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Discount Brokerage Weekly Roundup – June 7, 2021

With warmer weather around the corner, it looks like the Leafs may actually have some fans this summer after all. Couldn’t resist. Fortunately, it’s still spring and the theme of new beginnings and growth are very much in focus among Canadian online brokerages.

In this edition of the Roundup, new is en vogue. First, we take a look at the newest online brokerage deals and promotions, including an interesting development at one already popular online broker that’s sure to spur others into action. Next, we highlight the latest new blockbuster feature being launched by an online brokerage this season. To cap things off, we provide chatter from the investor forums reacting to scary glitches and instant deposits.

New Month, New Deals

And just like that, summer is only a few weeks away. June is now upon us, and with the start of a new month comes a chance to check in on the status of the deals and promotions being offered at Canada’s online brokerages.

This month, it’s a good news, bad news story for DIY investors on the hunt for a promotional bump. The good news is that there wasn’t a drop in the number of promotions, and there are signs that one of Canada’s increasingly popular online brokerages isn’t afraid to commit to promotions as a way to attract the attention of new clients. The not-so-great news for online investors is that after June, there are a pair of promotions that are scheduled to expire, which means that even though there is a good chance more deals are on their way, the exact timing isn’t clear.

Starting first with a quick scan of the current promotional picture, BMO InvestorLine had a new cash back promotion that launched on June 2nd to replace its outgoing cash back offer that expired on June 1st.

The new cash back promotion from BMO InvestorLine is very similar to the one that it replaced in that it’s a tiered promotion that offers increasing amounts of cash back bonuses as the amount deposited increases. The important difference with the new offer is that minimum deposit required to qualify for this promotion dropped from $25,000 to $15,000, a significantly lower amount.

The latest BMO InvestorLine promotion runs until August 31st and features cash back amounts ranging from $50 (for deposits of $15,000 to $49,999) to $2,000 (for deposits of $1M+).

Although not new this month, Wealthsimple Trade is now also part of the deals and promotions mix in a major way. In May they launched a “free stock” promotion for new cash account clients to receive a cash bonus in the equivalent amount of a stock chosen at random from a selection of eligible stocks.

Marketed to online investors as a “free stock” promo, this offer has garnered quite a bit of attention online. It also appears that this promotional offer has been so successful through several trial runs that a recent note from Wealthsimple Trade about its referral promotion indicates that it too will be switching to a “free stock” compensation model.

With Wealthsimple Trade joining in the deals and promotions pool at a time when most online brokerages are electing to stand on the sidelines, it appears to be open field for the newcomer online brokerage at a time when meme stock excitement has resurfaced.

Contextually, this poses a challenge for two other online brokerages with commission-free trading offers that expire at the end of the month.

National Bank Direct Brokerage’s massive 100 commission-free trade offer and HSBC InvestDirect’s 60 commission-free trade promotion are both set to expire by the end of June. National Bank Direct Brokerage has seen a boost to its publicity across Canada as it scored first place in a recent Surviscor ranking of online brokerages, as well as scoring first place in the J.D. Power Investor Satisfaction Study. Also, National Bank Direct Brokerage just launched their annual “Biggest Winner” ETF competition at the end of May, putting yet another spotlight onto this online broker.

The challenge posed by the entry of Wealthsimple Trade into the deals and promotion mix is that those brokerages with existing commission-free trade offers may want to consider extending them, or replacing them with even more competitive cash back bonuses.

Unlike the Big Five bank-owned online brokerages, National Bank Direct Brokerage and HSBC InvestDirect do not have the level of awareness or scale that their larger bank-owned brokerage competitors enjoy, despite being “bank owned.” Conversely, neither of these two bank-owned online brokerages are as well known as some of the “independent” brokerages known for lower cost trading – such as Questrade and Wealthsimple Trade.

Thus, if promotional offers are a low-cost tool used to boost awareness, either extending or launching new offers may be a way to stay relevant and competitive across the summer. With meme stocks and cryptocurrency trading still bubbling away, younger investors are continuing to take note. And while that is generally good for all online brokerages, those online brokers with highly competitive offers will undoubtedly find themselves being considered and recommended for deep value for growth-minded investors.  

Summer Blockbusters are Back

Grab a meme stock and some free popcorn, because it looks like the summer of blockbuster announcements from online brokerages is here.

After a frothy start to markets this year, it seems that Canadian online brokerages are now the ones that are going to be in the spotlight when it comes to making big announcements.

In April and May, there were some significant new features launched by RBC Direct Investing and Wealthsimple Trade. Two weeks ago, BMO InvestorLine announced it was launching commission-free ETF trading on a selection of more than 80 ETFs. 

This past week it was Questrade’s turn.

In what seems like a direct shot across the bow to Wealthsimple Trade’s account funding time, Questrade announced, courtesy of a partnership with fintech startup Zum, that clients can now fund their accounts instantly using Visa Debit, with up to $3,500. By comparison, Wealthsimple Trade enables users to deposit only $250 instantly, or for those willing to pay $3 per month for Wealthsimple Trade premium, the amount rises to $1,000.

The blockbuster features haven’t been limited to Canada either. In the US online brokerage space, Robinhood announced in late May that it is launching a new feature enabling investors to participate in IPOs at the IPO price, rather than having to wait to purchase the security once it hits the open market. This is a huge development for retail investors who have typically been unable to tap into the massive gains that certain IPOs experience, because the investors were not connected to institutional investors or perhaps not wealthy enough to be given early access.

The US online brokerage market is an important proxy for what the world of DIY investing looks like when commission rates all but fall to zero.

What has been clear at online brokerages such as Robinhood, Schwab/Ameritrade, and others is that features and user experience tend to become areas of focus and innovation. Granted, how US online brokerages can monetize zero-commission trading is different than it is here in Canada. However, the likelihood that commissions stay at $9.95 as the standard price for much longer is low. In addition, even those online brokerages with lower commissions can’t stand still when it comes to innovation – they have to keep delivering better experiences to investors because other online brokerages will. (And new online brokerages are still coming to Canada, to boot.)

We’ve already witnessed a number of online brokerages concede ground on charging commissions for trading ETFs, either in part or entirely. As the Globe and Mail’s Rob Carrick put it in a recent article, “We now have some real momentum in getting rid of ETF trading commissions… There are now at least eight online brokers and trading apps that have at least partly eliminated the cost of buying and selling ETFs.” Given how popular ETFs are with online investors, the writing is on the wall at the remaining online brokerages that do not at least match if not beat this new ETF pricing paradigm.

And, as popular as ETFs are, Questrade’s launch of instant account funding clearly strikes at a nerve for DIY investors who want to be able to enjoy instantly jumping into opportunities. Friction, not change, is the new dirty word in technology conversations among financial services providers, and especially incumbent players in the online brokerage world. Instant account opening and funding are frontiers where too many Canadian online brokerages still fall short in the eyes of online investors. Based on Questrade’s latest push to enable instant funding of up to $3,500, they won’t be the last online broker to launch this feature. Several business days is an eternity when meme stock movements strike.

The merits and wisdom of trading fast-moving stocks aside, the reality is that investor behaviour during COVID-19 has shown that certain categories of investors have a very different risk appetite for trading volatility. Online brokerages who can reduce the friction between getting started and participating in exciting stories are themselves going to become the exciting stories that online investors talk about. And that conversation is now worth its weight in digital gold.

From the Forums

Care to Share?

It almost seems trivial, but expecting your online brokerage account view to display the correct information should be a given. Many clients of Wealthsimple Trade found out the hard way, however, that when it comes to online investing, just about anything can go wrong – including what should be the basic stuff. Check out what redditors had to say here and here about technical glitches that left clients scratching their heads at the data they were seeing in their account summaries.

Instant Gratification

One of the biggest stories to get online investors chatting this month (so far) was the launch of instant deposits at Questrade. Interestingly (and is usually the case), the discussions deviated from the new feature to cover issues with existing features, challenges other brokerages might face, and investor preferences when it comes to trading online. Read through the reactions here and here.

Into the Close

That’s a wrap on another semi-short week courtesy of a long weekend in the US. Of course, for Leafs fans it certainly felt a lot longer. Again, couldn’t resist. There’s still lots on the radar for online investors that we didn’t get a chance to dive into, so stay tuned for more updates on the DIY investor data-palooza coming next week, and updates on more new features we didn’t have a chance to discuss this go-around. With stock markets at or near new all time highs, meme stocks making a comeback, and crypto now in the doge-house with investors, there’s almost certainly a plot twist in the making coming soon. Have a profitable week ahead!

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Discount Brokerage Deals & Promotions – June 2021

We’re officially in the home stretch to start of summer and like temperatures, we believe that online brokerage deals activity is slated to rise as the month progresses. For the moment, however, most Canadian online brokerages continue to take it easy.

Just because we’re not seeing a flood of online brokerage deals coming to market yet, however, does not mean that activity isn’t taking place behind the scenes.

In a world where unusual is the new normal, signals abound that the wave of investor enthusiasm that started the year (and that has characterized the past 12 months) is continuing to recede taking with it the volume of activity of new account opening at Canadian online brokerages. This is a net-positive for deal-seeking online investors because as investor supply decreases, online brokerages will necessarily look to new promotions as an option to attract new customers.

Another unusual development heading into the new month is deals activity at one of Canada’s newer online brokers – Wealthsimple Trade.

Having garnered a massive early interest based on zero-dollar commissions, this rapidly growing online broker has dialed up its affiliate promotion structure as well as using free stock and cash back offers (see below for more details). The result is armies of affiliate-revenue seeking amplifying Wealthsimple Trade to the broader public at a fraction of the cost that the competitors to Wealthsimple Trade are paying.

Thus, the costs of standing still on the deals and promotions front are not only starting add up for those online brokerages without some kind of campaign in place, they’re actually beginning to compound.

As we launch into a new month, it is worth pointing out that two promotions are set to expire at the end of June. National Bank Direct Brokerage’s huge commission-free trade offer as well as a commission-free trade promo by HSBC InvestDirect are both scheduled to conclude by month’s end.

