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New Self-Directed Investors and the New Normal: An Interview with RBC Direct Investing’s Lori Darlington

Let’s start with an experiment. If you see the phrase, “Life is a highway” and are able to complete the next line, you will probably have an ear worm for the rest of the day (you’re welcome).

If you view this phrase as a simple platitude or remember hearing it for the first time from the Pixar movie Cars (released in June, 2006), then it’s likely you are part of a generation of investors stepping into the world of self-directed investing for the first time, and a group of increasing importance to Canadian online brokerages.

Last month, RBC Direct Investing published the results of a recently conducted survey that focused on understanding the perspectives of younger investors about the world of investing online. The catalyst: nearly half of new clients of RBC Direct Investing that joined during the pandemic were under the age of 35.

President and CEO of RBC Direct Investing, Lori Darlington, sat down with Sparx Trading to discuss the latest results of this survey, and provide context and perspective on how younger investors are going to impact the world of self-directed investing. She also provides insight into how RBC Direct Investing plans to adapt to this new client group.

Young Investors: A Market Mover

Those new to the world of Canadian online brokerages would likely be aware of RBC Direct Investing as the online brokerage arm of one of Canada’s largest and well-known banks, RBC. Unless you’ve been watching the online brokerage segment for more than the past eight years, however, what you may not know is the influence RBC Direct Investing wields in the Canadian online brokerage marketplace.

For a quick history lesson, RBC Direct Investing was the catalyst that drove stock trading commission prices down from the $20+ per trade range for bank-owned online brokerages to just under $10 in 2014, where most of these online brokerages price their trading commissions today.

Certainly, a lot in the online investing world has changed since 2014. However, in that time, nothing has changed so dramatically and so rapidly as the composition of online investors over the past two years. When a shift of this size impacts one of the most influential online brokerages in Canada, it’s likely to have a ripple effect throughout the Canadian online brokerage industry.

Though it is not a ‘new’ story at this point, the impact of the surge in new investor interest is still unfolding. Recent data we collected from the US online brokerage market, for example, highlights the trend and pace of investors opening online brokerage accounts. Even today, those numbers remain elevated relative to the start of the pandemic.

It is against this backdrop that the latest poll conducted by RBC Direct Investing is of interest to not only online investors, but also to anyone tracking the online brokerage space in Canada more broadly.

Before diving into the findings, it’s important to highlight the methodology to get a sense of what was being measured in the survey. The study, which was conducted by Ipsos, took place between October 26 and November 5, 2021, and focused on individuals between the ages of 18-34 (defined as “younger investors”). There were 529 individuals in this age range who responded to the survey and whose answers constituted the data referenced in the press release relating to younger investors.

Eager to Learn

Although there were a number of takeaways from the data collected in the RBC Direct Investing young investor insights poll, one of the most important themes was the willingness of younger investors to learn about investing.

According to the poll, 45% of younger investors have learned more about investing during the pandemic, and 82% of current and potential self-directed younger investors would like to learn more about investing.

Darlington stated, “They’re looking to learn more, they are learning more, but I think there’s an even bigger opportunity as we continue to support these young investors.”

More deeply, this appetite to learn more about investing could be governed by another interesting finding from the survey: younger investors wished their parents had talked to them more about investing. As it turns out, the number one response that younger investors stated they wished their parents had given them advice about was investing (57%), followed by saving (46%) or budgeting (44%).

The dominant narrative behind younger investors rushing into the market has been ‘to get rich quick,’ especially on the backs of meme stocks or heightened volatility during the outset of the pandemic.

In reality, however, the data from the latest RBC Direct Investing poll, as well as other research, supports another narrative: that younger individuals view investing as a means to effectively grow wealth, especially in a world where interest rates have been historically low and home ownership – an aspiration of many young people in Canada – continues to become increasingly more challenging.

Impressions & Expectations

Another important theme that came out of the discussion with Darlington was expectations.

For younger investors, especially the large numbers that decided to jump into self-directed investing during the pandemic, the conditions of stock markets formed that very important first impression.

That reality was shaped by volatility in household name stocks, as well as the emergence of new communities of investors and influencers online, especially on Reddit. Though older or more experienced investors know that the stock markets during the pandemic were anything but normal, the conditions during the pandemic will undoubtedly form a lasting memory of what stock markets are capable of.

Probably the most astounding observation in hindsight: instead of fleeing volatility, younger investors flocked to self-directed investing because of it.

A perspective offered by Darlington with regards to younger investors was that younger investors were already comfortable with technology and transacting online, including on mobile devices, by the time the pandemic struck. These factors enabled younger investors to have an easier time adopting trading platforms, as well as consuming information related to investing online.

Service outages and customer service delays were also a reality at that time among many online brokerages. Especially vexing for new investors was the friction to opening an online brokerage account when wanting to act on what was clearly a once in a generation world event.

