The spookiest month for online brokerage deals and promotions is finally here. October is famous for tricks and treats, and this year in particular, it seems like investors are in for a few treats in the deals section (and some sneaky tricks too). Sadly, it also signals the end of the wildly popular Sparx88 custom offer from Questrade.
In the “treats” column, there is a mix of new and extended offers for self-directed investors to choose from. To kick things off this month, HSBC InvestDirect has launched a commission-free trading offer, and both Qtrade Direct Investing and RBC Direct Investing have extended their offers as well.
Like all Halloween treats, if there’s one thing for self-directed investors to pay attention to with these new and extended offers, it’s the expiry dates. In particular, there are two sets of dates: the actual expiry date to be eligible for the offer, and the expiry date on the commission-free trades as well.
As the commission-free trading battle escalates among Canadian online brokerages, we are starting to see the number of commission-free trades being given out increase, as well as the timeframe over which to use these trades – to a degree. The exception, for now, seems to be the latest offer by HSBC InvestDirect which gives clients up to 60 days to use up to 60 commission-free trades. By comparison, Qtrade Direct Investing is offering 50 commission-free trades that are good for use until just about the end of April 2022 – which is almost seven months from the time of this posting. And, RBC Direct Investing is giving out 50 commission-free trades that last up to two years.
Somewhere in the treats may be a trick or two.
Expiry dates, especially those that are scheduled in the not-too-distant future, may be one way Canadian online brokerages might encourage users to sign up sooner rather than later. As we have seen in several cases this year, including in the Qtrade Direct Investing and RBC Direct Investing offers that were extended, the “flexibility” on the expiry dates is something that online brokerages can use as an option to lean into offers that are working, or pivot away from in case they see conditions change.
With so much change expected across the Canadian online brokerage industry over the coming months, we believe deals and promotions will be an exciting place to monitor. Nothing buys time on lowering commission rates like a commission-free trading deal, so for those online brokerages looking to explore the appetite for commission-free trading interest, there’s never been a better time to run an offer like this.
Expired Deals
There was only one noteworthy deal expiration heading into October: the end of the Sparx88 Questrade promotion. After a four-plus year run, this deal wound down as some behind-the-scenes changes to how Questrade manages custom offers required that this be phased out. On the plus side, there will be a new Sparx/Questrade offer coming soon, so stay tuned.
Extended Deals
Two big names in the Canadian online brokerage space elected to extend their current commission-free trade offers. The first, RBC Direct Investing, moved the expiry date from their 50 commission-free trade offer from the end of September to the end of October. Qtrade Direct Investing also extended their 50 commission-free trade offer until the end of December, a bold move considering the anticipated ramp up of offers slated to come online in the next two months.
New Deals
HSBC InvestDirect is bringing back a familiar face – the 60 commission-free trade offer. Starting in October and running through to the end of December, HSBC InvestDirect is offering up to 60 commission-free trades (North American equities and ETFs only) good for up to 60 days.
To stay on top of all of the latest discount brokerage deals and promotions, including quick access to promo codes, be sure to check out our online brokerage deals section.
Now that the Canadian federal election is (finally) behind us, there’s little to distract us from the fact that the RSP season ramp up is just around the corner. If there is one thing that is synonymous with elections, however, it’s constant polling – something that has interestingly become a focal point in the online brokerage space as well.
In this edition of the Roundup, we review the launch of a new investor sentiment index developed by one of Canada’s largest online brokerages and explore where the upside of sentiment tracking may lie. Next, we take a look at some important updates on the zero-commission trading file, including a big name entering the US and an update to what’s unfolding here in Canada. Finally, there’s lots of new-feature buzz in the forums – from crypto to new mobile apps.
Tracking the Pulse of Investors: TD Direct Investing Index
Regular readers of SparxTrading.com know that we’re bullish about bulls and bears – and measuring self-directed investor sentiment. So, we were delighted to see one of Canada’s largest online brokerages, TD Direct Investing, announce this past week, the official launch of a new tool that measures investor sentiment.
The TD Direct Investing Index is a compilation of metrics that reflect the optimism (bullish) or pessimism (bearish) of self-directed investors based on trading behaviour from the prior month. The four key areas that comprise the index measure whether investors were:
Buying or selling more
Buying (or selling) more on a rising market
Buying more at the top of a market
Retreating to less risky investments
Like all indices, however, the details on the underlying methodology matter.
The specific definitions of these parameters are detailed on the TD Direct Investing Index help page as is information on the frequency of publication of this data (monthly) and information that is on the index web page.
There is lots of interesting data for self-directed investors to poke around, most notably historical data on the overall sentiment score. Historic data exploration comes in two views: the past 13 months or the previous two years. What is especially appealing to the data enthusiasts is the filter function which enables users to analyze age, regional, trading style, and sector data in fairly granular fashion. Data can be filtered across stocks being bought, sold, or held.
Ultimately, how useful this index is will come down to what individuals can do with this information. For example, will DIY investors make decisions about investing based on what they’re seeing other investors do, especially given the lag time? Will it help them (reliably) identify a good time to buy or sell? Potentially identify names of interest to invest in? Or is it just “nice to know” information that will add to the noise of numbers and stats to sift through?
Regardless of the usefulness this tool ends up having for self-directed investors, for TD Direct Investing, the creation of a sentiment index provides a rich source of content to be able to talk about.
The TD Direct Investing Index web page contains a lot of data and is coupled with a video segment that reviews that data as well. While this tool takes things to a new level of depth and complexity, TD Direct Investing is not alone in reporting the activity of their user base for a source of content.
Robinhood was infamously the source of investor trading data. That data was available via API and sites, such as Robintrack, reported on the trading activity of Robinhood investors, which, in turn, enabled other investors to trade alongside (or against) that activity (before Robinhood shut down their API in August 2020).
The amount of work put into the TD Direct Investing Index is sizeable, which also means that it is likely going to take considerable effort to maintain. So, while other online brokerages might be able to put something like the index or another sentiment-like indicator together, sustaining it will require considerable resources.
For now, it seems like return on investment for the TD Direct Investing Index will be in marketing value. The fact that the index data is available on the public facing website (versus being made available only to existing clients) offers a reason to keep coming back to that site for anyone interested in the data it contains.
Ironically, the complexity and detail that make the index useful for analysis might also be its biggest limitation.
There is a clear trend in design among online brokerages and fintech firms towards simplicity and reducing information. The TD Direct Investing Index, however, has so much data that only investors who are highly invested (pun intended) in learning about DIY investor sentiment would really keep coming back to this tool on a regular basis. Despite the strong pun game and occasional Drake lyric references in the write-ups (shout out to the compliance folks for letting the mullet references through), there’s a lot of information to process, which might lead some readers to say…I can’t even. (Not us though.)
Zero-Commission Revolut-ion Continues
With zero-commission trading now table stakes among the largest online brokerages in the US, and despite the chatter about clamping down on payment for order flow by the SEC, there are still fintech companies taking a shot at entering the online investing space.
This past week, another big fintech name, Revolut, signalled their intent to offer commission-free stock trading in the US. Last month, PayPal was in the spotlight after they too were reportedly making progress towards launching a stock trading platform, and while it wasn’t specified as to whether or not they too would be a commission-free trading platform, it is almost a given at this point considering rival Square’s Cash App provides commission-free trading.
Despite the extensive regulatory hurdles to entering the Canadian online brokerage market, it seems that Freetrade, the UK-based zero-commission online brokerage we first reported on in August, is continuing to add to its search for Canadian talent to help expand here.
Earlier this month, Mogo Inc, who announced earlier this year that they, too, would be entering the commission-free online trading space, completed the acquisition of Fortification Capital, which is being renamed to MogoTrade Inc. According to the press release, Mogo’s founder and CEO, David Feller stated “The acquisition of Fortification represents an important milestone towards the launch of our new commission-free stock trading platform, providing necessary components on the regulatory and technology side to complement our existing capabilities.”
After the launch of commission-free trading by National Bank Direct Brokerage, there has been a lot of discussion among Canadian self-directed investors, as well as online brokers, as to what will happen next. While we’re generally reluctant to report on rumours, there is chatter of a large bank-owned online brokerage prepared to roll out commission-free buying of stocks and ETFs, which if true, would almost certainly trigger others to match. Rumours are also swirling about a “digital” bank in Canada also.
Internationally, it appears that zero-commission trading is continuing to gain traction, so it’s now a matter of when, and perhaps how, not if Canadian online brokerages follow suit. The trend emerging is that fintech firms view stock trading as one of series of financial services that they can offer, which sounds like a familiar value proposition to the traditional message pitched by big bank-owned brokerages.
That said, even in the case of Revolut stepping into commission-free stock trading in the US required a significant runway (almost a year) of discussion with regulators before getting the green light to proceed. For firms looking to enter Canada, that runway could be substantially longer and barring any big name jumping into the Canadian space (like a certain well-known US financial institution), the existing online brokerage providers have a bit of time to position themselves accordingly.
From the Forums
App Quest
Fall leaves aren’t the only things changing colours this season. Big changes are coming soon at Questrade, as mentioned in this post on reddit. Find out the reactions from self-directed investors to recent news of a new mobile trading app and changes to the web interface.
Tales from the Crypto
It appears the crypto trading experiment at Wealthsimple Trade is gaining traction. In this post on reddit, investors weigh in on the pros and cons of being able to deposit more crypto into their Wealthsimple trading accounts.
Into the Close
With the end of September now almost here, it is important to recognize a couple of important upcoming events. First, the National Day for Truth and Reconciliation offers a chance for all Canadians to learn about, reflect, and engage in dialogue about the harrowing chapter in our history related to residential schools. September 30th 2021 will also mark the second “Make the World Better Day” at Sparx, where our team will be taking on the challenge of using our time and talents to positively impact the world around us. Anyone curious about the day can follow the Sparx Publishing Group on Instagram for updates.
With the Canadian federal election finish line in sight, whatever the decision, there’s likely to be a shakeup for self-directed investors and wealth management in general. It’s a toss-up, though, on whether any candidate will get more votes than Ted Lasso at the Emmys.
In this edition of the Roundup, we kick things off with one US online brokerage that continues to gain traction by listening to clients and is poised to grow with the launch of a new feature that is the envy of other brokerages. Next, we look at one Canadian online brokerage poised for a name change and potentially much more heading into the fall. Finally, we close out with some interesting chatter from self-directed investors about US-themed topics.
Given that Interactive Brokers typically targets and appeals to active traders, the continued growth in new accounts despite month/month declining volume of trades presents an interesting picture. There is clearly an appeal to individuals seeking out Interactive Brokers despite them having a paid commission structure. To be clear, Interactive Brokers also has a zero-commission option called IBKR Lite; however, the majority of their trading accounts come from their paid commission structure.