Head over to the deals and promotions section to review the latest online brokerage offers and as always if there are any promotions for DIY investors that we’ve missed, let us know and we can update our deals section.

Expired Deals

As of the publication of the deals update, the only promotion that had technically expired was the spring cash back promotion from BMO InvestorLine. While it is often the case that BMO InvestorLine has offers for new accounts running throughout the year, they also just launched a slate of commission-free ETFs that is only beginning to be advertised. We’ll keep watching for updates to their promotional offers for any new offers that show up.

Extended Deals

No deal extensions to mention at this time

New Deals

Wealthsimple Trade added a “free stock” bonus promo to new users of the platform. This offer randomly selects stocks valued between $5 and $4,500 and new users are eligible to receive a cash bonus equal to the value of the stock from the pool of eligible stocks when they open a new non-registered account. According to the terms and conditions of the offer, about 90% of new clients receive a cash bonus offer worth less $50. There is no expiry date stated for this promotion.

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Discount Brokerage Weekly Roundup – May 31, 2021

It’s Memorial Day weekend in the US, which means that markets there are closed. Here in Canada, however, despite it being a short week last week, the volume of newsworthy developments was quite hefty. There’s lots to catch up on.

In this edition of the Roundup, we look at a big Canadian online brokerage making a splash by jumping into commission-free ETFs. From there, we continue to plumb the depths of more DIY investor data with an important online brokerage rankings release. As always, we cap things off with a snapshot of investor chatter from the DIY investing forums.

BMO InvestorLine Launches Commission-Free ETF Trading

Every now and then a tipping point development takes place in the Canadian online brokerage space. This past week, we might have just witnessed another important milestone in the price reduction for DIY investors.

News started to spread among DIY investors that BMO InvestorLine has launched commission-free ETF trading for a list of 80 ETFs.

This is clearly a big deal given the prominence of BMO InvestorLine in the Canadian online brokerage landscape. And, while they are not the biggest or most popular online brokerage, they do command a respectable amount of attention in online brokerage rankings, and they are part of the “Big Five” bank-owned online brokerages.

Commission-free ETFs at Canadian online brokerages are neither novel nor are they new to Big Five banks either.

Scotia iTRADE, for example, has a list of 49 (as of the date of publication). However, they launched this feature back in 2011 – almost ten years ago – and were followed by Qtrade (with a list of 100 commission-free ETFs) and Virtual Brokers in 2012.

National Bank Direct Brokerage also offers commission-free ETF buying and selling on all ETFs (Canadian and US) so long as minimum purchase amounts are met (minimum 100 units). And, for good measure, Questrade and Virtual Brokers offer commission-free buying of ETFs. Not to mention Wealthsimple Trade, where all Canadian ETFs can be traded commission-free.

Thus, BMO InvestorLine is not the first to jump into the pool by any means, but their offer is already making a splash among DIY investors, who are reacting with the same enthusiasm they did almost a decade ago when these free offerings first hit the market. The difference between now and ten years ago, however, is that commission pricing and consumer preferences and expectations have changed dramatically. Online brokerages in 2021 have to work a lot harder to impress investors today than they did in 2011.

What is interesting about the latest launch by BMO InvestorLine are the “strings” attached to trading these commission-free ETFs. While the list of eligible ETFs is respectable at 80, there is a restriction that investors must hold the ETF for at least one business day from the date of purchase, which is bound to create some friction with some active users. Upon deeper reflection, however, it seems like the math still works out in BMO’s favour.

By implementing the “speed bump” on the timing between purchase and selling, the day traders are going to be excluded (for now). This implies the feature is targeting “investors” (or swing traders), and will almost certainly challenge National Bank Direct Brokerage’s approach of the required minimum buy

Directly challenging Qtrade Direct Investing and Scotia iTRADE will come down to other features and conveniences that BMO InvestorLine can offer clients. As such, it seems like a faceoff between Scotia iTRADE and BMO InvestorLine – but in a great move at the puck drop, BMO InvestorLine has posted a public statement about wait times on its website. This is a direct shot at Scotia iTRADE, which has suffered extended wait times on its phone lines for years, reaching almost unimaginable durations during the past year.

BMO InvestorLine is a large enough competitor to the steady state operations of both TD Direct Investing and RBC Direct Investing, that this latest move to include commission-free ETFs will not go unnoticed. It will also not go unnoticed by the Wealthsimple Trade crowd who find the lack of additional features or slow money transfer annoying at times.

Interestingly, at the time of publication, we had yet to see a big, splashy announcement, but that is almost certainly forthcoming. What BMO InvestorLine’s latest foray likely signals, however, is that one of the standard features an online brokerage needs to come to the table with in 2021 and beyond is ultra-low cost ETF trading.

While wishing for industry-wide dominos to fall might have been premature in 2011, even with a prominent bank-owned online broker getting into the mix, the famous last words of “it’s this different this time” ring true.

Most of the Canadian online brokerage field has managed to do just fine up until now without having to concede ground on commission-free ETFs, let alone commission-free trading. That said, treading water when it comes to pricing or innovation in features no longer feels like an option when the investor tide has clearly turned towards lower-priced alternatives.

Latest Canadian Online Rankings Point to Underwhelming Experiences for DIY Investors

If April showers bring May flowers, it seems like those showers also have brought with them a deluge of data on the DIY investing space in Canada, the US, and even around the world.

The latest landmark data release to launch (publicly) occurred last week, when J.D. Power released the 2021 edition of their Self-Directed Investor Satisfaction Study for Canadian online brokerages.

Now in its 13th year, this study measures “investor satisfaction” among Canadian DIY investors who are clients at a number of popular online brokerages. This year, as in the past few years, eight of 14 or so Canadian online brokerages were included in the analysis, providing a reasonably good approximation of the state of investor satisfaction among Canadian investors.

Of course, regular readers of the Roundup know what’s about to come next when talking about another data report on DIY investors or online investing: we have to dive into the methodology to understand what is being measured and better contextualize the findings.

Like many other online brokerage rankings we’ve covered recently, this year’s J.D. Power investor satisfaction study contains a rich source of insight about DIY investors. And, while the reporting format is fairly standard to its historical structure, what caught our eye this year were the important changes that were made to how investor satisfaction was defined.

Methodology and definition changes aside, it was fascinating to unpack the data on this year’s win, but also to contextualize this year’s results against the historical data from this survey. This has helped to really clarify who has been working hard to consistently improve, who has struggled in 2020/2021, and what the DIY investor can expect when it comes to online brokerages in Canada (hint: it’s not great).

What are the rankings about – what do they measure?

Before diving into the results, it’s extra important to spend some time reviewing the methodology and what’s changed about what this study measured in its latest edition.

According to the press release announcing the findings, there were 2,011 Canadian investors surveyed from December 2020 to February 2021 about their perspectives on various components of the online investing experience.

As mentioned in previous coverage of this study, the definition of “investor satisfaction” is made up of multiple components, and this year the factors that comprise that definition changed. The table below shows the seven components that “investor satisfaction” was measured against in 2020 and in 2021.

Change in Definition of Investor Satisfaction: 2020 vs 2021
20202021
Firm interaction (1)Trust (1)
Account information (2)Digital channels (2)
Commissions and fees (3)Ability to manage wealth how & when I want (3)
Product and service offerings (4)Products and services (4)
Information resources (5)Value for fees (5)
Investment performance (6)People (6)
Problem resolution (7)Problem resolution (7)

While there are a couple of components, such as products and services and problem resolution, that appear in the same level of priority in both frameworks, the rest of the changes point to a significant difference in the drivers of investor satisfaction.

At the top of the list for 2021, “Trust” is now the most important driver, followed by “Digital channels” and the “Ability to manage wealth how & where I want.” In 2021, pricing – as measured in “Value for fees” – falls to fifth from third place.

One of the important limitations of the published rankings is that they did not provide detailed definitions of what these terms refer to specifically. And, with a term like “trust” there could be many different interpretations of what that refers to. Nonetheless, there are some reasonable assumptions that can be made around most of what these categories refer to. The most important point to take note of is that the construct of “investor satisfaction” – or even which online brokerage is “best” – is highly dependent on how that is being measured.

DIY investors place different weights on the importance of each of these factors, so although this survey provides a systematic approach to comparing investor attitudes and beliefs about the online brokerage experience, individual investors are likely to have differing opinions on how well or poorly these results match their own experiences.

What are the findings from this year’s results?

With some important qualifiers out of the way, the results from this year’s study paint a portrait of an industry that has struggled to keep pace with the level of demand from DIY investors. Whether it was on the customer service front, where wait times and getting through to a human was nearly Sisyphean, or it was on platform stability on the most volatile of trading days (or some not-so-volatile days either), how online brokerages weathered the storm became evident through the data gathered in this study.  

Perhaps the most telling finding in this regard is that 24% of investors reported having at least one problem with their firm in the past 12 months, up from 14% in 2020 and more than double the rate in the US (11%). For active investors, this is a big problem when it comes to assessments around reliability. For less active investors, however, if the most “exciting” days to be in the market are fraught with outages, delays, or interruptions to service, there is almost no second chance to make a first impression.

And, according to additional findings in the data, those hiccups matter. 20% of investors who experienced a problem stated they are considering switching, which is more than three times the rate of those without issues who would consider switching online brokerages.

According to Michael Foy, Senior Director and Head of Wealth Intelligence at J.D. Power:

“Especially for newer clients, those who have not yet developed strong loyalty with these firms, who are more likely to leave if they have a bad experience. Investors today have more choices and firms need to raise the bar on the experience they deliver.”

Of course, beyond the contextual information, the focal point of the rankings is the list of how each online brokerage scored.  

National Bank Direct Brokerage654
Questrade645
RBC Direct Investing615
BMO InvestorLine607
Desjardins Online Brokerage599
TD Direct Investing591
CIBC Investor’s Edge585
Scotia iTRADE576

The table above shows the numerical scores achieved by Canadian online brokerages that were reported on for this study. The scoring for the online brokerage ranking by J.D. Power is out of 1,000, so it was interesting to note that this year the scores were lower on average than they have been historically (more on that in a moment).

