to do both.

Discount Brokerage Tweets of the Week

From the Forums

Getting Schooled

A soon-to-be student wonders how to make the best of their savings while minimizing post-university debt in this post.

Oh Brother

In this post, a Redditor who has just purchased a house with his brother wonders how equity stake will accumulate in this split-ownership situation.

Into the Close

That’s a wrap on a shortened-week edition of the Roundup. Markets continue to power higher (for now), which means that there are many DIY investors on the sidelines hoping to still get in on the action. Of course, with professional sports starting to come back online, we’re betting we will start to see fewer “traders” and a restart of the world of financial promotions. Oh, and there’s now Kanye to add into the mix.

 

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Discount Brokerage Weekly Roundup – June 29, 2020

Despite the progress being made in the fight against COVID-19 here in Canada, it will still be quite some time before things truly return to some sense of normal. For the time being though, uncertainty and caution abound heading into the long weekend here and in the US.

In this edition of the Roundup, we take a look at an interesting story that highlights the challenges that digital wealth management is posing to traditional financial advisors. Of course, digital platforms for wealth management also have some sobering news to come to terms with and are being forced to understand the importance of building strong training and communication elements in their service. As always, we wrap up with chatter from investors on the forums and on Twitter.

Sore Spot: Do Ads About Advisors Tell the Whole Story?

For many years, Canadians watching any major sporting or entertainment event on television have likely encountered commercials depicting people having uncomfortable conversations about investing. More specifically, uncomfortable moments about investing with financial advisors. After years of being criticized, it seems like advisors have had enough.

Questrade, the firm behind the campaign to encourage people to move away from financial advisors, is probably best known for their online brokerage services. Over the past few years, however, they have increasingly made inroads into the managed wealth territory, primarily with their digital wealth management (aka robo-advisor) offering.

Originally known as Portfolio IQ, and later rebranded to Questwealth in 2018, the move by Questrade into the managed asset world mirrors a trend in the online brokerage space in the US. In fact, the largest online brokerage in the US, Charles Schwab, generates a substantial amount of its earnings from management of wealth rather than revenue from trades (since they’ve gone to zero for commission rates, this difference is even more pronounced).

Making a splash in the managed wealth arena is no small feat, especially for a new entrant, which explains in part the decision to make a very visible, very provocative set of commercials that strike at the heart of what many investors see as a pain point: price. Specifically, the cost for financial advice.

This past week, an article appearing in Wealth Professional took aim at Questrade’s marketing campaign and its characterization of wealth advisors. In particular, one of the central arguments of the article is that the advertisements paint all advisors with a similar (negative) brush and that it doesn’t reference the fact that there are advisors who provide valuable services for their clients for a “fair” price.

Of course, Questrade is not alone when it comes to challenging traditional managed wealth fees. Other digital wealth management firms – like Wealthsimple – are challenging traditional providers of managed wealth services. Nonetheless, Questrade’s multi-year campaign is one of the most recognizable.

For many Canadian investors – especially those with dedicated wealth managers – it is difficult to understand the broader value of the services being provided if most of that service centres around mutual fund selection, a point made by the Wealth Professional article.

At its core, it seems unlikely and perhaps irrational that a company that is paying for advertising or marketing their product or service would not do so in a way that presents them in the most favourable light or that presents a specific use case. Add to that the challenge of taking a topic like personal finance and making it engaging enough for people to pay attention, and it starts to become clear that to get people’s attention, you have to present the information in a way that makes an emotional connection.

Another interesting takeaway from this article is that while Questrade has successfully managed to ruffle some feathers over the years, both in the online brokerage segment as well as in the managed wealth one, there hasn’t been as creative or concerted an effort by a counterpoint to advertise to Canadian investors.

While Questrade was certainly within their rights to deploy a marketing campaign (or several campaigns), there is also nothing stopping the stakeholders or competing financial advisories from advertising, either. And, therein lies the challenge and opportunity facing providers of financial services: they have to find a creative and compelling way to get onto the radars of their target audience and follow through with a digital experience that extends or represents what the personal experience would be like.