As Canadian online brokerages contemplate the shift towards zero-commission trading, there might be a clear lesson to being able to provide clients with a quality trading experience that they would be willing to pay for.
New Account Growth Momentum Continues
As the chart below clearly illustrates, new account growth at Interactive Brokers has been on a bit of an upswing after bottoming out in May.
One of the reasons that traders might be turning to Interactive Brokers is because of market volatility. When markets are volatile, it tends to attract in active traders and “fast money” seekers. While it may not be predictive of a volatile turn in the market (especially since the data was from August), there’s a sense that some kind of big market downturn is nearing. Recent comments by founder of Interactive Brokers Thomas Peterffy about upcoming “compression” in the markets is also a sign that certain online brokerages are thinking about a market downturn as well.
Another factor driving new account growth could be driven by Interactive Brokers eliminating inactivity fees in July. By preventing clients from leaving, the hurdle to positively impact net new accounts is lowered. Though Canada makes up a very small portion of the Interactive Brokers business, chatter from online investors in Canada nonetheless shows that bringing over less active accounts, such as TFSAs and RRSPs, makes more sense now that those additional accounts won’t incur inactivity fees. This fits with the view that accounts are continuing to be opened despite trading activity falling.
Cryptocurrency Trading a Catalyst for Customer Growth
Another catalyst for account growth at Interactive Brokers will likely come from their latest decision to launch cryptocurrency trading.
As we reported two weeks ago, the roll out was interestingly quiet. However, this past week, the PR machinery kicked off with the official announcement and appearance by Peterffy on CNBC.
The shift in messaging by Interactive Brokers regarding cryptocurrency trading has been interesting to watch. For quite some time, there was a notable skepticism about digital “currencies,” however, it seems that now there is a different thesis emerging: a small but important risk associated with individuals losing faith in traditional currencies.
While a billionaire is hardly representative of the mass market, it seems that he, like the clients of advisors using Interactive Brokers, wanted direct exposure to cryptocurrencies. Despite Peterffy’s deep skepticism on digital currencies, he’s savvy enough to recognize that some exposure to them is now a requirement to hedge against the scenario that confidence in traditional currencies falters. Intriguingly, Peterffy admitted that he’s been a holder of bitcoin in his portfolio for at least three years.
Interactive Brokers launching cryptocurrency trading is a very big deal for the online brokerage space.
While regulatory uncertainty may still prevent other brokerages from following suit right away, that Interactive Brokers figured out a way forward will expedite other brokerages wanting to seriously figure out how to deliver this as well. Robinhood already does; however, they have not yet figured out how to grow without attracting significant regulatory scrutiny. The experience in navigating regulatory hurdles, however, is something that may work in favour of larger and more established brokerages.
The source of interest in cryptocurrency has now gone beyond the “fast money” and extends to the “smart money” that is using exposure to cryptocurrency as a hedge. And, if Peterffy is an indicator of “smart money” then he has already validated the thesis on crypto.
For Canadian online brokerages looking at the US market is a little bit like peering into the future. Now that the zero-commission trading trend, which emerged in meaningful way in the US in 2019, has arrived in Canada, figuring out how to generate revenues outside of commissions on equities trading will be a priority. While the focus for revenue drivers from active traders will likely still be options trading (for those brokerages that offer them) in the near term, the convenience (and temptation) of crypto exposure and trading is on the horizon.
It will likely be some time before Wealthsimple Trade, the only online brokerage in Canada that has an associated product to trade cryptocurrency, faces competition from other online brokerages on the crypto trading front. Exactly how long, however, will be tough to tell. As was the case with National Bank Direct Brokerage launching commission-free trading, competition for online brokerage market share can come from unexpected places.
Looking at the latest stats for Interactive Brokers and the launch of cryptocurrency trading as well, we anticipate there to be continued strength in new accounts heading into the end of the year. Any kind of spike in cryptocurrency prices or volatility will. The lesson to Canadian online brokerages is clear on a few fronts. Despite what personal feelings executives may harbour about crypto, the reality is clients from entry level retail investors to sophisticated ultra-wealthy clients are looking for access to cryptocurrency. And, as Interactive Brokers has shown, listening to and delivering on what clients want is a great way to keep them.
Virtual Brokers Rebranding Moving Ahead
This past week Virtual Brokers sent out a notice to clients that they will be updating their branding…soon. It’s been in the works for a while but back in May of 2020, we reported that the parent of Virtual Brokers, CI Financial, announced that they would be consolidating brands they owned (including Virtual Brokers) to a streamlined CI-containing name: CI Direct Investing. When it comes to branding, the “direct investing” label has grown in popularity, replacing terms like “discount brokerage” and “online brokerage.”
Since the mention of the rebranding in 2020, advertising and marketing from Virtual Brokers has been notably quiet. Prior to their acquisition by CI Financial, Virtual Brokers was a visible presence online and especially in the Globe and Mail online brokerage rankings.
Now that a new moniker seems imminent, we expect that regaining the spotlight will also be a part of the plan.
What the CI-branded online brokerage has in store for a big splash could be interesting, especially given the timing. While traditional advertising and marketing might generate some curiosity, in a marketplace where zero-commission trading is now a reality at National Bank Direct Brokerage and Desjardins Online Brokerage and, to some extent, Wealthsimple Trade, getting noticed is going to have to come along with a hefty promotional offer and/or lower commission pricing.
In terms of timing, CI will not want to miss the opportunity to challenge other online brokerages this RSP season, the marketing ramp up to which typically starts in October and November. Already it’s shaping up to be a busy season.
Earlier this year, Qtrade Direct Investing also launched a significant rebranding effort and heading into RSP season they will likely be looking to make a bolder move to advertise to Canadian investors. We noted in an interesting reference to Qtrade Direct Investing’s new marketing strategy that their new agency, King Ursa, has a campaign scheduled for launch in November.
And, on the deals and promotions front, Wealthsimple Trade recently announced that they’re not doubling but tripling down on their referral program, offering triple the stock rewards to encourage new accounts to sign up.
While Virtual Brokers was a well-known name to the investors and traders, CI Financial’s move to rebrand under the parent entity makes a lot of sense for the long run. For their part, CI has been aggressively growing and it’s clear they’re not afraid to think big or punch heavy. With $320 billion dollars of assets under management and annualized revenues of $2 billion dollars, the CI brand brings with it much more financial horsepower than the Virtual Brokers brand alone ever could have.
There’s also another picture emerging too, based on the strategy to globalize their brand, which could see CI setting itself up to take some of its digital and direct investing/trading capabilities further than just Canada. Their aggressive moves to acquire US wealth management firms could be setting the stage for a wider push beyond Canada, and the digital platform could set CI Financial up to challenge online brokerages there too. After all, PayPal recently reaffirmed its commitment to roll out stock trading to its clients in the US, so there are still financial services providers willing to bet on direct investing as a way to gain or keep market share.
It won’t be too long before we see what the formal roll out for the new Virtual Brokers will be. Based on the recent developments across the self-directed investing space in Canada, we’re betting we won’t be able to miss the launch, and neither will Canadian online brokerages.
From the Forums
Taste Tested
The rumour mill keeps swirling around US-based online brokerage Tastyworks coming to Canada. In this post on reddit, find out what investors had to say about the potential arrival and the long wait.
Wealthsimple Trade USD…Coming Soon?
Also from the rumour pile, this post from reddit caught our attention regarding a highly sought-after feature from Wealthsimple Trade: USD accounts. Along with a potential update on the timeframe, the fact that the post was written by someone already transferring away from Wealthsimple was fascinating – especially in seeing what Wealthsimple is doing to get people to stay.
Into the Close
That’s a wrap on another eventful week. Technically this past week did feature an official announcement from Desjardins Online Brokerage lowering their commissions to zero, so the conversation around prices dropping for self-directed investors continues. It’s going to be a wild week of earnings announcements and now that the dominoes have started to fall with regards to commission pricing, it’s going to be anybody’s guess as to what online brokerages in Canada start doing heading into the end of the month. Hold on tight.
During the pandemic, it’s understandable to lose track of time. Yet, there are some dates that stand out, such as September 11th, that are forever etched into the minds of those who lived through the terrible tragedies of that day. Despite 20 years going by, it is still a vivid memory for many, and though painful to reflect on, the lessons learned from that day show that hope can ultimately triumph over hate.
In this edition of the Roundup, we kick things off with a look at the new features that launched on SparxTrading.com to help self-directed investors and industry enthusiasts track and research the latest developments in the online brokerage space. Next, we report on the latest zero-commission trading chatter, with a potential big move by one brokerage and another big brokerage potentially not moving. As always, we have some interesting commentary from the forums, including the launch of cryptocurrency trading at one brokerage that rolled out abnormally quietly.
Suffice to say, we felt it needed a makeover to keep pace with the new world of online investing. Little did we know at the time, 2021 would also be the year in which so much would change in the world of online investing. It seems like our timing was about right when it came to prepping a new look and feel for a brave new world filled with new trading platform features, zero commission pricing, and new providers (coming soon).
This past week, we rolled out some important updates to the website which we think will help self-directed investors (as well as industry observers who want to keep up with what’s going on in the space) stay on top of the big changes heading into RSP season.
Investor Feedback Added to Online Brokerage Reviews
When it comes to researching online brokerages, one of the biggest questions online investors have is what other online investors have to say. Community is a huge part of the self-directed investor experience, however, navigating the different online sources and forums can be a bit daunting.
To help make accessing user feedback easier, we have now integrated comments made about each online brokerage on channels like reddit and Twitter and directly connected them to each online brokerage review. So, for example, the latest comments made by online investors about Questrade or Wealthsimple Trade on reddit appear at the bottom of each of these respective online brokerage reviews.
Given that some of these brokerages generate a lot of conversation online, we added the ability to filter by channel, so readers can focus on the conversation taking place on reddit or on Twitter. To help combat spam and other nefarious activities, we also have developed a filtering system, so users also don’t have to scan through the questionable materials to find the good stuff.
Finally, to make things easy to verify, we’ve hyperlinked each of the comments so anyone researching investor comments from our website can go directly to the reddit or Twitter post to see what the rest of the conversation contains.
Our system is designed to evolve and learn over time so while it is not perfect at filtering out or capturing all of what we’d like, it’s a great advancement and beats having to sift through everything about a single brokerage manually. It’s something we’re going to continue to tinker with to improve, but we’re really excited to see this feature now in action.