The average score across the eight online brokerages that were reported on was 602. On an absolute basis, it is tricky to compare year over year results now that the evaluation criteria has dramatically shifted. However, on a relative basis, it is possible to derive additional insight.

One of the first things that is important to point out is the spread between first and last place. In this case, the distance between the top and bottom of the ranking is 78 points. By comparison, last year’s ranking saw a difference of only 33 points between top and bottom. It is therefore fair to say that volatility in this year’s rankings reflect some meaningful differences in the way online brokerage operations are impacting investor satisfaction.

The difference between first place ranked National Bank Direct Brokerage and second place Questrade was only nine points, but the difference between second and third place (RBC Direct Investing) was a whopping 30 points. What this implies is the top two firms substantially outperformed the remainder of their peers on the measures contained in this ranking.

Curiously, the difference between placements from third place onwards is a fairly consistent six to nine point drop. This linear decrease is probably an artifact of certain kinds of measures, but it implies that the bottom six online brokers could make significant strides on this index with a minimal amount of effort invested in customer satisfaction.

What is not a coincidence, however, is that five of the bottom six online brokerages in this ranking are the Big Five bank-owned Canadian online brokerages. The differentiating factors between these brokerages are minimal, so it stands to reason that investor satisfaction levels with these bank-owned online brokerages is probably pretty close too.

In contrast, the data from the latest online brokerage survey imply that the firms at the top have found the right mix of service and pricing with DIY investors in 2020, which has created a big gap between these firms and the rest.

National Bank Direct Brokerage and Questrade were able to do something very different and appealing for their clients, compared to the rest of the industry in 2020.

How do this year’s results stack up over time?

It’s at this point that historical data is incredibly helpful to provide additional context around online brokerage performance on the J.D. Power Investor Satisfaction rankings.

Analyzing the results from 2017 to 2021, one of the first things that immediately jumps out is that the average investor satisfaction scores with Canadian online brokerages, regardless of how they’re measured, have been decreasing.

Scores from J.D. Power Canadian Self-Directed Investor Study 2017 to 2021 (heatmaps applied to each year).

The stretch from 2020 to 2021 is an anomalous one in terms of customer composition for online brokerages because so many new investors have joined the client pool.

As the J.D. Power study pointed out, many of these new clients haven’t had the benefit of seeing what the experience was prior to this year. With the number of service and performance issues many online brokerages suffered from, the risk of new clients who joined an online brokerage leaving shortly after joining is likely higher than it’s been in the past.  

For DIY investors who have been around since 2016 (which is what the 2017 data would have captured) or earlier, J.D. Power’s satisfaction scores imply being a DIY investor has probably felt like an investment with diminishing returns at most of the brokerages analyzed. Even if pricing has become more competitive, the value proposition has not improved overall, at least in the firms whose data was published as part of this ranking.

Since not all online brokerages were reported on, it is hard to say what the DIY investor experience has been like at Qtrade Direct Investing or Interactive Brokers or even Wealthsimple Trade, names that are often associated with significant enthusiasm in either rankings or DIY investor community discussions.

Another remarkably consistent pattern that stands out with these rankings is not so much who’s at the top, but rather who has remained at or near the bottom.

In three of the past four years, Scotia iTRADE has ranked as the online brokerage with the least satisfied clients, with TD Direct Investing not too far behind. Historical data also shows that CIBC Investor’s Edge has gone from being among the top online brokerages as recently as 2019 to second last in 2021.

Looking back over the past five years, Questrade stands out as an online brokerage that has continuously strengthened its satisfaction scores, and although it dropped from top spot last year to second place this year, it continues to move in a positive direction for DIY investors, even under the new evaluation criteria. On a relative basis, RBC Direct Investing has gone from a consistently average score to one that is better than average.

Historical investor satisfaction data also helps to quickly spot online brokerages who had an especially rough year in terms of maintaining investor satisfaction.

Desjardins Online Brokerage, for example, went from a market leading (or high scoring) position from 2017 through 2020 to being below average in 2021. Another unusual score was BMO InvestorLine’s. Like Desjardins, BMO InvestorLine consistently placed at or near the top from 2017 through 2020, however for the 2021 results, BMO InvestorLine just barely beat the average.

As mentioned above, the changes in the methodology used to define investor satisfaction make comparing absolute scores from one year to the next hard to do, but the relative position of each of these Canadian online brokerages to one another makes it clear who the leaders and laggards are. Perhaps most compelling is that the bottom of the pool did not really change in 2020 and 2021 despite the shift in how things are being measured.

Takeaways

There are a number of very interesting takeaways from the latest online brokerage rankings by J.D. Power.

As other data points have indicated, most Canadian online brokerages were not ready for the crush of new business in the form of DIY investors wanting to sign up for new accounts, or for the flood of investor trading volume that came with it. What the J.D. Power satisfaction study helped put into sharper focus was the impact to firms via the voice of their customers.

The new methodology by the investor satisfaction study puts Trust at the top of the criteria that they now evaluate online brokerages with. In a world where pricing among online brokerages is increasingly under pressure, DIY investors are still going to expect that an online brokerage platform be reliable, and when pricing is high, so too are expectations around the ability to perform when needed.

National Bank Direct Brokerage appears to have figured out some key ingredients. Low commissions, and entirely free commission buying and selling are important on the pricing front, and whatever they happen to be doing on the service front is working as well.

The latest evaluation by Surviscor highlights the pricing advantage that National Bank Direct Brokerage offers relative to other brokerages, and National Bank Direct Brokerage is starting to gain traction in discussions on social media channels. With this additional accolade, the “trust” profile and the interest in National Bank Direct Brokerage is sure to grow.

According to the J.D. Power Investor Satisfaction Study, Canadian online investing satisfaction scores are nothing to write home about. The troubling trend the historical data has uncovered is that there is a palpable gap in innovation and enthusiasm to do better for clients. Compared to the US, most Canadian online brokerages are trailing in areas that are critical to building loyalty and client delight.

The opportunity to any Canadian online brokerage who reviews this data is that an extraordinary service or innovative experience can earn and win a lot of praise. As the saying goes, there is far less traffic on the extra mile, so firms doing more in either service or innovation are going to stand out (in a good way).

From the Forums

Riding the Commission-Free Waive

It’s hard to keep a deal this good a secret for long. Eagle-eyed DIY investors spotted a new commission-free ETF feature at BMO InvestorLine before any official announcement. Here are a few links of interest worth browsing:

BMO InvestorLine Now Offering Commission Free ETFs (reddit)

Zero Commission ETFs (Financial Wisdom Forum)

Commission Free ETFs at BMO Investorline (Red Flag Deals)

Commission-Free at Last

Is the grass (and account statement) really greener on the other side of the $10 commission per trade? One forum user sparked a lively discussion of DIY investors on the topic of switching away from paying higher fees for trading online. Read more about what users had to say here.

Into the Close

With US markets closed, there’s only one story that matters to many Canadian DIY investors – will the Leafs beat themselves? Ironically the last time the Toronto Maple Leafs were in the Stanley Cup playoffs was the same year Friends signed off, which was 2004. In 2021, it’s going to be debatable who had the bigger comeback.

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Discount Brokerage Weekly Roundup – May 24, 2021

Stock markets in Canada were closed for Victoria Day, but that did little to dampen activity and enthusiasm for DIY investors looking stateside (or further afield) for trading opportunities. And they’re not alone. On the unofficial start to summer, we decided to peek across the (still-closed) border with the US to catch up on important trends and developments in the US online investing space.  

In this America-focused Weekly Roundup, we look at interesting developments among the biggest and smallest online brokerages in the US, and how each is shaping what DIY investors can expect from their online investing experience. First, we focus on the biggest player in the space, Schwab, and what some recent data released by them suggests about DIY investing enthusiasm. Next, we turn the spotlight onto another online investing player, tastytrade, who has demonstrated just how far enthusiasm and community can take an online trading brand. As always, we cap things off with some interesting DIY investor conversation to ease back into the shortened week (here in Canada).

Scaling New Heights: Lessons from Schwab After Peak YOLO

When it comes to online brokerages, there’s big, there’s bigger, then there’s Charles Schwab. Given its gargantuan size and diverse business activities, it’s almost a misnomer to characterize one of the original discount brokerages as such in 2021.

With banking activities, managed wealth, and a host of other financial services that go beyond online stock trading, online trading makes up a small fraction of where Schwab makes their money these days. Even so, given the number of accounts and reputation in the US online brokerage market, Schwab is undoubtedly an influential force with retail investors.

Just how big is Schwab?

Their recently reported trading metrics from April listed  total client assets as $7.34 trillion (USD), an increase of 4% from March and 94% from April 2020 (not a typo). At these levels, spreadsheet columns have to be widened to accommodate the number of digits in a cell to properly total things up. So, if there’s one measure to indicate that you’ve made it in the world, it might just be that.

One of the reasons that they continue to grow at such an extraordinary clip was also reported in Schwab’s latest performance report.

In April, Schwab opened 609,000 new online brokerage accounts (also not a typo), which is over three times what they opened in the same period last year (201,000 new accounts). By comparison, Interactive Brokers, another popular publicly traded US online brokerage, opened about 34,200 net new accounts in April – not an apples-to-apples comparison, but it does provide a reasonable approximation of the scale of difference between the two online brokerages.

While the snapshot of data is mind blowing on its own, when put into context across time, the account opening data at online brokerages like Schwab and Interactive Brokers reveal a possible trend forming: a peak in the surge of DIY investor interest.

Of specific importance is comparing the drops in new account openings at Schwab and Interactive Brokers as an indicator that the “fast money” active traders have stepped away from the online trading space in larger numbers than less active investors have. Thus, Interactive Brokers and firms that cater to active traders will have seen a stronger pullback than firms that cater to “average” DIY investors.

Consider the following: compared to March, the number of new accounts opened at Schwab in April was actually down 28%. By comparison, Interactive Brokers saw a drop of 43% in net new accounts on a month-over-month basis. At both brokerages, new account openings have declined double digits for the past two months, and in the case of Interactive Brokers, the declines in new account openings started in February.

What this data signals is that US online brokerages are seeing elevated account openings relative to last year but a rapidly declining rate of new account openings from retail investors in 2021. In short: the flood of DIY investors appears to have crested.