There are certainly situations in which clients appreciate the value and experience of an advisor. However, as Questrade and other online brokerages have shown, those situations can’t be the “easy” ones. The discount brokerage industry arose out of the order-execution job function previously done by many financial advisors. Robo-advisors arose from the desire to create an easy-to-manage solution for balanced portfolios that don’t cost as much as many mutual funds.

Financial advisors who truly delight their clients will see referral business be an important channel, and that kind of advertising is both the most valuable as well as the hardest to compete against.

Trading Online Highlights Risks of Poor UX

When it comes to trading online, especially in the past few months, there is no shortage of emotion.

For new investors, it is difficult to appreciate the number of moving parts (and therefore the number of possible failure points) that online investing requires to work exactly right. However, those who’ve actively traded the markets for any appreciable length of time know that it’s inevitable there will be some kind of technical hiccup or mishap.

Whether it’s a platform outage, flash crash, or some other event, for most casual investors, these are passing news stories. But for those who trade actively, these kinds of incidents can – and do – induce panic.

A tragic story earlier this month of the suicide of a young trader, Alex Kearns, highlights just how important it is for online brokerages to remember the consequences of their technical systems operating correctly, as well as for their user interfaces to work as intended and their risk management protocols to operate sensibly.

While the causes of suicide are complex, one factor that appeared to play a role was the belief by Kearns that an options trade had left him owing over USD $700,000. Specifically, the balance showing was negative because of an options trade that had yet to fully settle.

Among the many stories written about this incident, a common theme references the “gamification” of trading and user interfaces, which, in the case of online investing, muddies the waters when it comes to appreciating the consequences and severity of the actions being taken. It is a delicate but important balance to simplify and make an investing platform engaging but not do so in a way that removes important safeguards to protect clients and their capital.

For their part, Robinhood acted quickly and released a statement on their blog by the company’s co-founders as to what they intend to do in response. Three important steps they committed to taking were adding additional criteria for education relating to options trading, expanding options education, and improving the user interface. Robinhood also made a USD $250,000 donation to the American Foundation for Suicide Prevention.

The reality confronting the online brokerage industry – which is having its best year in memory with regards to account growth and new clients – is what they need to do in order to continue to innovate technologically but also to create a platform and market access experience that is in line with the experience and/or understanding (not just the risk appetite) of the instruments being traded.

As a result of this incident, it will become imperative for online brokerages to invest more heavily in creating clearer communications on how trading works on their individual platforms and what the “trading” cycle looks like – especially around settlement and money moving around and to better evaluate risk.

Discount Brokerage Tweets of the Week

From the Forums

Is It Impossible to Find Good Help These Days?

A curious forum user asks if there are any reasons to use private wealth management over DIY investing. Fellow Redditors weigh in on this debate and lay out the pros and cons of both in this post.

Till Debt Do Us Part

A Redditor in this post brings up the timeless question of whether or not they need to wait to be out of debt before beginning to invest, and a lively conversation ensues.

Into the Close

That’s a wrap on what is shaping up to be another very volatile period inside and outside of the markets. After such a rapid bounce in the market, there are more than a few skeptics out there regarding the sustainability of the recent market rise. Heading into a couple of big holidays this week, however, it seems like even more caution will be warranted for life inside and outside the market. Wherever you choose to celebrate the upcoming Canada Day (and Independence Day), here’s hoping it’s safe and enjoyable!

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Discount Brokerage Weekly Roundup – June 22, 2020

Summer is officially here. With warmer weather now upon us and progress – albeit slower than anyone would like – in the battle against COVID-19, it appears that there is reason for some cautious optimism. A group feeling particularly optimistic heading into the summer are Canadian discount brokerages. The combination of standard commission rates and higher trading volumes means a rising tide for the fortunes of Canada’s brokerages.

In this week’s edition of the Roundup, we hop back into the saddle after a week away and profile the interesting shift to Canadian online brokerages being candid about the numbers of investors opening accounts. From there, we focus in on the signs of change taking place at a pair of online brokers and the visual shift to become more diverse on their website. As always, we’ll close out the roundup with chatter from the investor forums and on Twitter.

Counting on Numbers: Online Brokerage Activity in the Spotlight

For Canadians, our neighbours to the south are a constant source of news and focus. In covering the online brokerage marketplace in Canada, however, the activities in the US take on an even greater significance. The US online brokerage space – and by extension the activities of retail investors that funnel trading activity through those brokerages – provides an interesting window into the trends impacting investors who choose to trade stocks online.