Deals and Promotions Section Gets Reorganized
When we first launched the deals and promotions coverage on SparxTrading.com, we were able to capture most of the information in an “at a glance” format using tables.
Unfortunately, even though our website was responsive (a big deal circa 2011-2015), the tables that powered our comparisons and the deals and promotions were not. Despite that being the case, these tables were really popular because they provided a birds-eye view of the different offers and promotions out there – a great feature for people who were browsing and for online brokerage staff who wanted a handy reference when comparing offers across the industry.
It was a big decision (and a huge amount of work) to completely refactor the deals and promotions section, but we felt it was worth it to deliver a more relevant user experience and make it more accessible to users on mobile devices. In the new format, self-directed investors can efficiently compare online brokerage promotions and offers using filters to pick what attributes are most relevant, whether that be minimum deposit amounts, account types, or offers from specific online brokerages.
In terms of the latest updates, one of the first things users will notice on the deals index page is that we’ve tidied up the design and user experience on the filter to perform more efficiently. Users can filter deals by deposit amount, online broker, account type, and deal type. Those interested in browsing can also view all deals by selecting all.
To keep advertising to a minimum on the website in what is sure to be an increasingly crowded advertising market, we wanted to find an alternative way to feature offers. There are now two spots at the top of the deals index results list for specific deals to be highlighted. These are offers that we might be compensated for either through affiliate revenue and/or via paid placement by online brokerages.
Featured Deals Snapshot
Finally, we’ve adjusted the design of the deals cards themselves to display promotions and essential information more clearly. Data about the deal, such as the minimum deposit, expiry date, and promo code, are readily visible at a glance and the details about an offer are easily expanded when needed.
We anticipate deals and promotions to play an even greater strategic role in how Canadian online brokerages navigate the new reality of a bank-owned online brokerage offering zero commission trading.
Case in point, we’ve seen a big bank competitor to National Bank Direct Brokerage, RBC Direct Investing, offer a 100% increase in the number of commission-free trades and the duration in which to use them compared to their previous offer. Specifically, new accounts at RBC Direct Investing can qualify for 50 commission-free trades for up to two years. Most passive investors will be challenged to use that up within the time frame, so those self-directed investors looking for the features of a bank-owned brokerage like RBC Direct Investing and don’t mind the premium commission price, will find a promo that can be used for up to two years compelling.
Also, there’s a lot that can happen within two years now that commission-free trading is starting to surface (see article below) and innovation among online brokerages is accelerating. Using deals and promotions strategically enables online brokerages in Canada to effectively delay the switch over to full zero-commission trading.
More Zero-Commission Trading Chatter
Another week, another big development in the zero-commission trading [storm] and another week in which other stories get bumped because zero-commission trading in Canada is kind of a big deal.
While we generally don’t report on rumoured activity, in our in-depth analysis of the launch of commission-free trading by National Bank Direct Brokerage, it was clear that the closest rival to NBDB would not have much choice but to either match the offer or make a substantial cut to pricing to defend its business.
There are few details to report on at this point, however, what has come through online investor chatter has been reports of clients contacting Desjardins Online Brokerage directly and having commission-fees waived. Until a formal announcement is made, there is likely to be a flood of calls and emails from clients requesting the same, which is why we expect to see a definitive (and formal) response rather quickly.
Currently, the standard commission at Desjardins Online Brokerage (aka Disnat) is $6.95 for the “Classic” option and as low as $0.75 per trade for the “Direct” option – typically the choice for active traders (defined as making more than 30 trades per month).
If confirmed to be true, the roll out taking place in this fashion is evidence that Desjardins Online Brokerage is being forced to respond quickly, and likely, reluctantly.
Unlike other online brokerages outside of Quebec, the local competition between National Bank Direct Brokerage and Desjardins Online Brokerage is extremely fierce. National Bank Direct Brokerage has set its sights on expanding nationally, which then justifies its move to zero-commissions because it can win the volume of business required to make commission-free online investing. For Desjardins, however, it does not seem like they have the same growth path in mind. With their stake in Aviso wealth, they can simultaneously cater to their core market in Quebec while continuing to benefit from higher commission pricing being charged by Qtrade Direct Investing outside of Quebec for however long that can be continued.
Though clearly an important development, Desjardins Online Brokerage potentially being the next online brokerage after National Bank Direct Brokerage to eliminate trading commissions on equities and ETFs is still something the whole landscape of Canadian online brokerages can absorb. TD Direct Investing going to zero, on the other hand, would be a game changer.
This past week at the Scotiabank Financial Summit, comments by outgoing TD CEO, Bharat Masrani, revealed the executive view of going to zero commissions. Below is an excerpt from a discussion with Meny Grauman, Managing Director at Scotiabank, host of the virtual summit.
Meny Grauman
You talked about TD’s Direct Investing business, definitely yes, very topical. So I thought to just touch on that. National Bank and Wealthsimple going to $0 commissions and the question is, will TD match that offer? What’s the competitive response? How do you see this all playing out in the market?
Bharat Masrani
You know, Meny, we’ve been in this business I think we were the first bank in Canada to get into it in the mid ’80s I think. And, we’ve seen price compression come and go. We’ve seen lot of different sort of business models emerge out of it, and we’ve been able to manage it very well. So, is this a shocker? Absolutely not. Ours is a very large business, fully segmented and very integrated to the rest of the TD offerings. In fact, 80% of our direct investing clients have other TD products and TD relationships as well, so tells you how integrated we are.
Secondly, the offerings we have, from a very sophisticated options trading to a offerings for active traders, for offering for long-term investors, so you know there are offerings, there are specialized products available in each of these segments. And is it, I mean, you should, this should not come as a shock, but based on certain types of traders, we have special arrangements based on their needs and their offerings, and what value they need. And so, when we look at our trading commissions are taxed well, the reality is, depending on which segment you’re looking at, it could be less than that.
So I think it’s important to keep that in mind. So we feel very comfortable with our position, the offerings we have integrated with retail, the products that we offer, the services, if you look at thinkorswim platform, there’s nothing like that in the options trading business. And if a client needs that, that’s where they’re going to go.
And finally, I mean, there’s a lot of sort of, write-ups on this, but the overall commissions in this business represents about 1% of total revenues at TD. So we’ve got to keep this in perspective as to what it does to the bank, than to think that oh, my God, this is a major, major, I’m not undermining anything, every part of our business, I love every part of our business and the business model around it. But our job is to adapt to the environment we find ourselves in rather than hoping, wishing and praying that we go back to the good old days, that does not happen. And we have shown consistently that we will adapt, and we will adapt faster than others and I have no doubt that we will do so.
And another point I’d make, we just introduced TD GoalAssist, that’s a new offering there that competes very well, if a client is just requiring vanilla type of trading and services and then not the other value-added services that I just talked about. So important point is event that has occurred don’t want to underestimate as to what it means, but we feel very comfortable with the business model we have and the value proposition we provide to our customers.
There’s clearly lots to unpack from that statement, however, there are three specific data points of interest.
First, 80% of TD Direct Investing clients are also clients of other TD products and services. If this is true for TD, then it is likely comparable at other big-bank-owned online brokerages as well. The notion that Canadian self-directed investors would prefer to have the convenience of keeping all of their financial affairs at one firm is evident in that data point. The move by National Bank Direct Brokerage, therefore, is likely a play to acquire new customers that will then also want to simplify the management of their financial affairs by housing other financial relationships under the same digital roof.
The second point of interest is that revenues from commissions at TD represent about 1% of total revenue. For a finer point, as referenced in their last earnings call, the amount would be 50% of the broker dealer fees and commissions which last year brought in $860 million dollars and year to date have generated $849 million dollars. The “hit” that TD would incur, therefore, would be something that could be absorbed by the bank as a whole. For reference, TD generated $42 billion dollars in revenue in 2020 and almost $32 billion dollars year to date.
Third, and perhaps most instructive to those holding out for the big banks to make a move similar to National Bank Direct Brokerage and potentially Desjardins Online Brokerage, is that TD feels confident enough in their value proposition, in particular with their options trading platform and other elements, that they don’t need to rush to lower their commissions to zero. On this front, they’re happy to let others go first, which likely mirrors what at least one or two of the big bank online brokerages are thinking as well.
While TD is clearly stating they are ready to adapt (read: respond) if a sizeable competitor or peer firm moved to reduce their commissions substantially, self-directed investors hoping for a quick response to National Bank Direct Brokerage shouldn’t hold their breath. Movements by Desjardins Online Brokerage and potentially other smaller online brokerages seem to be inevitable in order to preserve market share. TD Direct Investing doesn’t really have to worry about that.
The rate-limiting factor, it seems, is how aggressively National Bank Direct Brokerage is prepared to advertise against competing brokerages while those online brokers maintain high commission rates. With more discussion and conversation on zero-commission trading to be almost a given, National Bank Direct Brokerage will likely be heavily referenced in that discussion, earning them a big discount on the media exposure.
That said, picking a fight with all of the other Canadian online brokerages this far ahead of the RSP season still gives competitor firms a chance to respond. And they will.
Had National Bank Direct Brokerage dropped this news in October or November, other Canadian online brokerages would have been hard-pressed to pivot their campaigns and advertising buys quickly enough.
With a few extra weeks of lead time and a healthy fiscal year performance across the board, there just might be enough capital and circumstance to warrant some pretty interesting fireworks this year. And it seems the best place for that might just be the deals and promotions section. Here’s hoping.
From the Forums
Interactive Brokers Crypto Trading Launch
After a lot of hype around cryptocurrency trading being available at Interactive Brokers around September of this year, the actual launch of this feature was abnormally quiet. No coverage (yet) on major media but in this reddit post, online investors took notice (and we did too). More to come on this story but check out the early reactions.
Crunching the Numbers on Motley Fool
As a very visible source of information about different investing opportunities, Motley Fool is a recognizable name among online investors. In this interesting post on reddit, one individual shared their analysis of whether the forecasts from Motley Fool lived up to the reality when it came to portfolio performance.
Into the Close
Apparently, there is lots to say (and still more to come) when it comes to zero-commission trading. There are other fascinating stories unfolding across the online brokerage space, so we look forward to highlighting those as well. At a certain point we can probably defer the reporting to a DJ Khaled meme. Until then, however, there’s lots going on between the launch of football (NFL) and the final stretch of the Canadian federal election (where people toss political footballs and, occasionally, pebbles). Whatever you’re focusing on this week, we hope you find some reasons to stay positive!
If you find it hard to believe that it’s already September, you’re not alone. With so much taking place this year, especially in the online brokerage industry, the months have flown by, and we now find ourselves on the cusp of what is usually the “busy season.” Another reason that time flies: it’s because we’re having fun.