Due to COVID-19, 2020 and 2021 have been strange years to say the least. Even though a lot has already been written about the elevated interest in investing online, industry analysts have understood that a drop off was bound to occur at some point. The profile of that drop off, however, is starting to become more clear and that has implications for online brokerages during the transition back to a more normal economy.

With May just around the corner, the volume of new accounts will be an important indicator to watch to see if the contraction in account growth is accelerating or decelerating.

Regardless of the direction of new account sign ups, the data on total accounts opened at online brokerages reveals an unmistakable feature: there are lots of new investors who decided to open up online investing and trading accounts in 2021 – a fact that is all the more impressive considering the surge in interest in online investing by investors last year at about the same time.

The question confronting online brokerages such as Schwab and Interactive Brokers is: will these new investors will stick around?

Some important clues to answering that question came from the spring business update presented by Schwab in late April this year.

One important data point (hooray, more data) is that 70% of clients new to Schwab’s retail trading business in the first quarter of 2021 were under the age of 40. Demographically, this sets the stage for long-term retention if the client experience and value proposition are in place to properly cater to this group of investors.

The strongest statement regarding the outcome of the increased interest by newer investors is seen in the slide shown above. Schwab expects retaining clients, and their assets, even if trading activity levels decrease as markets stabilize.

It is this forecast that spells out one the most important strengths of having the kind of scale that Schwab does. With that kind of size, even small percentage improvements in revenue generating activities can tremendously impact the bottom line.

For example, two trends on the above slide show that retail trades per account have more than tripled from December 2019 to March 2021, and that margin balances as a percentage of total client assets have also increased from 0.7% in Q4 2019 to 1.0% in Q1 2021.

A recent promotional email received from Interactive Brokers helps to illustrate why margin loans trending up at Schwab is so important: the margin loan rates at Schwab are substantially higher than at Interactive Brokers.

Thus, the interesting (no pun intended) picture emerging is that for the new investors who joined Schwab and who are going to be more actively trading, an almost 5x cost differential in margin lending rates is going to matter at some point. In case you’re curious, the margin lending rate at Robinhood is 2.5% at the time of publication, which underscores just how fiercely competitive Interactive Brokers is when it comes to features that typically appeal to active traders.

The challenge for Schwab, and really any online brokerage that wants to generate revenues in a zero-commission model, is to charge more for other features, like margin interest, to offset the forgone revenue from trading commission.

For Canadian online brokerages, margin interest rates are a feature that appeal to active investors or investors with larger assets who don’t trade as frequently but who use margin. Both these segments represent high value clients to an online brokerage, so rather than dropping commission rates to zero, savvy online brokerages in Canada may provide attractive margin rates in order to win new clients (or retain existing ones).

The US online brokerage market is fiercely competitive in many respects, however, because they have largely moved to a “zero-commission” world there are other aspects of their business, such as margin rates, that mainstream online brokerages have been slower to compete on. Here in Canada, where zero-dollar commission trading is not really prevalent, margin rates seem like an interesting area to watch.

As was mentioned last week in our coverage of Surviscor’s analysis of pricing among Canadian online brokerages, there is no such thing as a “free lunch,” and as a result, DIY investors can expect to pay the price for commission-free trades in other parts of the online trading experience.

The key takeaway from the latest set of data indicators at Schwab are that there is now a large cohort of online investors who have opened up online investing accounts, who will likely be in need of a very different kind of investing experience going forward than what spurred them to be interested to begin with. If the “fast money” has exited, and markets have less volatility, active traders are going to be hard pressed to find compelling trading opportunities – which is a need almost all brokerages will have an interest in trying to address regardless of size.

The Power of Small: Tastytrade Built a Billion-Dollar Business on Community

This past week, the online financial media powerhouse tastytrade celebrated an impressive milestone: their 10 year anniversary. As part of that accomplishment, they released a very interesting documentary that profiled how the tastytrade brand was conceived, launched, and has grown over the past decade.

The documentary is fascinating content on a number of levels. From the background of how the company came to be named after a popular Philadelphia-area snack, to the palpable enthusiasm for doing something different in finance, the video captures the journey of the tastytrade brand through their first 10 years and ends with an intriguing view of trading in the future.

What is most compelling about this documentary, however, is that it showcases how a powerhouse online investing brand can develop by focusing first on delivering engaging, people-centred content.

It helps to understand that one of the founders behind tastytrade is Tom Sosnoff, the founder of the ultra-popular options trading platform Thinkorswim. Thinkorswim was eventually acquired by Ameritrade (which was then acquired by TD, and the resulting entity, TD Ameritrade, was eventually acquired by Schwab). Thus, the roots of tastytrade’s success in talking in-depth about trading options trace back to Sosnoff’s pioneering work with the Thinkorswim platform.

In the documentary, Sosnoff’s journey from Thinkorswim to tastystrade helps to explain a lot about how the core team that started tastytrade came together, and more importantly, the fact that the focus behind tastytrade was to build financial content in a way that was as much entertaining as it was useful.

Really interesting financial content, it seems, is in very limited supply. And as a result, the business model for tastytrade appeared to be to create an audience of individuals who are interested in and educated about options trading, and that would ultimately set the stage for the online brokerage arm, tastyworks, to translate that viewership into clientele.

As with many great entrepreneurial endeavours, the founders of tastytrade didn’t envision exactly where the business would get to. The billion-dollar acquisition of tastytrade in January of this year, however, validated the premise that building an engaging platform to help investors navigate the world of investing – including something as complex as options trading – would be of real value.

Another very interesting facet of the documentary is the way in which the tastytrade “secret sauce” came together.  

Perhaps it was the comfort level with risk that naturally accompanies a lifelong trader, but the idea to staff a financial content company with comedians to deliver financial information is anything but traditional. In fact, what is genuinely interesting to witness over the journey of the past ten years, is the constant level of experimentation with different types of shows and formats that inevitably has led tastytrade to where it is today – being able to generate live programming seven days a week, having over 100 shows, and a growing global audience (the stat shared about audience cited over 100 million hours of views) reaching 190 countries.

Ultimately, the winning set of ingredients for programming on tastytrade came down to having an authentic interaction between traders and the not-yet-trader staff captured in real time.

Having Sosnoff and co-host walk the talk about their trade ideas and strategies, engage in random banter, and do so in a down-to-earth fashion tapped into the DIY investor culture in a way that traditional news media or traditional approaches to financial content never quite got right. Before podcasting exploded, Sosnoff sought a radio-show feel to the tastytrade core programming, and as a result of a lot of trial and error, the end result was understanding how best to deliver the message through various media.

Although shows are planned and professionally produced, they don’t feel overly scripted. There is visible diversity and a tangible enthusiasm for either learning about trading, or teaching trading, or just talking about trading (or the things that traders would inevitably talk about in the news). In short, Sosnoff and the tastytrade team nailed the culture of trading, because many of those planning or participating in shows have been a part of that world for so long.

This is not unlike the approach of Thomas Peterffy during his tenure as CEO of Interactive Brokers. Like Peterffy, Sosnoff understands the mindset of traders, and to his credit surrounded himself with a team that has created a very loyal and vocal community of traders/viewers (aka tastynation).

For online brokerages in Canada – and likely the world over at this point – there is an inescapable reality about the business: order execution is not enough. What tastytrade and tastyworks clearly demonstrate is that self-directed investors need both education in the form of navigating strategies and principles related to investing, as well as trading ideas. And, as any patient spouse or family member of an avid DIY investor will attest to, self-directed investors also need what other humans need, connection and community. And, tastytrade offers the latter in large measure.

Instead of analyst reports and the traditional news feed of financial data, tastytrade has shown that taking a human-centred approach makes financial content more accessible. And they’re not alone. Robinhood understood this with their purchase of the podcast Market Snacks (now Robinhood Snacks), a financial content show that provides updates on popular market stories and publicly traded companies. Regular (i.e. daily) content with personality that audiences can develop relationships with build and drive loyalty. It compels people to tune in, and in turn, feel more comfortable and even confident in taking on trading ideas they hear being discussed.

Despite the regulatory hurdles in Canada that constrain how much in-house content can be created at an online brokerage, tastytrade and other online brokerages in the US have shown that the formula for success and client delight is enhanced with compelling and delightful content.

As of right now, there is no clear DIY investor content leader among Canadian online brokerages. However, sometime in the not-too-distant future that may change. Tastytrade and tastyworks have publicly telegraphed their intent to come to Canada, and when they do, it will be a challenge for any online broker here to compete against that human-centred content machine.

It’s already clear that certain online brokerages are trying to generate “investing” content. Simply creating content and having it available on different channels, however, is a brute-force way to get attention on content. While it might “work” in the short term, it is highly transactional and not at all a part of what human investors ultimately seek – which is community and connection.

Although coming to Canada is not mentioned directly in the documentary, where tastytrade plans to go next is equally fascinating.

Now part of a much larger global brand, if tastytrade can retain and direct much of what has contributed to their success to date, the technologically immersive experience of online investing previewed in the video reiterates just how much trading culture and community is at the heart of the growth strategy. Ironically, or perhaps expertly, tastytrade has demonstrated the ability to grow exponentially bigger by focusing on creating the feeling of being small.

From the Forums

Gearing Up for Leverage

Making decisions to trade using margin or leverage is not something to be taken lightly. Looking to the wisdom of crowds, one young investor taps into the online investing opinions of reddit for perspective on whether or not leverage is worth doing with a secured line of credit. Read what redditors had to say here.

Minding Your Own Business

Trading online as an individual is one thing, but getting a corporate account to trade online with can be surprisingly personal. One online investor turned to other investors for guidance on whether the assurances sought by one online brokerage for a corporate trading account were, in fact, appropriate. Find out more here.

Into the Close

That’s a wrap on the long-weekend edition of the Roundup. With so much of the focus of this Roundup on the US, there is another important and sombre milestone in the US taking place this week: the one year anniversary of the murder of George Floyd. There has been a lot of heavy-hearted news over the past year, however, one thing that is clear is that we can all play a part in eradicating racial injustice and discrimination. If you’ve found your way to this part of the Roundup, take a few moments to reflect on or read about racial injustice. There’s also a simple but powerful film on the topic below.