One of the biggest stories in the online brokerage space that we have been monitoring and reporting on since March of this year has been the spike in investor interest in participating in the stock market.

In what would normally be an environment that would “scare” investors away, the reality of the whipsawing market in hard numbers from US online brokerage shows just the opposite. The volatility in the markets has caused a surge in online investing account openings as well as record trading activity. Even though the word “unprecedented” has been tossed around a lot during the COVID-19 pandemic, the reality is that online brokerages in the US have never really seen this level of interest and activity in their history.

Which brings us to Canada. The news around trading activity among Canadian DIY investors and what that means to Canadian discount brokerages is only starting to trickle through.

Unlike their US counterparts, Canadian online brokerages are not publicly traded – at least not as a pure play, the way Interactive Brokers, Schwab, Ameritrade (which is in the process of being acquired by Schwab), and E*Trade (which is in the process of being acquired by Morgan Stanley) are. Those US online brokerages frequently and regularly comment on their performance, which includes standard key performance indicators (KPIs) on the success or health of the business. Included in those metrics is usually data on trading volume, revenue from trading, and the total number of customers, as well as new customer accounts, in any given period. Because the US online brokerages are publicly traded, they are required to disclose a lot more about their business than private companies are.

In the Canadian online brokerage marketplace, however, things are very different. Online brokers in Canada are normally coy or silent about the hard numbers regarding account openings, trading volume, and revenue generated from trading commissions. But these are not normal times, and the news cycle covering online brokerage activity among retail investors in Canada has a surprisingly high number of online brokerages disclosing information about the numbers of accounts opened and trading volumes – to a degree.

Over the past few weeks, Canadian online brokerages such as BMO InvestorLine, Questrade, Scotia iTRADE, TD Direct Investing, and Wealthsimple Trade have weighed in on the record levels of trading and account openings they have witnessed. This past week, BNN Bloomberg cited numbers from a recent Investor Economics report that showed close to 500,000 accounts were opened in the first quarter of the year here in Canada. The fact that online brokerages or BNN are talking about these numbers at all is highly unusual. However, when diving into the numbers themselves, it is also worth noting that there is no analogous disclosure mechanism in the US that would require or compel an online brokerage in Canada to reveal these numbers. In other words, it’s largely the honour system at play. The operative questions would be why – or at least why now – and what would they stand to gain by putting these numbers “out there”?

One important reason is because the traditional media is putting a spotlight on the issue, it is a great time to get additional exposure without having to dip too far into an advertising/marketing budget. Having a platform like BNN reach out to discuss the state of the markets and the retail investor angle is certainly a great way to gain exposure on a topic that is central to their business. A second reason to start flexing on numbers is to indicate to potential clients the “popularity” of the brand with online investors.

The saying in the stock market is that higher prices lead to higher prices. When it comes to sharing how many online investors call a particular brokerage home, it spotlights an important – and difficult to contest – set of attributes about a brokerage: that they are where people ultimately decide to open accounts. In a muddied world of “best online brokerage” statements, the number of actual online trading accounts that a Canadian brokerage can demonstrate can go a very long way in shaping whether investors feel confident in a particular brokerage.

The forces that have driven online investors to open up online trading accounts – namely uncertainty around the impacts of COVID-19 – are likely to be in place for some time. As such, it will still likely impact the number of newer investors coming into the markets and result in elevated trading volumes. For Canadian online brokerages, that means the forecast for online trading is bullish.

That said, for online brokerages, there is clearly a shift in strategy taking place during these market conditions. From contractions in advertising and incentive offers, to increased conversations about the industry, markets, and their own strengths and success, Canadian discount brokers are once again finding ways to distinguish themselves from one another. That is going to be even more important now that new entrants are coming into the fray and vying for investor attention.

Signs of Change

In addition to the news being heavily focused on the COVID-19 pandemic, there has also been an important focus on diversity, inclusion, and ending discrimination. In the online brokerage world, indeed in the world of financial services, one interesting angle we have observed over the years has been the visual portrayal of an investor.

Historically – and, more precisely, within the past five years – there has been a gradual shift in the way in which the Canadian online brokerage industry has started to think about what an online investor “looks like,” and by extension what that translates into on their websites.