After a marathon edition of the Weekly Roundup last week, we now return to a more digestible edition of online brokerage industry coverage. First, we launch into the deals and promotions updates to start the month and look at the increased importance that promotions are poised to play in a commission-free world. Next, we recap some other important developments, including the 10-year anniversary (that’s X in Roman numerals!) of the launch of SparxTrading.com. Finally, we close out with commentary from the online investor forums.
Deals and Promotions Update
There are lots of different reasons people look forward to the start of a new month, but here at Sparx Trading, it’s a convenient time to review Canadian online brokerage deals and promotions.
In case you missed it, the big news this past month – perhaps this decade – is that National Bank Direct Brokerage eliminated commission fees for trading stocks and ETFs in August. This is still a very recent development, so while we have yet to witness any immediate reactions in pricing or promotional changes from Canada’s online brokers, we believe it will be a matter of time until we see other online brokers start to lower their pricing as well.
Given the lack of immediate reduction in pricing of commissions, online brokerage promotions and incentives are poised to take on an even more important role for Canadian online brokerages to secure existing accounts and even attract new ones.
Despite the immediate relevance that zero-commission trading provides to National Bank Direct Brokerage, one of the big challenges it faces is the “friction” that online investors who would rather not move. Another challenge is the fact that as an online brokerage, National Bank Direct Brokerage is relatively unknown compared to bigger bank-owned brokers or those that have been aggressively advertising, such as Questrade or Wealthsimple Trade.
Thus, Canadian online brokerages who aren’t yet ready to drop their commission prices to zero have a brief window of opportunity to show up big during the next few months. As such, we forecast that September through November will represent a very volatile period for Canadian online brokerages.
In this month’s deals and promotions, there’s a lot to report on already. Starting with the special Sparx Trading exclusive promotion from Questrade. The now famous Sparx88 promo code for Questrade accounts is having its sunset at the end of September, after having a run of just over four years.
It has delivered exceptional value for online investors opening an account with Questrade as one of the best commission-free offers at that online brokerage and played an important role in the promotions space after Questrade largely pulled back from offering multiple promotional offers.
There some important changes taking place behind the scenes at Questrade, so we were informed it would no longer be possible to run this offer. For anyone who signs up using the promo code before the expiry date of September 30, they have until the end of December of this year to use up their commission credit.
On the expiry front, there were a pair of deals that officially concluded at the end of August – one from Scotia iTRADE as well as one from BMO InvestorLine. In keeping with historical trends, however, BMO InvestorLine replaced their outgoing cash back offer with a new cash back incentive. Interestingly, BMO InvestorLine’s newest promotion runs until the beginning of November, which is about the point of time in which we expect to see a surge in launches of online brokerage promotions.
Also worth noting, the minimum deposit requirement for the InvestorLine offer has been raised from $15,000 to $25,000. Currently, BMO InvestorLine is the only Canadian bank-owned online brokerage advertising a cash back promotion. Intriguingly, the only other Canadian online brokerage offering a cash back is Wealthsimple Trade, whose “free stock” sign up bonus offers self-directed investors some cash when opening a new account. Questrade and Scotia iTRADE have cash bonuses available through referral codes.
Another interesting development that we first spotted being advertised online in August was a commission-free trading offer from RBC Direct Investing.
Unlike some of its previous commission-free trading offers, RBC Direct Investing’s promotion was both larger and longer in duration. This new offer, which runs until the end of September, is for 50 commission-free trades that are good for two years. Previously, RBC Direct Investing’s free trade offer was typically 25 trades for one year, so this new promotion effectively doubles that.
The move to increase the size and duration of the commission-free trade offer is likely to be something other Canadian online brokerages consider when planning similar commission promotions. As mentioned above, by providing a longer time horizon for investors to use commission-free trades, there is less immediate pressure to switch brokerages and less pressure to lower commission levels outright, especially for passive investors or those who are not yet ready to make the leap to a lesser-known brokerage.
While the beginning of the month started with a shockwave of news, the end of the month provides a natural jumping off point for several online brokerages. Qtrade Direct Investing and RBC Direct Investing both have campaigns that are scheduled to expire at the end of the month, so it will be interesting to see what, if any, offers show up to replace them.
The ramp up to the start of RSP season is also just around the corner, which, based on everything that has transpired these past few weeks, suggests prime time for some big incentives to start showing up. Larger online brokerages may just roll the dice and come to market with similar offers as they had last year, but smaller or less popular online brokers are at a pivotal moment where they will have to be launching exceptional new features or introduce offers that are going either buy time or clients (or both).
With the move by National Bank Direct Brokerage catching many industry observers (including us!) by surprise, these next few weeks and months will bring a host of pleasant surprises for Canadian self-directed investors. And we haven’t even mentioned the new online brokerages slated to enter the online trading scene soon. It seems entirely fitting that “fall” is the season in which we’ll now start to see commission costs for online investors meaningfully drop. Stay tuned.
Online Brokerage Quick Takes
After the marathon read that was last week’s Roundup, we wanted to give readers a bit of a break with some quick highlights of other news stories around the online brokerage space that didn’t get as much press or coverage.
The launch of fractional shares at Wealthsimple Trade earlier this year was a very big deal. Despite the rollout only featuring a handful of Canadian and US stocks, a few weeks ago, a lot more were added to the list of stocks eligible for fractional trading. At the time of publication, that list has now grown almost ten-fold to 150 stocks. The vast majority (115) of those stocks are US-listed securities, which, given their popularity, availability, and profitability to Wealthsimple Trade, makes sense.
However, the list of Canadian stocks (35) has some additional names which are very familiar to Canadian investors. Interestingly, on the list of US securities, there are also a number of ETFs.
This much wider selection is going to be of much greater appeal to investors, however, unsurprisingly, the demand for more Canadian securities is likely a priority for self-directed investors (rather than traders) in Canada.
Complementing the launch of more securities eligible for fractional shares is the increase in the amounts that can be funded instantly to Wealthsimple Trade from $1,000 to $5,000. The monthly subscription to enhance features on Wealthsimple Trade is currently $3 which also provides real time snap quotes from Canadian exchanges as well as Nasdaq.
Fast deposits of larger sums of money are an area that non-bank-owned online brokerages have struggled with in the past, so it is no surprise to see “account funding” be a feature that Questrade, as well as Wealthsimple Trade, are working to improve.
The summer has been a busy one for Wealthsimple Trade with no signs of a slowdown in terms of new feature releases. It appears that they are pushing very hard to have some very big features in place for RSP season, and with news coming out almost weekly on Wealthsimple Trade, it is hard to imagine other online brokerages being able to rest easy knowing that current pain points of Wealthsimple Trade customers are going to be that way for too much longer.
SparxTrading.com Turns 10!
Also eclipsed by the big news from National Bank Direct Brokerage: SparxTrading.com’s official birthday!! It’s hard to fathom that we officially went live 10 years ago in September with a mission to help untangle the journey of self-directed investing and that we’ve been around for this long.
It has been quite the journey to where we are today. From a conversation among friends expressing frustration at the state of online investing to becoming one of the most important voices in the Canadian online brokerage industry, I certainly didn’t picture this world 10 years ago.
In so many ways, the world for online investors a decade ago was dramatically different than the one now. There was no inkling that commission-free trading was “a thing” and we were just coming out of the Great Financial Crisis, so sentiment on markets was understandably skeptical. Nevertheless, it was clear at that point that the world of online investing was prohibitively inaccessible to so many, and it was time to change that.
I would like to think that in some small way, we’ve helped improve the experience of online investors over the past decade, whether it’s been through making it easier to research online brokerages in Canada, improve access to deals and promotions, or advocating directly to leaders across the industry as to what online investors are interested in.
As anyone who knows the Canadian online brokerage landscape will tell you, change often happens slowly, so patience has been a defining trait since day one.
The first “official” post on the original Sparx Trading site is still available – it was a reference to an investment blog called Juggling Dynamite, which is still going strong today. And, in a twist of fate that can only be one of those signs the universe tends to toss our way every now and then, a recent post on that blog happens to be a harbinger of where the parent to Sparx Trading, Sparx Publishing Group, is heading towards to help make the world better.
The Sparx team has now grown to 18, many more if you include new family members, pets, and one heck of a spider plant.
We’re so excited to see what the next 10 years has in store, and with the latest shift in the online brokerage industry in Canada, there seems to be as much of a need today for clarity for self-directed investors as there was when we first started. True to the mission of Sparx Publishing Group, we’re content to make the world better one post at a time.
Like most of the online brokerage industry, we too are actively working on new features and can’t wait to have them launch soon enough.
Thanks to everyone who has helped us get to this point, especially you curious and supportive readers who enjoy the world of online investing as much as we do!
From the Forums
Kind of a Big Deal?
At the start of the month, it seems fitting to be talking about making a move from one online brokerage to another. In this post, one online investor wanted to know what the consequences were of transferring assets into a TFSA from a non-registered account. Check out what fellow online investors had to say about making the shift.
Sliced vs Diced
Smaller portions are all the rage right now when it comes to buying stocks online. With some very popular stocks like Amazon out of reach for many new investors, online brokerages and investment firms have gotten creative, in particular using fractional shares and ETFs to lower the bar to get a literal piece of the action. Find out what one reddit thread had to say about fractional shares versus ETFs on the NEO exchange.
Into the Close
That’s a wrap on the long weekend edition of the Roundup. There’s a lot in play – including the return of NFL football – so there’s something extra for fantasy football portfolio managers to stay on top of. We’re thrilled to be stepping into our 10th year with so much change taking place. September is often associated with the “back to school” theme, however, as we’ve come to appreciate (this year more than ever), every day brings something new to learn.
September is officially upon us, and with fall just around the corner, change seems to be the appropriate theme to capture what’s taking place in the online brokerage industry in Canada.
Of course, the big news this month is that National Bank Direct Brokerage launched commission-free trading at the end of August, signaling the start of a new chapter for the industry in which bank-owned brokerages are prepared to compete with the nimble upstarts in terms of pricing.
On the deals and promotions front, this is a particularly busy month, now likely made even busier by National Bank Direct Brokerage’s latest pricing move. All of this is great news for Canadian self-directed investors, who will likely benefit from more compelling promotions and pricing in the coming weeks and months.
The launch of the new commission-free trading structure at National Bank Direct Brokerage wasn’t the only story that is relevant to the deals section this month, however. For example, we saw cash back offers still lead the way at BMO InvestorLine; Qtrade Direct Investing still has their cash back offering, and we (finally) spotted the official terms of an RBC Direct Investing deal that appears to be advertised on search engines.