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Discount Brokerage Weekly Roundup – May 17, 2021

With the weather starting to warm up, flowers aren’t the only thing springing up at every turn. This month, it seems like DIY investing data continues to bloom, offering some very colourful perspectives on the current online trading landscape.

In this edition of the Roundup, we dig into yet another treasure trove of online brokerage and DIY investor data and find out why measuring the similarities between online brokers is challenging. Also, we’ve got reactions by DIY investors to interesting survey results and more in the forum chatter.

Reviewing Online Brokerage Pricing: Latest Rankings Challenge Perceptions of Low-Cost Online Trading

Another week, another big online investing data report to talk about.

This past week, fees at Canadian online brokerages were under the microscope, as Canadian financial services research firm Surviscor published a significant analysis of the fee structures at 15 Canadian online brokers and found some surprising – and at times controversial – results.

If there’s been any recurring theme to the coverage of the reports we’ve analyzed over the past few weeks, it’s that context matters. In particular, while it is tempting to focus on the headline results, it is often crucial to understand the methodology underpinning a study to properly understand the outcomes.

In the case of this latest analysis by Surviscor, this is especially true, because question at the heart of this study is “Who is Canada’s lowest cost online brokerage?” As any long-time reader of the Weekly Roundup will know, however, the answer is usually “it depends.”

So, before diving into the results, we’ll start by looking at the methodology and process information provided about this study which will better enable readers to understand how the results were ultimately arrived at.

Method Matters

One of the most interesting features of the Surviscor online brokerage fee analysis is sheer number of different factors that it considers. Like anything, however, the devil is in the details.

At a high level, the following six cost categories were measured:

  1. Equity trades
  2. Options trading commissions
  3. ETF commissions
  4. Data costs
  5. Account interest rates
  6. General account fees
Stock commissions

When it comes to equity trades, over 12,600 simulated equity orders were analyzed. Specifically, 6,300 buy and sell orders for Canadian and US equities, respectively, were measured. The prices and volumes of securities varied and ECN fees were applied where applicable.

Options commissions

Treated as a sub-category, options commissions on a total of 340 option orders, split into 170 Canadian and US buy and sell orders (of various price and contract levels), were measured.

ETF commissions

Over 350 ETF orders consisting of over 175 Canadian and US buy and sell orders were analyzed, each order consisting of 700 shares per order.

Data costs

Market data fees were examined in this category, and consist of the fees charged by firms to provide real-time quotes, streaming quotes, trading dashboards, and “enhanced” research and tools.

Account interest

This category measured debit and credit interest for both non-registered and registered accounts in Canadian and US accounts.

General account fees

Fees included and measured in this category refer to inactivity fees, non-registered and registered account annual fees, charges to transfer assets, confirmation fees, closure fees, and account investigation fees.

Another important methodological point to understand is that profiles of traders/investors were broken into the following five categories based on the number of trades made per month:

  1. 0-4 trades
  2. 5-9 trades
  3. 10-33 trades
  4. 34-49 trades
  5. 50+ trades

Results & Analysis

The table below shows the rankings of all the Canadian online brokerages measured as part of this study.

RankOnline BrokerageScore
1National Bank Direct Brokerage93%
2*Wealthsimple Trade86%
3Desjardins Online Brokerage83%
4HSBC InvestDirect77%
5CIBC Investor’s Edge76%
6Qtrade Investor (now Qtrade Direct Investing)61%
T-7RBC Direct Investing54%
T-7Scotia iTRADE54%
T-7Laurentian Bank Discount Brokerage54%
T-10TD Direct Investing53%
T-10BMO InvestorLine53%
12Virtual Brokers50%
13Questrade45%
14Canaccord Genuity Direct42%
15Interactive Brokers22%

The online brokerage that took the top spot in this edition of the online broker cost ranking was as much of a surprise as two of the bottom three rankings.

Starting from the top of the podium, National Bank Direct Brokerage came out on top in this study with the highest score of 93%.

Although it was not entirely clear based on the methodology what the percentage refers to exactly, on a relative basis it is clear that this bank-owned online brokerage managed to outrank its competitors because of lower standard commission pricing (which impacts equities and commissions trading), as well as the fact that it offers commission-free ETF buying and selling when at least 100 ETF units are either bought or sold.

Taking second place with 86% was a name that many newer investors and much of the popular press on online investing has characterized as the lowest cost online brokerage: Wealthsimple Trade. There was a heavily telegraphed caveat to the results of this study (the elephant-sized asterisk) when it came to Wealthsimple Trade, which, for several reasons to be covered below, makes them a very controversial pick for second place overall in this ranking.

In third place was Desjardins Online Brokerage – the direct rival to National Bank Direct Brokerage – who scored 83%. Desjardins Online Brokerage was the winner of this ranking last year, and depending on whether or not to include Wealthsimple Trade’s limitations, this online broker might have ended up in second place overall.

Aside from Wealthsimple Trade, what is noteworthy about two of the top three online brokerages in the fees ranking is that they are both heavily focused on the Quebec market. Not that many Canadian online investors outside of that province are likely to know about these two providers.

The fact that both of these brands compete aggressively with one another means that there is pricing available for active traders at each of these firms that is unheard of at other online brokerages across Canada. Desjardins Online Brokerage, for example, charges $0.75 per trade if more than 30 trades per month are made. By comparison, National Bank Direct Brokerage charges $0.95 per trade for clients who make 100 trades per quarter.

Looking at the top five ranked firms in this latest study, it shows that having a low standard commission price significantly improves the ranking position. Again, excluding Wealthsimple Trade, four of the top five online brokerages in this latest ranking have a standard commission rate that ranges from $6.88 to $6.95 per trade. Also worth noting is that the only big-five bank-owned online brokerage to appear in the top five is CIBC Investor’s Edge, however, both National Bank Direct Brokerage and HSBC InvestDirect (which placed fourth overall) are bank-owned online brokerages.

Thus, one of the biggest findings that this study helps put into focus is that value-conscious online investors can find competitive pricing and convenience with banking products, all in one online brokerage.

Another interesting set of results emerged with the three online brokerages tied for seventh place and two that tied for tenth. The scores for online brokerages that ranked seventh were 54%, while the scores for tenth place were 53% – a razor thin margin. While it seems strange to be focusing on this middle-of-the-pack group, four of Canada’s biggest five banks have an online brokerage that appeared in either seventh or tenth place when it came to fees. Perhaps the most shocking or surprising finding is that relative unknown Laurentian Bank Discount Brokerage was tied with RBC Direct Investing and Scotia iTRADE, and it managed to do better from a cost perspective than TD Direct Investing and BMO InvestorLine.

That so many of the biggest bank-owned online brokerages in Canada performed so closely to one another is a signal that when it comes to fees, these brokerages are virtually indistinguishable. This result likely reinforces the perception that there is no real difference when it comes to commission or trading price for big-bank-owned online brokerages. The differentiators will come in features or service elements.

While the bottom ranked online brokerages typically don’t get much attention in online brokerage reviews, this time seems different. Specifically, three big names often associated with low cost of trading online managed to make up three of the bottom four spots. Virtual Brokers, Questrade and Interactive Brokers, ranked 12, 13 and 15, respectively.

One feature that each of these three online brokerages have in common when it comes to pricing is that they have a variable component to how they charge for trading stocks. Virtual Brokers and Questrade, for example, charge $0.01 per share with a minimum trade cost and maximum trade cost. Similarly, Interactive Brokers charges $0.01 per share with the maximum charge being 0.5% of the trade value.  

Arguably, aside from the variable pricing, there are also ECN fees which factor into the total commission cost for trading with Virtual Brokers, Questrade, and Interactive Brokers. So depending on the type of order placed (e.g. limit order versus market order), the cost of executing a trade can be far higher than just the commission price.

Method Determines Measures

Why it was so important to start this exploration of the Surviscor report by highlighting the methodology is because the way in which certain components were measured influenced the overall ranking outcome.

One example that stands out is with respect to ETFs. Recall that according to the ETF component of the cost evaluation, 700 “shares,” or units, was used as the standard buy or sell amount. It is difficult to say what the “average” or even the weighted average number of ETF units would be during a typical transaction. However, for many investors, that could represent a significant dollar purchase.

Consider, for example, the cost for purchasing 700 units of one of the most popular ETFs among Canadian online investors – VBAL. The last price for this ETF was $29.15 so an order to buy 700 units would cost $20,405 before commissions.

This transaction would be commission-free at National Bank Direct Brokerage, Wealthsimple Trade, Questrade, and Virtual Brokers. If, however, the number of units purchased was lower, say 50 units, then the commissions for the transaction (buy and sell) would see Wealthsimple Trade come out on top with zero commissions, followed by Virtual Brokers and Questrade, while the transaction at National Bank Direct Brokerage would cost $13.90 ($6.95 for each of the buy and the sell).

That picture changes dramatically, however, if the transaction was for a US-listed ETF. For an ETF like VTI, which had a closing price (at the time of publication) of $215.54 US, 700 units before commission would cost $150,878 US. The commission prices for National Bank Direct Brokerage, Questrade. and Virtual Brokers would be zero. However, at Wealthsimple Trade the foreign exchange fee would be 1.5% times the corporate foreign exchange rate (which at the time of publication was $1.21070). In this example, that means the rate of $1.2289 would apply, which means that instead of costing $182,668 CAD, the forex conversion cost would work out to $185,408 CAD, and would mean a difference in cost of $2,740.

It is for that dramatic difference in potential cost to consumers that, as part of this cost analysis, Wealthsimple Trade comes with a very substantial asterisk. Certainly, there are some situations, such as trading Canadian securities, where Wealthsimple Trade could come out ahead in terms of cost relative to other Canadian discount brokerages. However, any substantial transactions taking place for US-listed securities would be significantly more expensive.

Given that Wealthsimple Trade also has restrictions on the securities and markets that DIY investors can trade on, whereas many other online brokerages do not, it becomes harder to rank Wealthsimple Trade on an apples-to-apples basis.