This past week, there were two important visual developments noted at Interactive Brokers and Virtual Brokers.

In the case of Interactive Brokers, the hero image (the primary image that a user who visits a website sees) was replaced: from the iconic Wall Street – or even white male – investor to a professional-looking female. Visually, this is an important shift for Interactive Brokers, whose commercials and imagery have largely leaned into the portrayal of the target client as the active (male) trader. In fact, the images shown below compare what Interactive Brokers had on their website in April and what they have replaced it with just recently. While there is still work to do as far as capturing visual diversity – in particular, ethnic diversity – it was nonetheless commendable to see the change in visual direction, especially at the homepage level.

Another Canadian online brokerage that has taken an important visual direction change is Virtual Brokers. This past week, a new layout on the homepage appeared in which the people profiled look very different from those who were there previously. Below are images from the website (snapshots taken at the end of 2019 and this past week) that show how dramatically different the portrayal of people (DIY investors) now feels, especially in light of the conversation around diversity and inclusion.

While changes to visual imagery or website layouts are generally not something that makes the news, the conversation about being discriminated against or being biased against because of skin colour or gender is a conversation taking place right now. Whether or not the timing of these changes is coincidental or deliberate to what is going on right now with respect to greater awareness of discrimination around the world, looking at these two changes that have taken place through the lens of diversity and inclusion drives home the point that how online brokerages – especially Canadian online brokers – think about DIY investors needs to change. At the very least, leadership (and every level of the organization) should be conscientiously asking, how representative of the Canadian population’s diversity is their brand? Are they truly listening and reflecting the social fabric? Or are they perpetuating biases around who can be an investor or who can be wealthy and what they should look like?

Progress may not always happen quickly or in a straight line, but it is clear when you see it, and these days, we certainly would welcome seeing more of it.

Discount Brokerage Tweets of the Week

From the Forums

Week In, Weak Out?

A Redditor turns to the forum to ask if it’s smarter to invest weekly or biweekly in this post. Fellow users reflect on the negligible impact of such a short timeframe while considering the amount of effort it may take.

Walk in the Park

In this post, a DIY Investor wonders where the best place to “park” their money is while they save for the down payment on a house. Fellow forum users share advice and their past triumphs and missteps in the same journey.

Into the Close

That’s a wrap for the first Roundup of the summer. With many parts of Canada opening up again, hopefully there are lots of opportunities in the days ahead to enjoy some good summer weather (responsibly, of course!). Traders will certainly be treating the markets like a barbeque and keeping an eye on just about everything that’s happening daily. Here’s hoping good news is less than rare this week!

 

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Discount Brokerage Weekly Roundup – June 8, 2020

Many seasoned investors know that the stock market acts as a giant voting machine on what things are worth. What many people gloss over, however, is the fact that stock markets often start figuring out what something is worth by looking into the future and ignoring what things are worth in today’s dollars. Why this is relevant, especially today, is that despite what is happening now – or perhaps because of it – stock markets are looking at a picture of the future world that is doing better (economically) than it is today. Here’s hoping it’s a better, more prosperous future, for those long overdue that prosperity.

In this edition of the Roundup, out of recognition of the protests against racism and social injustice in general, and the Black Lives Matter cause in particular, we will once again use our platform to provide a moment to educate and engage with a difficult but necessary conversation. From there, we’ll step back into the coverage of Canadian discount brokerages, and how one popular brokerage has the deals stage and spotlight all to themselves at the moment. As always, we’ll wrap up with chatter from DIY investors on Twitter and in the investor forums.

Supporting Change

Resolving difficult issues requires both commitment and resolve.

Taking a stand against the kinds of social injustices that led to the needless death of George Floyd and many others before him requires courage to raise your voice against racist actions and behaviour.

Even though the Weekly Roundup puts online brokerages and DIY investing in the spotlight, there’s no denying that the story that deserves the spotlight is this one.

In order to do our part to help effect change, we encourage readers to take a few minutes to watch a powerful interview with Jane Elliott, an educator who has been working with commitment and resolve to end racism in the United States.