Another big piece of news in the deals section: the best Questrade promo offer code on the market, Sparx88, is being retired at the end of September.
Given everything that’s in motion this month, we’ll be keeping an eye out for more offers and if you spot any you think would be of value to other online investors, let us know.
Expired Deals
There are a couple offers that have officially expired at the end of August. The commission-free trade offer from Scotia iTRADE linked to their investor education initiative concluded, as well as BMO InvestorLine’s summer cash back offer (a new one has replaced it).
Extended Deals
No extended deals to report at this time.
New Deals
The most exciting new deal to report on this month is from RBC Direct Investing. We had first spotted this in August, however, locating it online was a challenge since it appears to be tied to different Google searches – something that is a fascinating tactical choice. This new deal represents an important shift for RBC Direct Investing, as the number of free trades being offered (50) is higher than any recent commission-free offer they’ve put forward, and the time horizon to use the trades is two years. Like several other offers, this deal is scheduled to expire at the end of August. Check out the online brokerage deals index for more details.
BMO InvestorLine launched a slightly modified cash back offer upping the minimum deposit requirement from $15,000 to $25,000. The cash back amounts range from $50 to $2,000 so it is one of the few offers currently available to provide larger cash back rewards for large deposit amounts. This offer expires at the beginning of November, which is likely the window of time in which we expect to see more online brokerages launch RSP-linked campaigns.
Truth be told, it was supposed to be a vacation edition of the Weekly Roundup. However, National Bank Direct Brokerage’s big news this week managed to make a lot of folks in the online brokerage industry in Canada put any plans for taking time off on hold (including mine).
It’s fitting that this special edition of the Roundup focuses on just one big story: the move to zero commission trading by National Bank Direct Brokerage. We’ll return with more stories next week (there were actually other things that happened too!) as well as more investor forum chatter.
Caveat: We were going to keep this initial coverage of the price movement short (well at least as short as we could). After poring over 1,000 user comments, as well as different news reports, articles, and forum posts, there’s lots to say here, but in the interest of keeping things manageable, we’ll focus on some of the initial developments and implications. Not to worry though, there’s lots more to unpack, so stay tuned.
National Bank Direct Brokerage Eliminates Trading Commissions
In case you missed it on the news, social media, and in the investor forums, National Bank Direct Brokerage made history this past week by dropping standard commissions for equity and ETF trading to zero. That’s right, the first big bank-owned online brokerage in Canada chose the “nuclear” option on pricing by eliminating trading commissions.
While it is still early days, saying this is a game changer would be an understatement.
Change, however, is unlikely to come as swift as it did in the US during their zero-commission wave in 2019, but the latest move by National Bank Direct Brokerage is sure to put pressure on all Canadian online brokers to seriously consider taking drastic measures to respond.
A History of Making Pricing Moves
Commission price drops have been a part of the trends at National Bank Direct Brokerage over the past several years, and even earlier this year. And yet, in looking at the roll-out of the new commission reality, one gets the sense that this decision was both a long time coming and pushed forward quickly to come to market this year.
For a bit of a history lesson, the zero-commission trading conversation at National Bank Direct Brokerage has been happening for longer than most online investors would think. In a bit of a personal anecdote, I recollect having a meeting with a senior executive at National Bank Direct Brokerage (NBDB) back in the spring of 2017 in which commission-free trading at Robinhood came up. At that time, it wasn’t seen as something that would gain traction with the industry, however, later that summer, NBDB launched zero-commission ETF trading on all Canadian and US ETFs. Prior to that, there were only short stints at NBDB where commission-free trading of ETFs were offered as a promotion, probably as a means to analyze the impact and popularity of this feature.
In October 2019, they dropped the pricing from $9.95 to $6.95 for National Bank clients, offered young investors (aged 18 to 30) commission rates at $4.95, and gave active investors an even lower rate of $0.95 per trade for 100+ trades per quarter. Earlier this year, in March, we also reported on a commission fee drop from National Bank Direct Brokerage in which the regular commission fee was lowered to $6.95 per trade for everyone. Incidentally, October 2019 was also the point in time when US online brokerages also embraced zero-commission online trading more broadly.
If there is a pattern emerging, it is that National Bank Direct Brokerage has been quietly gathering data on the zero-commission thesis over the past few years. It is a bold move to be “the first” one to make the move to zero, however, they clearly had a lot of information on which to place this bet.
While the timing is a bit of a mystery, the reality is that it was going to be a matter of when, rather than if, online brokerages moved to zero-commission in Canada. And, as a brand that wanted to expand its footprint across Canada, as well as its position in the hierarchy of online brokerages in Canada, going to zero commissions provided much more upside to NBDB relative to the downside.
Being the first one to do it, gave NBDB the spotlight and enabled them to set the pace of change. Case in point, everyone in the online investing community weighed in on the move.
Having covered this space for almost a decade, there are few moments in the Canadian online brokerage industry that have garnered as much interest from news outlets, social media, and investor forums alike. In fact, the news also made it to several bank earnings calls which happened to fall in the same week as the announcement. It’s safe to say that has never happened before here in Canada.
Not Everything is Free
Despite eliminating the commission charges for stocks and ETFs, National Bank Direct Brokerage did not entirely eliminate commission fees on trading options or inactivity fees.
In terms of options commission, the fixed commission cost component to the options trading commission trade has been eliminated, however, there is still a minimum charge of $6.95 per options trade and pricing per contract remains at $1.25.
That said, it is worth reviewing the revenue segmentation for Robinhood’s earnings which we covered last week, where it clearly shows that when it comes to commission-free trading, the product mix tends to favour options trading over purely stock trading. Options trading is also a lot more profitable for online brokerages than stock trading is, so there is some economic utility to keeping charges for that product intact. Although NBDB does not have all the bells and whistles or order types available on options trading that other brokerages support, the reality is that for simple strategies the functionality is there.
There are also still account maintenance fees. The annual fee of $100 for balances that are less than $20,000 still applies, as does the conditions in place to have them waived. Users can have the inactivity fee waived if they make five stock, ETF, or options trades in a year (between June 1 and May 31 of each calendar year). One source of confusion online initially was when the term “commissionable” was left in one of the conditions (it has since been updated).
Getting used to the realities of zero commission trading also means changes to the old way of doing things. One casualty is promotional offers. The 100 commission-free trade deal is no longer relevant (it was set to expire at the end of September anyway), and while it can’t be ruled out altogether, there is a low probability that cash back offers at NBDB are showing up anytime soon given the surge in interest from self-directed investors curious and relieved at this new option.
What Does This Mean for Self-Directed Investors?
Speaking of self-directed investors, the launch of a full commission-free trading experience with no limits or special conditions on US stocks or specific trading requirements is huge. The chatter online exploded as the news broke early last week, offering a rare glimpse at the various attitudes of many different types of investors all at once.
It is of little surprise to see how much interest there was online, especially in forums on reddit and RedFlagDeals.com that a bank-owned brokerage is offering zero-commission trading. What was surprising, even seasoned veterans, like Glenn LaCoste of Surviscor, was that a bank-owned brokerage that led with this change rather than a smaller competitor.
In fact, it is almost hard to put into words just how explosive the reaction was from retail investors to the news. While it is difficult to summarize all of the fascinating points raised by self-directed investors online, it is incredible to see that even with zero commissions, there are other features that Canadian investors value, something that could turn out to be an Achilles’ heel for broader adoption of commission-free trading at other online brokerages.
Nonetheless, in the weeks ahead, NBDB will likely be tested with a crush of new account opens. From transfers to new accounts outright, the wave of interest is more like a tsunami that will only continue to gather strength as news ripples through investor forums. It is especially attractive to younger investors (under 30) who are not subject to the minimum account balance requirements, and, thus, have almost no downside of opening an account to try out NBDB.
For very active investors and traders, the economics of this make far too much sense to pass up as well.
Granted, options traders and those using margin will still put Interactive Brokers high on their list, however, no other online brokerage in Canada is offering the competitive offer that National Bank Direct Brokerage currently is. Again, this is a major coup for NBDB across almost all segments of investors, including those fed up with paying lots of commissions for what they consider to be an “average” digital experience.
The two most fascinating angles (it is hard to narrow this down to only two), however, have been online investor reactions and the real-time test of how important mobile apps are to investors.
With well over one thousand investor comments and counting, the conversation around NBDB’s price drop contains many themes. High up on that list is the reaction that many online investors had were they contacted their existing online brokerage to ask whether those brokerages had any plans whatsoever to offer similar pricing.
That so many online investors did this was interesting for two reasons.
First, it revealed the different answers from online brokerages around this issue, ranging from “we’re thinking about it” to “nope” (paraphrasing a bit here). In some instances, online brokerages that offer lower commission prices were willing to lower the commission rates generally reserved for active traders to non-active users. In other words, online investors at certain online brokerages are apparently able to request a discount and get one.
The second reason it was so fascinating is because it revealed a nuance about the Canadian online investor which is that here (perhaps unlike in the US), investors are willing to ask questions first then make a move, rather than move quickly based on price alone. Underpinning the “ask first” approach is likely the hassle of having to move accounts, which online investors are apparently willing to endure depending on what they hear back. It was really interesting to see online investors publicly offer up “ultimatum” dates to their online broker to get zero commission trading announced by a certain date otherwise they would move altogether.
Another big point of interest is whether or not a mobile app matters more than low cost to the online investing experience. National Bank Direct Brokerage has web-based trading interface that works on mobile but does not have a dedicated mobile trading app, something that younger investors have – up until this point – been insistent is the marker of a great online investing experience.
It also important to note that the most active (and vocal and influential) online investors use their desktops or laptops when trading online. Users need or want multiple monitors when trading, especially for charting and scanning lots of news. Phones don’t do that nearly as well, so the traders that influence opinions for investors online are going to be driven by the web or desktop experience rather than the mobile one.
As the old adage says, money talks. And while NBDB is not in the same league as Wealthsimple Trade for mobile trading app user experience, the reality is that the mobile experience for NBDB (especially for the price) is “good enough.”
Again, for the sake of brevity, there is a lot to the investor reaction we aren’t reporting here, but suffice to say that all bank-owned online brokerages have likely seen a flood of questions from their clients asking about matching, as well as online brokerages in general receiving account transfer requests from clients looking to move their business to National Bank Direct Brokerage. Online investors are no longer caught between having to choose either low prices or bank-owned brokerage convenience; they can now have both.
What Does This Mean for the Canadian Online Brokerage Industry?
We’ve said it a few times, but it is worth underscoring that the commission price drop by NBDB is a game changer. Who it impacts and how immediately, however, is something we’ll be watching with intense interest.