It is unclear how Wealthsimple Trade was graded for the US-listed securities that would have been traded (700 shares/units of US ETFs and which US stocks) as part of the testing framework, as well as how Wealthsimple Trade was graded for options trading and margin lending (which are not currently offered by Wealthsimple Trade).

Without knowing which securities were used in the test and which order types, it is harder to pinpoint why Wealthsimple Trade ranked as highly as it did, despite limitations for currency conversion and trading certain securities that other online brokerages would have no issues with. Similarly, this could potentially have an impact on other online brokerages such as Questrade or Virtual Brokers, where buying ETFs is commission-free, or for Qtrade Direct Investing and Scotia iTRADE, where there are certain ETFs which are completely commission-free to trade.

Takeaway

With so much data being analyzed, it is no small feat to be able to organize and score all of Canada’s online brokerages even on something as quantifiable as cost.

Surviscor’s latest evaluation of online brokerage costs reveal the challenge of trying to deconstruct a lot of intentional differentiation effort on the part of Canadian online brokerages. If it is not easy for the professionals to do it, it is certainly a lot harder for DIY investors to run these kinds of deep analysis exercises to find the cheapest (or best value) online brokerage.

There are other variables, such as age of the investor, or what ticker symbols or the amounts of stock/securities being transacted, that can influence what kinds of costs a DIY investor pays for commissions or account fees.

One of the most interesting consequences of Surviscor’s latest analysis, however, is that the low pricing structures of online brokerages such as National Bank Direct Brokerage, Desjardins Online Brokerage, and HSBC InvestDirect are going to pique the curiosity of more and more investors.

Despite having a major focus on the Quebec market of DIY investors, based on the exposure this latest evaluation is getting online, National Bank Direct Brokerage will benefit from the attention. By implication, the bigger bank-owned online brokerages and traditionally viewed “low cost” providers will have to adjust course to compete even more aggressively with brokerages who are able to provide the convenience and confidence of a bank with a price point that, as yet, cannot be beaten by most online brokerages.

From the Forums

Price of Fame

Continuing on the theme of low cost online brokerages, reddit was abuzz discussing the findings of the latest Surviscor report. Check out posts here and here for users commenting on National Bank Direct Brokerage’s latest win and what DIY investors think about commission pricing at Canada’s online brokerages.

Flipping the Switch

Moving between RRSP providers can be nerve wracking. In this post, one redditor looks for community guidance in choosing between two very popular online brokerages.

Into the Close

That’s a wrap on another data-filled episode of the Roundup. Admittedly it was hard not to drop a doge reference into the whole article so what better way to channel “long” energy than by signing off on a meme-filled ending ahead of the long weekend! Be safe!

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Discount Brokerage Weekly Roundup – May 10, 2021

Spring is in the air. And coinciding with the appearance of new leaves, flowers, and Elon Musk on SNL is another seasonal feature: data on DIY investors.

In this edition of the Roundup, we continue to explore data on self-directed investors from the US and beyond that has sprouted up over the past few weeks, and how that data can help to inform where Canadian online brokerages need to prepare to head next. Also, forum chatter around the big Wealthsimple investment, as well as online brokerage service, find their way into the spotlight this week.

Self-directed Investor Snapshot: Two Different Studies Highlight Emerging DIY Investor Needs

Last week, we dug deep into a significant report on self-directed investors that the Ontario Securities Commission (OSC) released in April. This week, we explore two more online investor studies that crossed our radar recently – one from Refinitiv which looked at DIY investors across the world, and another from J.D. Power, which released findings from their US edition of the Investor Satisfaction Study.

Before diving into the key findings and takeaways from each of these different data sources, it is important to reflect on the details in the methodology of each of these resources. Often times, there are some fairly important claims that are made about online investors from research reports that can heavily influence what we think (and then do) about online investing.

Who These Reports Studied

The Refinitiv report, entitled “The Digital Wealth Agenda: Advancing the Self-Directed Investor Experience” explored the perspectives of just over 600 self-directed investors from 9 countries: Australia, Canada, China, Hong Kong, Japan, Singapore, Switzerland, the UK, and the US.

While there was no formal “methodology” section provided in the Refinitiv report (which was 12 pages long, including title and back covers), there were a few different figures and references that enabled a breakdown of the demographic data to be compiled.

Table 1: Regional Breakdown of Refinitiv Study Respondents

RegionCount% of Total
APAC26945%
Europe Region12621%
North America19833%

Table 2: Age Breakdown of Refinitiv Study Respondents

Age BracketCount% of Total
Millennials9816%
Gen X17629%
Over 5532754%

By comparison, the latest Investor Satisfaction Study from J.D. Power references data collected from surveying 4,895 investors in the US between December 2020 and February 2021, who “make all their investment decisions without the counsel of a full-service dedicated financial advisor.”

The Investor Satisfaction Study by J.D. Power is in its 19th year, and for this edition the definition of “Investor Satisfaction” was redesigned to be comprised of the following seven factors, listed here in order of importance:

  • trust
  • digital channels
  • ability to manage wealth (how and where I want it)
  • products and services
  • value for fees
  • people
  • problem resolution

From the study of investors, the Investor Satisfaction Study scores the satisfaction with online brokerages measured in the study on a 1,000 point scale. This year, data was shared on the following eight online brokerages:

  • Vanguard
  • Charles Schwab
  • T. Rowe Price
  • Robinhood
  • Fidelity
  • TD Ameritrade
  • E*TRADE
  • Merrill Edge

Caveats and Comments on Methodology

In comparing the two different data sets, it’s important to note that not only do they measure different populations of self-directed investors, but they’re also measuring them differently.

Refinitiv’s report describes statistics about certain facets of the online investing experience, whereas the J.D. Power Investor Satisfaction Study looks at “investor satisfaction” as defined by the components stated above. The definition of what constitutes satisfaction has evolved over time, and so too have the components that it is comprised of as part of the Investor Satisfaction Study.

Why these differences matter is because both reports are measuring self-directed investors, and the way in which those measurements are made matter when accurately stating the findings of these inquiries.

For readers of these reports, it is important to understand that self-directed investors are not a homogenous group. In the case of the Refinitiv report, for example, more than half (54%) of respondents were 55 or older, while only 16% were “Millennials.” This strong demographic skew heavily colours who the findings and insights apply to.

In contrast, detailed data from the J.D. Power Investor Satisfaction Study regarding demographics was not released in their public news release. This means without knowing details about the group of study participants, it is difficult to state which segment of investors the claims about satisfaction most apply to (e.g. younger or older investors).

Finally, it is also worth mentioning something about the commercial intent behind the release of the data.

In the OSC report, for example, a comprehensive set of data was released, in all likelihood because the institution is a public one with a mandate to help educate the public on matters relating to investors. There is clear public good to be served by sharing information about the composition of the Canadian retail investor base surveyed as part of their study.

On the other hand, the study by Refinitiv was part of a lead-capture program in which information about individuals was collected in exchange for access to the findings of the report. This is a common marketing tactic to better understand who is accessing data, and therefore determine whether this a possibility for a commercial relationship.

Similarly, the Investor Satisfaction Study is a proprietary report conducted annually by J.D. Power, and measures the “voice of customer” across multiple online brokerages. By publishing the limited amount of data on the analyzed firms and key findings of the study, the hope is that online brokerages or industry stakeholders will purchase the full report and data set.

Those points stated, it was nonetheless valuable to explore the key findings from each report and situate them against the online brokerage market here in Canada.

Interesting Data About Self-Directed Investors

A key theme of the data in the Refinitiv report centered around how self-directed investors seek out or want to use data as part of their online investing experience.

One of the most important findings from the report was that DIY investors still believe that price for commissions is an important factor. However, there are other components to the online trading experience that online brokerages the world over have to get right in order to retain or delight their clients.

The portrait of the online investor shown in the Refinitiv report is one in which there is little to no loyalty when it comes to staying with specific online brokerages.

In particular, an important finding of this report is that 47% of investors polled had a neutral Net Promoter Score (NPS) and 20% are “Detractors,” which implies that many investors view the relationship with their self-directed brokerage as transactional, and for a minority, as a negative. According to the survey, 33% of respondents would be considered Promoters – or individuals who would actively recommend their online brokerage (platform) to family, friends or associates.

Another interesting observation of the reported data is that different age groups have different needs and preferences when it comes to online investing information sources. In particular, younger investors appear to be more willing than older ones to seek out and use investment information on social media channels and forums.

Four key findings from the J.D. Power Investor Satisfaction Study were shared and included:

  1. Frequent glitches sap customer satisfaction
  2. Robinhood leads in new accounts but struggles to build trust
  3. Investor education remains the best resource, but brokerages not delivering
  4. Meeting clients’ holistic financial needs

There’s a lot to unpack in these four points, however, the first two points highlight that even in the face of record online account openings and customer growth in the US online brokerage space, brokerages have to prioritize stability and market accessibility in order to garner satisfaction (and potentially loyalty) from their clients.

The reality of the stock market is that it tends to work efficiently “most” of the time. However, at times of extreme volatility and emotion, that efficiency breaks down and opportunities for traders to capitalize on that efficiency gap present themselves.

For online investors brave enough to step into the volatility, especially in the US online trading space, it was evidently infuriating to encounter situations where trading platforms were down or trading was interrupted during the trading sessions when stock prices were moving around substantially. Similarly, when GameStop’s share price shot higher, the restrictions placed on trading those shares alienated significant pools of Robinhood’s audience and client base.

Arguably, one of the most interesting developments from the 2021 Investor Satisfaction Study is that the definition of “Investor Satisfaction” has now evolved to place trust at the top of the set of factors that determine whether an experience with an online broker is satisfactory.

What trust means, however, appears to be driven by accessibility and reliability of trading platforms.

The evolution of the investor satisfaction criteria, in particular the continued drop in prominence of price or value of fees, is fascinating in the context of the US online investing marketplace, where zero-commission trading has become the new normal.

For Canadian online brokerages, there is still a long way to go in terms of price drops before we reach full zero-commission trading, which means expectations for the online investor are likely high. As a result, the consequences of outages, trading interruptions, or anything that impairs accessing market opportunities quickly will be much worse for brokerages charging commissions per trade than those who do not.