 

Questrade Promotions Take Centre Stage

If there is one theme that 2020 has thrown at DIY investors and online brokerages, it is to be prepared for change. At the beginning of the year, very few people saw the COVID-19 pandemic unfolding the way it did. Fewer still could have predicted the market trajectory over the course of the pandemic – with stomach-turning volatility ultimately leading markets and certain stocks to be in record territory (high and low).

Since the massive stock market declines in March and throughout their subsequent recovery, a regular feature of the Roundup has been monitoring the impact of the surge in volume of trading and volatility to online brokerages. The net takeaway from data in both the US and Canada is that the business of being an online brokerage has never been better – at least from a revenue-generation standpoint. Account openings are at record levels, and with trading volumes up and commission-per-trade also still pushing almost $10 at most major Canadian online brokerages, the earnings for the past three months have likely been as healthy as they’ve been in almost a decade.

One area that hasn’t seen as much action, however, has been the deals and promotions from Canadian discount brokerages. In this month’s section, the biggest story for a change wasn’t what the newest deal was, it’s what it wasn’t.

BMO InvestorLine, one of Canada’s big-five bank-owned online brokerages, has had an active deal of some kind or another – whether cash-back or commission-free trade – for about as long as we’ve been tracking promotional offers. This month, however, on the heels of what was set to be another new offer to replace an expiring cash-back promotion, there was nothing.

Granted, BMO InvestorLine still has their referral promotion and their offer for transfer-fee coverage, but their absence from the new deals of the month is a notable change for the space and is, perhaps, a signal that strong demand by DIY investors for online trading accounts has forced online brokerages to either pause or delay launching promotions. Indeed, from the online brokerage’s point of view, when demand is so strong, incentive offers are less likely to determine whether or not a DIY investor will ultimately choose to open an account.

Interestingly, the withdrawal of BMO InvestorLine from the commission-free trade or cash-back promotion offer section this month means that Questrade is the sole provider of offers in the commission-free trade space – something that is almost unheard of in the history of tracking offers for DIY investors in Canada over the past decade.

How long other Canadian online brokerages enable Questrade to be the sole provider of a promotional offer is a real unknown. It is interesting to note that incentive offers provided by online brokerages are meant to attract the attention of DIY investors. As referenced in last week’s Roundup, the latest rankings on investor satisfaction by J.D. Power suggest that the differences between online brokerages in Canada continue to shrink. As such, what would prompt an online investor to try one brokerage over another might come down to something like a promotional offer. All things being about equal, the better deal appears to be part of the decision-making process and as a result, Questrade stands to be on the winning side of many of the “undecided” DIY investors.

A closer inspection of the comments on social media, in particular Twitter, also highlights the frequency with which Questrade is mentioned as a viable option for DIY investors contemplating which online broker to choose. Thus, competitors to Questrade will be challenged to educate consumers and/or provide a much stronger user experience in order to compete against Questrade on a feature-for-feature basis. Judging by the latest J.D. Power investor satisfaction results, in which Questrade was crowned the top online brokerage in this regard, other Canadian brokerages have their work cut out for them. Not only do promotional offers by online brokerages make sense for simply attracting undecided clients to try out a particular provider, but they also offer a way to shift the value perception in what is a very competitive market without having to undertake a massive technology project or feature release.

In short, it seems like the calculus favours Canadian online brokerages coming to market with deals in the not-too-distant future, and it also seems like until that happens, Questrade will have carved out a market-leading position in the deals-and-promotions space. Given that there are no challengers to them for commission-free trades, then it is safe to say at this point, theirs are the best (and only) online brokerage commission-free deals at this time. So, for Questrade, on top of the recent achievement of best online brokerage from J.D. Power, they are putting even more distance between themselves and the rest of the Canadian online brokerage pack. While large bank-owned brokers may be able to rely on the strength of the banking brand, that will only work to a point. For other brokerages, however, the message is fairly clear: invest heavily either in improving the client experience or in attractive incentives, otherwise it will be incredibly difficult to get the attention of investors without spending a lot to do so.

Discount Brokerage Tweets of the Week

 

From the Forums

DIY or Bust

A Redditor looking to venture into truly DIY investing turns to the forum for insights from fellow forum users in this post. Responses range from suggestions on TFSA contributions to guidance on which online brokerage might best suit them.