The first online broker that lots of users have mentioned as being impacted by this decision from National Bank Direct Brokerage is Wealthsimple Trade.
Wealthsimple Trade
Though Wealthsimple Trade has tried to build its brand as the zero-commission online brokerage, the reality for their model is that trading in the US comes with some punishing forex transaction fees. This latest move by NBDB has earned accolades for being able to offer the full list of securities on the major US exchanges as well as the Canadian ones rather than have them subject to restrictions set by the broker. Already, however, sentiment among self-directed investors has put NBDB ahead of Wealthsimple Trade in a number of cost-sensitive categories.
Big Bank-owned Online Brokerages
If there’s any group that could defy gravity on commission pricing just a bit longer in Canada, it is the big five bank-owned online brokerages.
Arguably, the two biggest players, TD Direct Investing and RBC Direct Investing are in the best position to not have to go zero commissions right away given their strong set of features and platforms. Responses from frontline reps, as well as from senior TD and RBC executives on earnings calls, seem to support this view.
Remarks from Teri Currie, TD’s Group Head of Canadian Personal Banking, reveal a rough estimate of what the cost might be if TD went the route of full commission-free trading, as well as what the current sentiment is on them moving price.
After just launching commission-free ETFs, BMO InvestorLine might also take a wait and see approach to the commission drop rather than be the next to dive into the pool, or it might, like National Bank Direct Brokerage did, elect to start dropping prices gradually or with a really compelling promotion to buy some time heading into RSP season.
Of the big five bank-owned brokerages, CIBC Investor’s Edge, already a low-cost option, could arguably have to concede to a lower price point per trade first because it does not have the same depth of features or platforms that are currently being offered by its competitors.
Questrade
Speaking of low-cost leaders, Questrade has emerged as a popular option for value-conscious online investors, so the latest move by National Bank Direct Brokerage to eliminate trading commissions is definitely a blow to the title for Questrade.
There are scenarios in which Questrade might be able to delay dropping commission pricing, however, in all likelihood, despite having a compelling brand, Questrade has sought to be a low-cost option and doing nothing doesn’t seem like an option nor does trying to reposition itself as a technology or platform leader. It has invested substantial resources in marketing themselves as a low-cost provider – if not THE lowest cost provider – so for fee-conscious online investors, they will likely be looking to Questrade to move quickly otherwise it will be investors who will do the moving.
Everyone Else
With the exception of Interactive Brokers, all other online brokerages in Canada will have to seriously reevaluate their pricing heading into the fall and 2022. There aren’t that many other online brokerages in this category, but the strength of brand, convenience, or features just isn’t there the same way it is for other online brokers.
What’s Next?
Where things go from here is somewhat safe to say; when, however, is a different story. The story is still unfolding but anyone who’s made it this far can attest to, there’s lots to unpack here.
The likely scenario we see playing out for now is that online investors will be adding National Bank Direct Brokerage to their short list of online brokerages to consider. There is quite the uphill battle NBDB faces in terms of building awareness of its platform, so it would be safe to assume there’s some big marketing pushes coming in the next few months. Even with the huge surge in online investor interest, National Bank Direct Brokerage is just not well known enough to have online investors immediately jump ship from their existing providers.
The early adopters of NBDB will serve as important points of influence to the curious, however, the good news for NBDB is that there is likely a high enough surge in new account openings that some portion of those individuals will be writing about their experiences.
As for the rest of the online brokerage industry, given where we are in the calendar year, the existing marketing plans that have been devised heading into the end of the year are going to have to be rewritten. While several online brokerages have probably got a “playbook” on how to respond to a zero-commission offering, the next few weeks and months will reveal how extensive that playbook is.
Although it has come as a surprise that National Bank Direct Brokerage was the first big bank-owned online broker to reduce equity and ETF trading commissions to zero, the reality is they’re well-rehearsed in making pricing moves while continuing to improve their service offering. By going first, they have certainly earned the attention they are now getting, however, they are also fighting the pull off some powerful forces among consumer behaviour to stay with their existing online brokerage firm.
Despite the forecast for other brokerages to adopt zero-commission pricing, one thing is clear: the longer other brokerages wait to go to zero, the more impatient online investors will get. Unlike the world before last week, Canadians have now woken up to a new option for trading online and no longer have to wait to take advantage of it.
Into the Close
Thanks for tuning in all the way! There’s still more to this story so be sure to tune into what is likely going to be a wild ride through the end of the year and into next. For now, try and recharge as quickly as you can; it seems the forecast is for activity at Canadian online brokerages to surge, thanks to the move by NBDB.
With only a few weeks left of summer, it seems that online brokerages are already gearing up to hit ground running for fall. If there’s one theme emerging, it’s that online brokers on both sides of the border are going compete even harder than they ever have before.
In this week’s Roundup, we dig deep into the first earnings report from Robinhood and analyze the interesting things that were said (and not said) on the earnings call. From there, it’s yet another new feature fiesta, as BMO InvestorLine drops some new enhancements ahead of the fall rush. As always, we highlight some intriguing investor chatter, including some pretty big rumours of new pricing, as well as tackling tough subjects.
Robinhood’s First Earnings Report Sets a High Bar
Summer is a great time for catching up on leisurely reads. That said, the latest thriller isn’t something most folks would put high on their reading list, and yet it is filled with (almost) more legal drama than a Free Britney post.
This past week, Robinhood issued their first quarterly earnings release as a publicly traded company (ticker: HOOD), and while their brand is typically associated with keeping things simple, it turns out that their financial reporting is anything but.
At a whopping 274 pages long, the full filing of their quarterly result is great reading for those with the time and stamina to parse through legalese and financial metrics. Of course, coming on the heels of their IPO, this first earnings report is also filled with a lot of reference to the go-public moment, so it is likely that their next report will be shorter.
With so much ground to cover, it is impossible to dive into all of the interesting details inside of the Robinhood earnings report in this Roundup. But what is abundantly clear from the report and the investor earnings call is that Robinhood intends to live its best life as a public company. Somewhat differently, however, it is unclear if that experiment will truly pay off. Before going down that rabbit hole, a quick look at the performance numbers is in order.
Robinhood Cashes in on Crypto
By many measures, the year over year performance at Robinhood is stunning.
Total revenues increased 131% to USD $565 million, the number of net cumulative funded accounts (NCFA) increased 130% from 9.5 million to 22.5 million, and assets under custody (AUC) shot up 205% to USD $102 billion from USD $33 billion. Those numbers pale in comparison, however, to the transaction-based revenue increase from cryptocurrencies, which increased 46-fold from USD $5 million in the second quarter of 2020 to USD $233 million in Q2 of 2021.
In other words, on a top line basis, thanks to crypto trading, dogecoin, and meme stocks they crushed it.
Of course, nobody, including the founders of Robinhood, expects these kinds of numbers to be repeated anytime soon. The convergence of meme stock– fuelled trading frenzies and Elon Musk– fuelled crypto bumps are part of a new reality for investors and markets to contend with, but the timing and nature of these market influences is tough to build a business around.
As can be seen from the chart above, what was incredibly fascinating about first set of public financial results from Robinhood was the degree to which their fortunes were made by fast-money or YOLO trading customers. Options, a highly leveraged approach to stock trading, as well as cryptocurrencies, made up 88% of Robinhood’s transaction-based revenues. Revenues from equity trading, which actually decreased 26% year-over-year, came in at $52 million.
In addition, in the earnings call, Jason Warnick, Chief Financial Officer at Robinhood, revealed that over 60% of Robinhood customers traded cryptocurrency during the quarter.
These figures paint a portrait of Robinhood and a huge portion of their client base as interested in trading in highly speculative financial instruments rather than image of the “democratized” access to trading stocks that the online brokerage was founded upon.
Surge in New Accounts Likely a Sign of Peak HOOD
Another metric in the earnings release that was off the charts was new account growth in the quarter. According to Warnick, almost 4.5 million net funded accounts came into Robinhood during the quarter, a staggering number by any measure. Charles Schwab, the largest online brokerage on the planet (for now) added 1.45 million new accounts and Interactive Brokers barely registers by comparison at 91.5 thousand over the same period.
There is definitely credit where were credit is due for Robinhood being able to massively scale its client base over such a short period of time.
In fact, it is likely that the Robinhood surge in client activity is the envy of online brokerages everywhere, especially because acquiring these new clients was absurdly cheap thanks to a combination of industry-leading digital UX, huge investor demand, and clever marketing with their stock referral bonus.
As mentioned above, however, the forces that converged to pull investors in is likely not going to reoccur anytime soon, nor can the executives at Robinhood plan their business growth strategy around WallStreetBets and Elon Musk’s views on Dogecoin.
Traditional metrics for valuing online brokerages typically look at trading activity as well as the level of assets that clients of online brokerages have, which is why analysts view Robinhood with some skepticism when it comes to the value and loyalty of their client base.
In fact, one of the analysts on the earnings call, Steven Chubak of Wolfe Research, pointed out the “graduation risk” problem of Robinhood clients. Clients that are leaving Robinhood take with them an account size that is 4x the average than the typical Robinhood account. What was particularly interesting in the exchange was that Warnick stated:
“In terms of the part of your question about graduation risk, what I would tell you is that we fully intend to grow with our customers. You see that in our product road map, as we talked about wanting new investors become long-term investors, that’s really going to inspire the products that we’ve allowed and the account features that we roll out so that we don’t see that. And then what I would tell you is when we look at churn, we’re not seeing any kind of customer demographic concentrations as a big concern.”
The big unknown seems to be whether the rush of options and crypto traders will be interested in “long term” investing and will choose to do so with Robinhood, especially considering the lack of account types and features offered by their peers in this space. Robinhood will have to work both hard and smart to be able to earn business from Millennial and Gen Z investors who want to invest (not just speculatively trade).
Courting Disaster
Although this wasn’t highlighted in the investor presentation or press release, the sheer number and magnitude of lawsuits overhanging Robinhood present significant headwinds to investors and potentially to consumers. In Robinhood’s quarterly filing, there are so many lawsuits it is hard to imagine these activities not just being costly to Robinhood to contend with but also a major distraction to management to have to attend to.
Many of those lawsuits have risen from stories that have made major headlines, including trading restrictions on meme stocks, trading outages (in 2020), gamification, account takeovers, and more. The recent settlement with FINRA (approximately USD $70 million), which also happened to be the largest-ever financial penalty ordered by FINRA, is just one of several unknowns that could severely hamper Robinhood.
Also, if there’s one thing that might make any investor (or potential investor) pause, it’s the 74-page section on risk factors associated with Robinhood.