People being charged what they believe to be high commissions per trade are going to be wary, if not resentful, of having to pay for trading online. The criteria from the J.D. Power Investor Satisfaction Study make it clear that when price is removed as a factor, service and the brand experience matter much more prominently.

It is on this latter point that both the Refinitiv study and the Investor Satisfaction Study by J.D. Power converge on a common issue: what is really special about an online brokerage?

When brokerages compete with one other on price, it becomes easier for consumers to set them apart on one of the most important metrics (price). But, when commission prices get to zero, it really does beg the question: What are you buying when you sign up for an online brokerage?

Features such as how easy or hard it is to get started, tracking transactions, access to reporting, data on portfolio/trade performance, and so much more than just the ability to place an order all make up important parts of the online investing experience (just ask any DIY investor at tax time).

In the case of the Refinitiv report, it’s also the data for trading ideas and opportunities that matters to investors. And, based on the J.D. Power study, it’s educating investors on the online trading experience.

Regardless of the study, it was fascinating that international investors and those closer to home share a view that most relationships with an online brokerage are “meh.” They are or appear to be transactional (thus their poor NPS ratings), and the online brokerage that has the best pricing or set of features wins.

With zero-commission trading, however, it is abundantly clear that features and client experience rise in prominence and highlight the need for online brokerages to focus on branding and defining what makes them special in the sea of sameness that is online investing.

Important Takeaways

COVID-19 has had a major impact on the online brokerage industry here in Canada as well as around the world. The data generated by several interesting research studies of the online investing space reveal that DIY investors are increasingly seeking out and demanding stronger digital experiences and features that provide either insights about investing or more efficient ways to manage and measure their own investment performance.

There are still a few more data reports set to be released about the Canadian online brokerage marketplace specifically over the next few months. However, this latest set of data about online investors provides great context for an industry in Canada that is seeing consumer sentiment and expectations be shaped by forces out of the US. It appears the same is true around the world, where the zero-commission trading option continues to spread.

When commission price does disappear, however, the lesson emerging from the different data points is for online brokerages to focus on the different components of the online investing experience with an eye towards improving the client journey to an online brokerage account, as well as what it feels like to be a customer.

And, despite some of the unknowns and limitations of the two data sets we examined, these reports provide valuable context and a pulse check on different demographics of DIY investors. This being the season of change, it seems entirely fitting that these reports are helping to understand what changes are starting to appear in the online investing landscape.

From the Forums

Out of Sight, Out of Kind

When it comes to resolving an issue with your online trading account, being seen or heard by your online brokerage is so important. In this post, however, one redditor has the unenviable moment where they have to get creative in order to be noticed by customer service.

Investment in Wealthsimple Attracts Attention

It wasn’t just the mainstream media coverage of the huge investment stake in Wealthsimple that was generating buzz. If ever there was an indicator of the popularity of Wealthsimple with younger, more digitally savvy investors, the buzz this news created on reddit is it.

Having reviewed thousands of online forum posts from DIY investors, seldom has a story generated so much engagement and interest as the news that Wealthsimple received a $750 million investment and valuation of $5 billion dollars. With over 900 upvotes and 400+ comments, there were a lot of opinions about what the investment means for Wealthsimple and in particular, Wealthsimple Trade. And these engagement numbers were on just one of the several posts about this topic that were generated this past week.

Suffice it to say that it wasn’t only online investors chatting about this development, there’s a good chance that many, if not all, online brokerages in Canada were also trying to digest how this massive infusion of capital into Wealthsimple is going to play out. We’ll cover more on this in an upcoming Roundup but for now, the sentiment in this post is telling.

Into the Close

It’s 2021 and things are a different kind of interesting. It’s fair to say that Elon Musk’s act on SNL is harder to follow than his explanation of what Dogecoin is. And yet, by announcing that Dogecoin is simultaneously a hustle and a method of payment for a mission to the moon, well, it seems like only Musk can top (or topple) Musk. For now though, here’s hoping that there’s more positive news on the vaccination front to look forward to this upcoming week. Have a profitable week ahead!

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Discount Brokerage Weekly Roundup – May 3, 2021

It’s hard to fathom, but May is already/finally here. For the superstitious market participants, it’s the month that investors tend to seek an exit (sell in May and go away). The data, however, paints a different picture to trying to time an exit – and interestingly enough, we’ve got data in spades this month.

In this edition of the Weekly Roundup, we launch into a new month with a quick update on the latest deals and promotions activity, and then take an ultra-deep dive into a huge report on DIY investing published by one of Canada’s most influential securities regulators. Given the length of this week’s Roundup, we’ll save reporting on the forum chatter for next week.

Discount Brokerage Deals Update for May

It’s the start of a new month, and that means our regularly scheduled check-in on the online brokerage deals landscape for Canadian DIY investors.

This month, online brokerage deals and promotions are effectively on cruise control, with no major offers launching or ending to begin the new month. That said, there are some interesting observations about the current status of deals and promotions, as well as some other interesting developments that point to activity “off Broadway” when it comes to how certain online brokers are approaching the deals and promotions space.

One of the first important observations for this spring is the paucity of cash-back offers. BMO InvestorLine is the only Canadian online brokerage offering a mass-market cash-back bonus promotion. In a world where the race between bank-owned online brokerages is as close as it is, BMO’s offer will undoubtedly boost their exposure for DIY investors looking for a big-bank option.

Instead of cash-back offers this spring, it appears that most other online brokers coming to market with a promotion are opting for commission-free trade bonuses. After the RSP contribution deadline, HSBC InvestDirect launched their commission free trade offer. Prior to that, National Bank Direct Brokerage also launched a sizeable commission-free trade promotion. Other online brokerages, such as Questrade, have maintained their commission credit promotions throughout the year with no signs that they are concluding.

The takeaway here seems to be that Canadian online brokerages are looking to control their costs by offering up commission-free trades, which while valuable to consumers, also cost less than cash-back promotions.

Interestingly, for one online brokerage that already offers commission-free trading, Wealthsimple Trade, cash back is the go-to option. We’ve noted that over the past few months there have been cash-back bonuses ranging from $50 to $100 for new clients of Wealthsimple Trade. These bonuses have been available through different affiliates that work with Wealthsimple Trade.

From a big picture perspective, data on the interest in retail investors signing up to open new accounts (a key target for online brokerages) shows that this traffic is slowing down.

While some stories, like cryptocurrencies, continue to generate interest and participation in trading online, stock markets are nowhere nearly as “cheap” or as volatile as they were a year ago. As a result, without the added catalyst of a contribution deadline looming, or significant market volatility, it appears that the speed and intensity of account openings will decrease.

What that means for deals and promotions throughout the rest of the spring and into summer, however, is that online brokerages who want to gain more attention and possibly market share have an opportunity to do so now before both the cost and complexity of doing so goes up in the fall – when the ramp up to next year’s RSP contribution season begins.

It is especially curious that given the important changes taking place in the industry – such as the recent rebrand of Qtrade, potential new entrants to the Canadian online brokerage space, and the rise in prominence of commission-free trading provider Wealthsimple Trade, that online brokerages are not more assertively coming to market with promotional offers.

Deals and discounts provide an opportunity to win the attention of DIY investors looking for a good fit for online brokerage services, and promotions – including commission-free trade promotions – enable DIY investors a low-risk route to try out the experience with an online brokerage.  It’s a low-cost, win-win option, especially when the alternative for most Canadian online brokerages is to win the race to provide outstanding digital experiences faster than a commission-free brokerage can provide features investors want.

DIY Investor Deep Dive: Recent Study Provides Insights on Online Investors

Last month, the Ontario Securities Commission (OSC), which is the securities regulator in Ontario, released an in-depth study of retail investors in Canada in response to the rise in interest of online investing during the past year.

Clocking in at 59 pages (46 if you don’t count title slides), this report was a treasure trove of data that explored many facets of the online investing experience, and was organized into the following categories:

  • The impact of the COVID-19 pandemic
  • Products and performance
  • Reasons for being self-directed
  • Risk preferences
  • Markets and order types
  • Information used to determine investments and trading decisions
  • Time spent investing
  • Tools, features, and apps

With so much data to dig into, there’s a lot to digest about the online investor space in Canada, especially as it relates to attributes about DIY investors. That said, there are a few key areas of interest that warrant mentioning in the Roundup, given the impact to the online brokerage space in Canada.

Methodology

Before diving into some of the more noteworthy findings of the report, it is useful and appropriate to highlight the methodology and background of the study to appreciate just how valuable the data is that was collected and released.

The OSC self-directed investor report studied 2,000 Canadian investors using an online poll administered by research firm Leger, between November 17 and December 6, 2020. To qualify for the survey, individuals had to identify as a self-directed investor for one of their accounts, and they were required to have at least one of a series of investment products, such as individual stocks, ETFs or REITs, bonds, mutual funds, or other types of securities or derivatives.

While the report disclosed standard demographics like gender, age, and geography, it also reported interesting parameters such as the value of DIY investments (which 85% of respondents disclosed). With a concentration of focus in Ontario (43%), and skewing male (60%) there is clearly an overrepresentation in the data towards the behaviour and perspectives of a sub-group of Canadian DIY investors.

Another important note to keep in mind is that this report stated that it would have a margin of error of +/- 2%, 19 times out of 20, based on its sample of 2,000 respondents. Why that is particularly relevant will become clear in diving into some of the data that was reported, and how the data from this study stacks up against reports of the online investing space over the past year from other sources.

The “Rise” of DIY Investing

The first major finding of this survey is perhaps its most controversial: that “10% of investors opened their self-directed account during the pandemic.”

Looking closely at the data underlying that claim, 10% of respondents claimed to have had their direct investing account for less than nine months. Compared against the number of respondents (9%) that claimed to have had their accounts for between 9 months and one year, the number of survey respondents that actually opened an account during the pandemic seems shockingly low.

A report by the Investment Industry Regulatory Organization of Canada (IIROC) in February of this year cited a statistic from financial research firm Investor Economics that showed there were more than 2.3 million online brokerage accounts opened in 2020 (from January to December) compared to 846,000 in the same period in 2019.