Minimizing Risk of Transfer

In this post, a forum user ponders whether in the midst of COVID-19 is a good time to transfer their portfolio. Fellow Redditors weigh in on the myth of timing the market and point to the bigger picture in investing.

Into the Close

That’s a wrap on another edition of the roundup. Markets continue to push higher, and even though the economic news is not as bad as it originally was predicted to be, there are growing warnings by notable investment-industry personalities (including the founder of Interactive Brokers) that prices are starting to become detached from underlying value. In other words, the market appears to be overbought. At a certain level, markets will reach a tipping point; however, in the near term, DIY investors and online brokerages are setting their sights as high as Elon Musk. Here’s hoping that the market-trading autopilots are prepped for the bumpy ride ahead.

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Discount Brokerage Weekly Roundup – June 1, 2020

For anyone watching any kind of news or social media, it is difficult to fully process what is unfolding in cities around the world. With so many of us in Canada and around the world still under restrictions to stay close to home, the window to the outside world has become a digital one. Despite even greater access to technology and almost limitless amounts of information, collectively we are struggling to make sense of something so senseless.

So, although we will run this edition of the Roundup, the most important story, the one that needs to be heard, will be first. Take a moment to watch it, hear it, and let it sink in. From there we will take a pause, catch our breath, and do our best to continue to move forward. Keep reading for a deep dive into the latest Canadian online brokerage rankings and what they reveal about the state of the industry, including what it needs to get right with the next generation of DIY investors. Finally, we close out with chatter from DIY investors on Twitter and in the financial forums.

George Floyd

Latest Online Brokerage Rankings Show Room for Improvement

If there’s one thing that’s synonymous with the end of the school year, it’s report cards. For Canadian discount brokers, the grades are in from a noteworthy financial services research firm and it’s clear that for many of them, improvement is needed.

Though seemingly straightforward on the surface, online brokerage reviews and rankings are challenging endeavours. So much about rating online brokers depends on how the rankings are defined and what is actually being measured, which is why it is often hard to compare different online brokerage rankings. They simply measure different things about the Canadian discount brokerage industry.

This past week, the financial services research unit of J.D. Power released their annual evaluation of the Canadian online brokerage industry with their Self-Directed Investor Satisfaction Study. Though the name and the study have changed slightly over the 12 years this evaluation has taken place, at its core, it continues to measure “investor satisfaction” and uses that to determine which Canadian discount broker is “best.”

Before diving into this year’s results, it’s worth mentioning a few points about the study itself, to better contextualize what it does (and does not) measure.

The first and probably most important factor to note is that the Investor Satisfaction Study measures just that: investor satisfaction. In this study, investor satisfaction is comprised of seven components:

  1. Account information
  2. Commissions and fees
  3. Firm interaction
  4. Information resources
  5. Investment performance
  6. Problem resolution
  7. Product or service offering

Given that investor satisfaction is somewhat of an abstract concept, it is useful to have these categories in place to help structure how to think about the ultimate question when it comes to any client experience: were clients satisfied with the product or not?

Of course, while it would be nice to get a simple “yes” or “no” answer, the reality is that these are complex concepts and there are things that brokerages do differently, perhaps better or worse than others. Further, how investors interpret things like “customer experience” may be highly subjective and as such make it a challenge to measure. Nonetheless, the scale that the Investor Satisfaction Study is built on is a numerical one that scores all brokerages out of a maximum possible 1,000 points.

With that context in mind, it was interesting to see what the 2020 version of the study uncovered in terms of Canadian DIY investor perspective. More interesting, however, was the comparison of this year’s results to the previous year’s, as it uncovers important differences and shifts in the industry that have taken place since the last time this study was conducted.

At a high level, one of the first things that stands out about the 2020 results is the drop in average investor satisfaction compared to the 2019 study. The average for the industry this year was 717, but last year it was 726 – a sign that the industry did worse when it came to investor satisfaction.

Averages, however, only convey part of the picture. What was also interesting to take note of is that the spread between scores narrowed.

Last year the difference between the best ranked online brokerage (with a score of 753) and the lowest ranked brokerage (with a score of 698) was 55 points. This year, that range dropped to 33. In fact, with the exception of 2019, since 2013 and 2014 (where the range was 64 points) the spread between “the best” and “the worst” in terms of investor satisfaction had been decreasing.