The reality of investing online is that very few self-directed investors see the level of technical and regulatory complexity associated with being an online brokerage, and this complexity only increases when dealing with tightly interconnected technology and cryptocurrencies.
Summary
Separating the rhetoric from the numbers is going to be an ongoing reality with Robinhood. On the one hand, they are clearly trying to position themselves as the champions of personal financial well-being by pursuing a vision of becoming the “most trusted and most culturally relevant money app worldwide.” On the other hand, being able to grow going forward at the speed and scale they have to date will be costly. Regulatory issues go beyond just a slap on the wrist financially, they also erode confidence of investors and clients. The reputation of being a “rule breaker” does not bode well in the world of finance, even if the ultimate vision is supposedly a noble one.
The most recent quarterly numbers, indeed the numbers over the past year too, indicate that Robinhood has reached an inflection point in their business.
Thanks to much hard work to get them ready to grow, they were handed a generational opportunity to grow their business when COVID-19 struck. It seems, however, that for the moment, markets have returned to calmer tendencies. Robinhood managed to thrive in chaos, however, now that it is a public company answerable to so many more stakeholders, it must successfully avoid creating chaos for itself.
New Feature-palooza: BMO InvestorLine Rolls Out More New Features
Another summer week and another string of new feature releases from Canadian online brokerages.
This past week, popular bank-owned online broker BMO InvestorLine published an announcement of some recent feature enhancements to the InvestorLine and Advice Direct platforms. Late last year, BMO InvestorLine debuted the rollout of InvestorLine 2.0 which represented a significant overhaul of their web-based online investing platform.
In the latest iteration of their platform, there have been some noteworthy feature enhancements, such as faster order entry (hooray!) and visibility on distributions (such as dividends) paid by certain securities.
To their credit, BMO InvestorLine has maintained a cleaner user experience in their new 2.0 platform so that understanding information and analytics about companies “feels” easier and more intuitive. As subjective as those measures are, the new site is objectively less cluttered with fewer menus to navigate around and more prominence given to the core features used by most online investors. That said, it is still clearly a work in progress with certain features only available on the previous version of the site.
Another interesting feature mentioned in the same press release is a partnership with Canadian personal finance expert Preet Banerjee to launch an investor education series. Earlier this month, the first 18 episode video series launched and another intermediate level course (32 videos long) is slated to come mid-September.
Finally, although it wasn’t mentioned directly in their press release, BMO InvestorLine is working hard in the background to improve response times to customer service and enhance the online experience for investors trying to connect with representatives on the phone. In the press release, there was a mention of being able to connect with InvestorLine representatives by video, however, the more compelling note is actually displayed on the login page for the online brokerage.
As seen in the image below, the announcement of the average wait time is still a unique feature that other online brokerages, especially big bank-owned brokerages, aren’t doing. This small but important number offers some level of transparency on what it’s like to connect with InvestorLine reps via telephone. What caught our eye, however, was the mention of call back features and the accelerated ramp up in hiring of client service agents.
With just under a month left in the summer (gasp!), the pace of activity among Canadian online brokerages is already starting to show signs of accelerating. While that might not seem unusual considering September is when individuals are back from vacation, the fact is that this entire summer has been a roller-coaster ride of activity.
Unlike some other Canadian online brokerages who have announced new feature drops almost weekly, BMO InvestorLine has rolled out several big improvements at once, and when combined with their announcement earlier this summer of commission-free ETFs, it seems like there is something big planned for the upcoming RSP season at BMO InvestorLine. That said, it’s hard to envision BMO InvestorLine’s big-bank peers standing still.
Though things have been quiet at other firms, if BMO InvestorLine is any indicator of things to come, it seems like we’re in for some more big news this fall.
From the Forums
Death in the Family
It’s never an easy subject to bring up but talking about death and what happens to an online brokerage account is something all online investors should be aware of. In this instructive post from the Financial Wisdom Forum, one user’s experience dealing with a deceased spouse’s brokerage account offers some valuable lessons to seasoned investors.
What’s in a Name?
In the decade or so that we’ve been covering the world of online investing, it’s been fascinating to witness the evolution of what the industry brands itself to be. From discount brokerage to online brokerage to direct investing, this post was interesting because it shows that online investors are starting to pick up on the industry term “self-directed” in how they view themselves. Also, there’s a bonus rumour revealed in the post, which if true, is a heck of a bombshell.
Into the Close
If you’ve made it this far, you deserve a round of applause! With just a few weeks left to enjoy the summer, we highly recommend taking any kind of break to soak up the sunshine or just take a breather. Of course, if rollercoasters are your thing and you don’t have a chance to actually ride them, sit tight (and keep your hands in the car), the online brokerage news is going to have some very wild times ahead!
The dog days of summer are here, but rather than find some shade to curl up and relax in, it appears that those Canadian online brokerages who want to get a head start on the busy upcoming fall season have been working themselves to the bone.
In this edition of the Roundup, we look at one Canadian online brokerage that has been busy dropping new features like they’re hot (bonus points for the Dogg reference) in the lead up to September. Feature dropping is also the focus of a quick update at another popular brokerage, and we report on an elusive new promotion that was spotted briefly in the wild. As always, we peek at what DIY investors were bantering about in the online investor forums.
Qtrade Direct Investing Ramps Up New Feature Activity
With fall just around the corner (check Costco if you’re skeptical), Qtrade Direct Investing has been busy preparing by launching a flurry of updates and enhancements to various features and offerings. This month, we’ve spotted a new commission-free promotion, updates to their commission-free ETF program, and new faster account opening options. And it’s only halfway through August.
Following their big rebrand to Qtrade Direct Investing earlier this year, it appears that this popular online brokerage has accelerated the pace of new features heading into the second half of 2021. Across the online brokerage space in Canada, we’ve noted several online brokerages start to launch new features in what is gearing up to be an intense stretch this RRSP season.
Qtrade’s Commission-free ETFs Get Upgraded
For almost 10 years, Qtrade has been one of a small number of Canadian online brokerages to offer completely commission-free trading on a select number of ETFs.
Over the years, Qtrade Direct Investing eventually expanded the list to over 100 ETFs (105 as of publication of this article), so the current offering shuffles the deck on the names of ETFs included on the commission-free list. Among the popular Canadian listed offerings for online investors: iShares Core Equity ETF Portfolio (XEQT), iShares Core Growth ETF Portfolio (XGRO), and iShares Core Balanced ETF Portfolio (XBAL) to name a few.
The most important change to come to this program, however, is that Qtrade Direct Investing no longer requires a minimum purchase value amount of $1,000 to qualify for commission-free status. Although investors will have to be signed up for eDocuments and hold their purchases for at least one business day to qualify for commission-free status, for non- day traders, the Qtrade selection of commission-free ETFs offers a competitive list for investors to consider.
The combination of new, highly sought-after ETFs and the lower threshold to be able to trade them is a potent one and has already caught the attention of self-directed investor chatter (see forum post below). Interestingly, what stood out in the conversation among online investors is that a number of comments included references to online investors having multiple brokerage accounts for different purposes. In many cases, online investors are building a portfolio of online brokerages to keep their trading costs for certain types of accounts or styles of investing under control.
Now that there are more Canadian online brokerages, such as BMO InvestorLine or TD Direct Investing through their GoalAssist, offering some kind of commission-free ETF, self-directed investors have a lot more choice and can decide whether or not this is a feature to switch brokerages for or simply open up a new account.
Account Opening Gets a Facelift
Speaking of opening up a new account, one of the biggest pain points for online investors during the huge volatility of stock markets in 2020 and the meme-stock action in 2021 was quickly opening up an online investing account.
Strange as it may seem in 2021 to be talking about innovation in opening up online accounts, the reality for Canadian self-directed investors is that there are still lots of hurdles to opening and funding an online trading account quickly.
At Qtrade Direct Investing, however, at least one of these hurdles has been cleared with their new account opening feature that enables users to open accounts online and use face verification to confirm identity during the process. The consequence: faster account opening.
Although market volatility has markedly decreased compared to earlier this year, there is clearly something different about the way in which stocks are trading. The first week of trading at Robinhood is evidence enough of that.
If there was one great lesson across the past 18 months of investing online, it was that Canadian online brokerages need to be ready to scale up the responsiveness of all of their systems to meet investor demand. When a major event happens – be it an IPO, market crash, or meme-stock frenzy – online investors will seek out whichever online brokerage enables them to trade the fastest and most cost effectively (generally in that order).
The latest move by Qtrade Direct Investing to improve their online account opening experience is an important one, especially when trying to connect to younger investors. Being able to complete the account open process end-to-end on with a smartphone rather than have to fuss over printing anything is going to inevitably be something investors talk to one another about. And with several notable online brokerages already enabled to open accounts digitally, the race is on for other online brokerages to catch up before the next big thing comes to market.
Online Brokerage Quick Scan
Wealthsimple Trade Auto Deposits
Hardly a week goes by (or so it seems) that Wealthsimple Trade isn’t making waves by launching new features. If part of the culture to look and feel like a tech company is to constantly be launching new functionality, then Wealthsimple certainly fits the part.
Earlier this month, Wealthsimple quietly rolled out auto-deposits to enable users to automatically schedule contributing money into their accounts. While it may not seem revolutionary or even a feature that many investors are clamouring for, it nonetheless is strategically an important one for Wealthsimple Trade to reduce the friction on getting assets to flow towards them instead of to somewhere else.
What was interesting, however, was not the feature itself but that the rollout was done quietly then ramped up quite significantly to appear in ads across various digital channels. This is a signal that Wealthsimple wants users to be aware of this feature. Also curious was the extent of discussion of this feature among self-directed investors.
Again, it warrants stating that scheduled deposits aren’t high on the shiny features that online investors (especially the vocal ones on social media channels) are trying to push for, which is what makes the response and conversation about the feature seem disproportionate.
Buried in the investor commentary, however, is a fascinating insight: there are a number of platform users that were able to take small amounts to get started investing with, and through disciplined behaviour, accumulate something they felt was substantial enough to want to continue to grow.
If there are any financial planners or online brokerages reading this, there should be a few bells ringing. The notion that all millennials are fiscally irresponsible and blowing their discretionary money on avocado toast or longshot “investments” is simply untrue. There are clearly segments of this demographic (at least that take to reddit forums) that are keen to put themselves on track financially and want the barriers to participating in that financial growth removed.
Though the math might be challenging to do, the positive impact of users recommending an online brokerage to their friends/family or anyone who’ll listen is clearly important. Wealthsimple Trade’s latest feature drop shows that they are winning the PR battle with other online brokerages, and by reducing barriers to participating in markets, actually enabling online investors to become established enough financially to want to invest more.