When asked about what RBC Direct Investing has done over the course of the pandemic to specifically address some of the technical and service gaps that impacted online investors, Darlington stated that there has been considerable investment in technological infrastructure as well as continued efforts to prioritize client service.

Bridging the Generational Divide

The fact that there has been a study commissioned to understand the needs of a new client segment is telling. RBC Direct Investing is intent on listening to this new group of investors because they represent the next chapter in the online investing story for this online broker.

Although the playbook for navigating the influx of new investors is being written (or rewritten) in real time, there are some good case studies of what’s happening in the US online brokerage market to draw lessons from. The takeaway south of the border is that providing the right kind of investing experience is what ultimately wins loyalty and earns new business.

When asked what RBC Direct Investing is or could be doing to support younger investors, Darlington cited a number of important touch points already in place for RBC Direct Investing clients. Resources such as the Investing Academy and “getting started” guides, as well as practice accounts, are good starting points for new investors.

Darlington believes that online brokerages such as RBC Direct Investing “have a responsibility to bring the right tools and resources to the table so the younger investors getting into it have the information and the tools that they need at their fingertips to make the best decisions for themselves.”

Continuing the Conversation

The trend among Canadian online brokerages to focus on younger investors undoubtedly hit an inflection point during the pandemic. Features like preferred pricing or waiving of fees were the first steps being taken by several firms.

Now, however, the fact that a much bigger online brokerage has taken on the task of understanding younger investors, presumably to better cater service to this group, indicates that even more change could be on the horizon.

RBC Direct Investing has created a strong ecosystem of investor content as well as a unique online community that should serve it well in its pursuit to deliver value to online investors. That said, there are also significantly higher expectations around being able to get things right.

After all, the perception of bank-owned online brokerages is that they’re not hurting for financial resources, and as long as commission prices per trade remain high, investors are certainly going to be demanding value-added features.

To navigate the new normal among clients who have very different takes on markets and beliefs about money, RBC Direct Investing – and other Canadian online brokerages – can come back to a point that younger investors stated in the survey about creating meaningful conversations around investing.

When asked what Darlington wished she had learned from her parents’ generation, she largely agreed with the sentiment of investors from the new generation. Learning about investing, or even learning how to talk about investing, is clearly something investors of all generations could benefit from. Not every market is going to be like the past two years. If Canadian online brokerages like RBC Direct Investing can figure out how to continue the conversation about investing, then there’s a road ahead younger investors can look forward to travelling, regardless of the bumps and turns.

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Look Back / Look Ahead: Qtrade Investor Q&A

What can beginner investors expect from your firm?

New investors can access an award-winning online investing platform, robust mobile-trading capabilities and unrivalled customer service. Qtrade Investor has consistently been ranked among the top online brokerages across all major rankings, including The Globe and Mail, Surviscor and MoneySense. We have achieved 22 first-place wins for best online brokerage over the past 15 years, and eight first-place awards in customer service experience over the past five years.

We empower beginner investors with online resources and innovative tools that help them invest with confidence. Just launched in 2020, Portfolio Simulator™ lets clients test investment scenarios in a simulator mode, to explore ideas and fine-tune their investment strategy, while Portfolio Score™ provides a second opinion on their portfolio, helping investors understand their diversification and risk exposure and grading the selected securities across five key dimensions. If a beginner investor is looking to build an ETF portfolio, with just a short series of questions, Portfolio Creator™ generates a portfolio, customized to their investing preferences, that will help them maximize risk-adjusted returns.

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Discount Brokerage Weekly Roundup – January 25, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Lightning Roundup: Other Interesting Developments

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

Gaining Wait: Customer Service Wait Times Raising Tempers

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

Getting a Taste for More: Tastytrade Gets Acquired

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

Let’s Talk About Trades

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

Influencer’s Gonna Influence

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

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

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

Discount Brokerage Tweets of the Week

From the Forums

Ch-Ch-Ch-Ch-Changes

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

Engineering a Lucrative Life

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

Into the Close

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

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Discount Brokerage Weekly Roundup – January 11, 2021

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

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

Deals Activity Shows Cash Is King

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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From the Forums

Breaking Up Is Hard to Do

How do you end a relationship with a financial advisor and take control of your own investing? That’s the question on the mind of the investor in this post. Fellow Redditors offer their opinions.

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It’s the most wonderful time of the year for anyone with a Tax-Free Savings Account. DIY investors share their enthusiasm for making a lump-sum TFSA contribution as soon as possible each January.

Into the Close

The tragic and shocking events that unfolded in the US in the first few days of 2021 certainly do offer cause for pause. As the fallout from that surreal riot/coup attempt continues to play out, there are still scary headlines about COVID-19 here in Canada. It goes without saying that we could all stand to hear some better news – or at least see a steady stream of cute kittens as a palette cleanser. It’s all about finding the small wins at this point.