The compression of this range seems to suggest that DIY investors are finding the experience increasingly similar between Canadian online brokerages, a signal that commoditization is taking hold and that online brokerages are not doing nearly enough to differentiate or out-innovate one another.

Nowhere is this more evident in the 2020 results than in how close the top four online brokerages were from one another.

The difference between first (Questrade) and second place (BMO InvestorLine) was five points, and the difference between second (BMO InvestorLine), third (Desjardins Online Brokerage), and fourth place (National Bank Direct Brokerage) was each one point, respectively.

As poorly as the Canadian discount brokerage industry as a whole performed relative to 2019, however, there was one exception. National Bank Direct Brokerage was the only discount brokerage to see a surge in investor satisfaction scores, rising 31 points from 2019 to 2020, and moving from last place in 2019 to fourth place in 2020.

Despite dropping four points on a year-over-year basis, Questrade managed to rise in the rankings from third place last year to take top honours in 2020 with a score of 736. At the other end of the spectrum, Scotia iTRADE ranked last this year, falling to a score of 703.

One online brokerage that stands out as having a significant shift downward is CIBC Investor’s Edge. This popular low-cost online brokerage fell 40 points compared to last year and slipped from a second-place finish to a seventh.

Importantly, not all Canadian online brokers were measured or reported publicly. Popular brands such as Qtrade Investor, Virtual Brokers (soon to be CI Direct Investing), Interactive Brokers, and HSBC InvestDirect did not have data published about their level of investor satisfaction in this year’s results.

So, what’s driving the decrease in investor satisfaction among Canadian DIY investors? One of the biggest areas where Canadian discount brokerages appear to be struggling is website stability and accessibility.

Somewhat shockingly, 46% of DIY investors reporting an issue with an online brokerage chalk it up to a problem with the website, and 29% of investors surveyed were unable to access their online brokerage website at least once during the prior 12 months.

It is difficult to determine how representative the sampling of this survey is for all DIY investors across Canada, but these numbers are concerning, considering that investors put their nest eggs or significant savings in the hands of online brokerages. These results, however, do help to validate the scores of complaints DIY investors have logged on Twitter about Canadian online brokerage websites going down during trading sessions. And, keep in mind, these survey figures were generated prior to the COVID-19-induced market meltdown, which saw unprecedented surges in trading volume and account sign-ups.

Not being able to access a trading account when you’d like to is frustrating enough; however, not being able to do so when market opportunities open up – that certainly leaves an impression.

Perhaps the most intriguing number reported in the online brokerage rankings was that 26% of millennials (or younger) indicated that website inaccessibility has got them thinking about switching brokerages. That’s a huge number in an extremely hard-to-win-over segment.

The rankings from J.D. Power highlight that the Canadian online brokerage space will increasingly face a challenge to escape becoming commoditized. In these latest investor satisfaction metrics, what ultimately separates one online brokerage from another is becoming harder to distinguish.

Perhaps ominously, the relatively slow pace of innovation in this online service leaves the industry exposed to possible disruption by a provider able to deliver the technology piece with greater reliability and at a lower price. This is certainly the case in the US, in which an online brokerage was able to grow to an extraordinary size while lowering the price of commissions to zero.

With so many online brokerages facing technology challenges even when investors weren’t stampeding into and out of markets, the past several weeks have uncovered the limits of customer service and client experience capabilities at many online brokers. And while the news certainly isn’t all bad at Canadian brokerages, the scores show that investors expect online brokers should be doing better.

Discount Brokerage Tweets of the Week

From the Forums

Going All Out

A forum user contemplates breaking from their investment plan and selling everything to avoid the stress of a turbulent market in this post. Fellow DIY investors weigh in by sharing their approaches and thoughts on the temperament it takes to invest.

Where’s the Wealth?

In this post, a Redditor inquires about how illiquid wealth works, and fellow forum users outline the imprecise nature of such wealth and offer helpful analogies.

Into the Close

It almost goes without saying that the start of this new month will begin on uncertain footing. There are many events taking place with very little visibility as to exactly how they will unfold. However, of the things that can be controlled, here’s hoping that readers remember to find ways to be kind, stay informed, and find the courage to dream for and change the world for the better, one action at a time.