While incumbent Canadian online brokerages may choose to look past the “start small” segment, as it turns out, there are a lot of younger investors who are prepared to pace themselves when it comes to getting wealthier, and they will remember who helped get them there.
RBC Direct Investing’s Elusive New Promotion
Another interesting highlight for regular readers of the Weekly Roundup is a new offer from RBC Direct Investing that was spotted in the wild. Unfortunately, it has not resurfaced from the first time it crossed our radar, but we did manage to snag a couple of screenshots of the new commission-free promotion.
This elusive deal, which runs until September 30, featured 50 commission-free trades from RBC Direct Investing, something more than what we’ve seen them offer in the past. Also, and this was particularly important, the commission-free trades were good for up to two years. The longest we have seen to date has been commission-free trades be good for one year.
Commission-free anything is all the rage as new online brokerages encircle the Canadian space and are awaiting their turn to bring zero-commission trading to the mainstream self-directed investor. For the moment, Canadian online brokerages who do not want to take commission rates to zero can offer alternatives, like commission-free trade promotions or commission-free ETFs.
Whether or not this deal resurfaces, it is clearly a signal that online brokerages – especially bigger players in the space – are pushing the envelope on competing promotional incentives. This bodes well for online investors heading into the end of the year when the ramp up to RSP season begins.
As we’ve seen this year, there have been lots of new features launched and it is likely that trend will continue. In order to get attention from online investors about these new features and enhancements, however, the likely scenario we’ll see unfold is a lot of effort spent on marketing, promotion, and new incentives.
From the Forums
Asking for a Friend
When it comes to order execution and routing, the vast majority of Canadian online investors don’t pay much attention. There are, however, a vocal and influential minority of investors on social media channels that do care, and in this post from reddit, it is fascinating to see the number and intensity of responses from online investors who want their trades to be able to be routed to famous “speed bump” exchange, IEX.
Qtrade Adding ETFs
If there’s one thing that investors in online forums enjoy, it’s a good ETF discussion. In this post from reddit, investors were smiling at the recent update to Qtrade Direct Investing’s commission-free ETF offer. Tune in to read more about their reaction to the launch and for some revealing habits of online investors wanting to keep their trading costs under control.
Into the Close
That’s a wrap on another week. If you think you’ve had a wild week, it’s worth having a read about the largest hack of cryptocurrency ever and then the subsequent return of almost all of it. Didn’t see that coming. Of course, as this (and last) year have shown, anything can happen when it comes to trading online. Here’s hoping for another interesting week ahead!
Just when we thought it was going to be an easy, breezy summer stretch, it seems that the online brokerage industry has other plans. With more plot twists than a Canadian women’s Olympic soccer match, online brokerages near and far are keeping us on the edge of our seats.
In this edition of the Roundup, we kick things off with a look at the latest activity metrics from a popular US online brokerage and the surprising strength of new account openings. Next, we preview yet another new zero commission online brokerage eyeing a move into Canada. As always, we dish up a couple of interesting conversations from the DIY investor forums
Interactive Brokers July Metrics Reveal Surprising Strength
As has been the case at online brokerages across the board, despite 2020 being a record year for growth, 2021 has also seen a surge in interest to trade online, thanks in large part to the meme stock wave. A pullback from the record highs in activity and new account openings earlier this year was to be expected; however, figures from the latest activity metrics report point to an interesting (yet underreported) growth in net new accounts.
The numbers in the release paint an intriguing picture. On the one hand, when compared to last month, almost all key categories of metrics reported declined except for one: net new accounts.
Daily Average Revenue Trades (DARTs) were 32% higher than last year and 4% lower than in June, client equity was 61% higher year over year but 3% lower month over month, client margin loan balances were 69% higher than last year but 2% lower than in June, and credit balances were 14% higher than last year and about flat compared to June. The only category that showed monthly growth was the number of accounts, which at 1.45 million, was 3% higher than in June.
What was particularly interesting about this latest performance report, however, was not reported in the press release. In addition to new accounts, Interactive Brokers also publishes the number of net new accounts it gains (or loses) each month, and this number was 32% higher than in June. It is also the second consecutive month of net new account growth this year after seeing five straight months of declines. This can be seen from the chart tracking net new account growth at Interactive Brokers this year.
While it is difficult to pin down the cause in the surge of net new accounts despite pullbacks in trading metrics, there are a few recent developments at Interactive Brokers which could be contributing factors to the lift in net new account opens.
In early July, Interactive Brokers clients were notified that they would no longer be subject to inactivity fees if their account did not meet the required asset or activity minimums. Although it was a small amount to pay per month ($10), avoiding unnecessary fees is something that likely is near and dear to the hearts of Interactive Brokers clients. Since that inactivity fee applied on a per account basis, individuals with multiple accounts could conceivably face hefty fees for accounts left idle.
The primary benefactor of this move was existing Interactive Brokers clients (rather than new clients); however, it is important to highlight that the metric “net new accounts” is the result of new accounts that came in minus those accounts that left. Thus, if existing clients could be encouraged to stay, that would decrease the number leaving and make it easier to have the number of net new accounts be positive. Further, it would also encourage Interactive Brokers clients who have less active accounts at other institutions or providers (who don’t charge inactivity fees), to transfer their accounts to Interactive Brokers, also helping to boost the number of net new accounts.
According to Interactive Brokers Founder Thomas Peterffy, it was the existing client that was the target for the decision to remove inactivity fees. Rather than let active traders close accounts when they went through an idle period and risk losing them to competitors when those traders inevitably wanted to trade again, they enable these investors to essentially park their accounts with Interactive Brokers. This represented a zero-risk option to keep the account and then restart trading quickly when the timing was right.
While Canada is a small contributor to the global footprint of Interactive Brokers, the use case for boosting new accounts is clearly illustrated. By removing inactivity fees, Interactive Brokers provided the right kind of incentive for Canadian self-directed investors to bring over their registered accounts (such as TFSAs), where activity levels cannot be as high as in non-registered accounts.
Another important feature that may be luring online investors to Interactive Brokers is the anticipated launch of cryptocurrency trading. Earlier this summer, Interactive Brokers mentioned that they would be launching some kind of support for cryptocurrency trading on their platform, representing an about face on the digital asset. While it may not have triggered a flood of new accounts, it is a net positive driver for account openings, especially among the active trading community that would have had to access this feature at other exchanges or providers.
Finally, Interactive Brokers may be benefitting from the rise in popularity of options trading among retail investors. One of the data points revealed ahead of the Robinhood IPO was the popularity of options trading among investors on its platform. Similarly, data from Schwab’s most recent summer update in July also confirmed an increase in interest of options trading among retail investors.
At Interactive Brokers, the ability and, more importantly, the cost of trading options, is hard for its peers to compete against, and despite the pullback in trading, according to Peterffy, one of the principal sources of new accounts at Interactive Brokers is clients from other brokerages (such as Robinhood) seeking a better trading experience.
Against a backdrop of declining DARTs and other trading metrics, Interactive Brokers has managed to keep its impressive streak of positive account growth intact.
Data on net new accounts reveals that Interactive Brokers has had two consecutive months of positive growth, and while it is unclear exactly what is at play, it certainly looks like they have bounced off a near term bottom in investor demand. With July metrics data coming up this week (or in the very near future) from Schwab, it should be clearer as to whether this bounce is specific to Interactive Brokers or if it is part of a broader trend. Regardless, it is evident that Interactive Brokers is aggressively innovating on features that matter to its ideal clients, and those clients are clearly interested in sticking around to see what comes next.
Freetrade: Another New Online Brokerage Coming to Canada
As many Canadians know all too well this summer, where there’s smoke, there’s fire. As it happens, this past week, there was a small but important smoke signal that yet another zero-commission online brokerage, Freetrade, is positioning itself to enter the Canadian market some time in 2022.
We spotted two key positions, based out of Vancouver, being advertised on the Freetrade website, looking for individuals to help with building out their Canadian business.
This is big news for Canadian self-directed investors anxious to benefit from commission-free trading, and while Wealthsimple Trade currently holds the crown for this feature, the reality is there are already other possible new online brokerage entrants looking to enter the zero-commission fray. Earlier this year we reported that Mogo announced its intent to launch a commission-free stock trading application and tastyworks has also been working to launch in Canada.
While most Canadian online investors are familiar with the zero-commission online brokerage Robinhood, many Canadians are not familiar with the UK-based Freetrade. One quick scan through the Freetrade website, however, and it is immediately clear that the look, feel, tone, and offering is on par with what Robinhood offers.
What the job postings reveal is that Freetrade has just closed a £65 million ($113 million CAD) series B investment and is anxious to expand globally. They are already planning expansions into Australia, Ireland, Germany, France, Netherlands, and Sweden. And, if the Australian example is any approximation of what we can expect to see in Canada, the entry will take place first with a waitlist. It appears that fractional share trading as well as referrals could also be important components of their go-to-market strategy here in Canada.
As word of this planned expansion continues to spread, we will undoubtedly get a chance to dive into the (fascinating) origins of this online brokerage which was started in 2016 by Canadian Adam Dodds in trying to find an online broker in the UK that was close to what was available in North America.
Getting up and running in Canada as an online brokerage is no small feat (tastyworks can attest to this), so despite the ambitious timeline of 2022, there are a number of regulatory and operational hurdles to overcome. That said, Freetrade is not starting from zero when it comes to the business of online investing, nor are they unaware of the conditions in the market.
For incumbent online brokerages in Canada, the writing is on the wall when it comes to stepping up their user experience game, especially on mobile, and with features that investors on both sides of the pond are clearly interested in, like fractional share trading, zero trading commissions and stocks as sign-up bonuses.
Despite the uncertainty about the timing of new online brokerages, such as Freetrade coming to Canada, it is absolutely certain that a new chapter of self-directed investing in Canada is about to be written.
From the Forums
Smooth Transitions
When it comes to new features, self-directed investors are not shy about letting online brokerages know what they want, especially on reddit. In this post on the Wealthsimple Trade subreddit, making it easy to transfer from non-registered accounts into TFSAs is something a surprisingly high number of investors chimed in about. Read more about why this feature matters to investors here.
Holding the Bag
Regrets happen. For many DIY investors, the stock market offers a tough love approach when it comes to learning how to invest. In this reddit post, self-directed investors share their stories of what stocks taught them expensive lessons and offers up an interesting window into online investor psychology.
Into the Close
That’s a wrap on a wild week for online investors, especially those trying to HODL on HOOD. Now that the Olympics have wrapped up and Canada came out strong, the spotlight will shift back to jittery markets and the next big race for online investors here to figure out: an election.