The 170% increase in account opens reported by Investor Economics implies that the sample taken by the OSC study does not materially reflect the actual percentage of investors who opened an online brokerage account for the first time between March and December. As a result, the first claim should probably be restated as:
“10% of the investors who participated in this survey opened their self-directed account during the pandemic”

Interestingly, this more accurate phrasing was part of the OSC report’s press release in one place, but not in others, and as such could be misleading to readers trying to understand what online brokerages, investors, and other research studies have indicated as a historic year in online investing.

That important caveat about who this data actually represents in mind, this report did provide an extensive view into an important collection of online investor attributes, behaviours, and perceptions that is worth reading through.

DIY Investors Enjoy It

One of the more fascinating findings of this survey was that of the underlying motivation to being a DIY investor.

When queried as to why they do not use an advisor to manage their investments, it was surprising to see that 44% of respondents stated that they enjoyed managing their investments. The next most popular answer was that 34% found that having an advisor manage their investments was too expensive.

The responses provided shed light on a narrative that doesn’t get nearly enough attention in the world of online investing – that individual DIY investors enjoy managing their own investments. It is important to note, however, that alongside the average (44%) there were additional attributes that helped to make a more nuanced assessment of the response data.

For example, there was clearly a significant preference for respondents whose household investments were greater than $500K, compared to respondents with lower amounts of investments. Specifically, 64% of respondents whose investments exceeded $500K stated they enjoy managing their own investments, compared to 39% for those that had less than $100K, and 45% for those who had between $100K and $500K.

Another interesting contextual piece is that there was a significant relationship between individuals who reported enjoying managing their own investments and their self-perceived knowledge of investing. 56% of individuals who reported having a high perceived knowledge of investing reported that they enjoyed managing their own investments, compared to only 22% of respondents who had low self-perceived knowledge.

The key takeaways here are that the more money you have and the more you believe in your understanding of investments, the more it seems you like to be a DIY investor.

With so much focus on commission price when it comes to selecting an online brokerage, it was equally fascinating to see the data pattern emerge from respondents when it came to perceptions of value for management of investments. Stating that something is “too expensive” could be in reference to many things, but what was fascinating to note was that regardless of the perceived knowledge or the amount of household investment, between 33% and 40% of respondents agreed that the price of advice was too high. Though it was not deemed statistically significant, it was nonetheless intriguing to see that more household investments a respondent had, the more likely they were to see advice as too expensive.

Although it might not have scored as the primary motivating factor in this sample of DIY investors, the level of agreement between investors of different knowledge levels and asset levels that advisors are “too expensive” reflects one of the strongest value propositions for online brokerages: perceived value matters.

Again, coming back to the fact that 80% of the respondents of this survey have had their DIY investing accounts for more than a year, the fact that just about one third of DIY investors in the survey had price as a key driver implies that there is a very big segment of online investors who are prepared to do the work required to manage their own finances, including some of them who don’t believe they can get a better return themselves.

Perceived Knowledge: The Double-Edged Sword

At its core, all investing is speculative. When investors claim to have a high degree of perceived knowledge about investing, the term “knowledge” could mean different things to different people. Of course, feeling like you know, as it turns out, could have a huge impact on whether or not you enjoy DIY investing.

Another interesting data point to emerge from this survey is that 69% of respondents reported feeling satisfied with their experience overall as an investor (20% report being very satisfied and 49% reported being somewhat satisfied). Any reader of social media comments about online brokerages over the past year would probably have a different view of this data. This serves to illustrate that what conclusions you can draw about the industry or the endeavour of investing online depends heavily on who you ask, and where those investors are sourced.

The contextual information alongside the percent satisfaction illustrates an interesting pattern that shows the greater the size of investments ($500K or over) and the higher the perceived knowledge, the more likely an investor will be satisfied with their experience as a DIY investor. This was the same data pattern observed in asking why DIY investors did not want to go with a financial advisor. The number that really jumps out is the difference in satisfaction between individuals with high perceived knowledge (84% of them claimed to be satisfied), versus those with low perceived knowledge (37%). Clearly, if online brokerages can address the perceived knowledge gap, there’s reason to believe that satisfaction will improve.

Of course, a little bit of knowledge can be a dangerous thing, and another fascinating data point to emerge was when respondents were challenged to answer five skill-testing questions about marketplaces and orders. 

Shockingly, none of the 2,000 investors polled answered all five of the questions right, and only 4% got four of five questions right.

Perhaps even more shocking (and a touch ironic), even the survey authors made a mistake on the name of a major stock exchange in Canada, the Canadian Securities Exchange (CSE). It begs the question: if regulators and survey creators can get this stuff wrong, what hope do DIY investors have?

It is fascinating to see that 13% of individuals who self-identified as having high perceived knowledge of investing thought that Wealthsimple Trade, which was used as a decoy option, was a real stock exchange. The lack of investor awareness of the different securities exchanges in Canada, as well as where stocks can be traded, highlights a gap in understanding of some of the basic information that would be material to an investor, like where to go to find more information about a security they invested in, or what happens to an order if the exchange experiences an outage.

The fact that respondents could score so poorly on questions about the mechanics of trading online, while at the same time rate their satisfaction with being an online investor so highly, implies that much of the process of online investing itself is disconnected from really having to understand some basic (but important) information about the assets being traded. Ironically (again) this was brought up just this past week by investing sage Warren Buffet who implied that online brokerages, in particular those like Robinhood with a focus on younger investors (and who saw a massive surge in new accounts during the pandemic), are catering towards the gambling instincts of investors.

Key Takeaways

There’s a lot in the latest OSC report on DIY investors in Canada that didn’t get covered or explored in this week’s Roundup. What was clear, however, is that there is a lot of valuable information that was published about a certain segment of DIY investors that were polled by the survey conducted.

One important (perhaps clear) takeaway is that it is important to carefully qualify the limitations of the data of any study or survey when it comes to making broad statements about the full population of DIY investors in Canada. The insights provided by this report appear to heavily describe investors who have been at investing for at least a year and are largely centered in Ontario. Ultimately, anyone hoping to get more insight into the Canadian DIY investor space learned some very interesting things from this report.

Perhaps the biggest point of interest is that the experience of online investing is one that is not only driven by price, which tends to dominate the narrative. Instead, there are clearly very human features – like enjoying the process – that comprise a significant part of why people choose to invest online as a DIY investor.

Where both industry and regulatory associations might be able to improve the experience is clearly in investor education. Not only in terms of understanding more about investing, but also when it comes to the important and often overlooked details of marketplaces and operational issues (including things like taxes) that DIY investors either don’t pay attention to, or aren’t being provided sufficient resources on.

Finally, it would be great to see reporting like this done at a regular cadence so that changes over time could be tracked and understood. There are numerous stakeholders that could benefit from this data, and it’s great that the OSC was able to publish this data set, but tracking these trends requires ongoing data capture. Just like watching a portfolio requires taking a long-term approach, there are now more DIY investors than ever, and tracking what shapes their experience over time is going to be perennially important to understand.

Into the Close

That’s a wrap on this data-intensive version of the Roundup. The good news for online brokerage industry nerds/enthusiasts is that there are a few more data reports that we didn’t get a chance to dive into this week, so be on the lookout next week for even more data insights. Now that May is upon us, it feels entirely appropriate to end with a strong meme! Stay safe!

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Discount Brokerage Deals & Promotions – May 2021

As hard as it is to believe, May is already upon us. With the tax filing deadline now officially behind us and RSP season now a distant memory, online brokerage deals and promotions activity is likely set to gear down.

At the start of a new month, there isn’t a lot to report from the larger players in the space, however there are signs of promotional activity uptick we noted last month at non-big-five bank-owned online brokers.

The good news for anyone hoping to open an online investing account at this point (and there’s data pointing to strong interest on the part of online investors continuing to open accounts), is that there’s a healthy selection of offers to choose from.

That said, it seems most Canadian online brokerages with an active promotion are in favour of commission-free trade offers for the time being.

Certain online brokerages do offer cash-back bonuses through affiliate offers, however, so be sure to check our online investing deals & promotions section for more information about these.

Expired Deals

No expired deals to report on at this time.

Extended Deals

No new deal extensions to report at this time.

New Deals

No new promotions to report on at this time.

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Discount Brokerage Weekly Roundup – April 26, 2021

It’s been a week of stranger things. Starting with the Federal budget with numbers so staggering they seem like they’re from the Upside Down, and ending with an announcement that Elon Musk would host Saturday Night Live, Glenn Close dancing to “Da Butt” at the Oscars, and a beaver taking down internet and cell phone service. All of this underscores just how tricky trying to figure out what’s coming next can be, except it seems, in the world of online brokerages.

In this edition of the Weekly Roundup, we dive into the hazy cloud of online forum chatter to highlight some interesting developments coming soon to Canada’s online brokerage landscape from two very popular players. Also, we’ve got updates on the latest activities here at Sparx Trading that will help readers stay engaged and smiling. Finally, we close out the Roundup with more interesting conversations from the online forums.

The Chatters that Matter

Every so often, it’s fun to spill the tea.

Usually, when we talk about the latest features and developments at Canadian online brokerages, it’s in reference to things that have already launched or are well on their way to launching.

The reason is that we want to be able to attribute the story back to a reasonable source. Rumours are interesting, but we like to do our due diligence and provide citations or links to sources wherever possible, so that others can validate our work.

Of course, between the official statements that come via press releases and the conjecture from different social media and forum users, there is the “grey zone” of chatter that comes from official social media or investor forum accounts owned by online brokerages. Sometimes, online brokerages will let slip some interesting details and updates in response to user queries, and this past month we spotted two noteworthy features to discuss.

Questrade to Launch a New Mobile Trading App Later This Year

With so many new investors jumping into online trading since early last year, it’s no secret that online brokerages are now focusing more of their attention on this segment of investor. Typically younger and more tech savvy, newer online investors also demand best-in-class digital experiences, which for online brokerages, means having a very strong mobile trading user experience.

Earlier this month on reddit, a user started this thread highlighting their angst about Questrade’s current mobile trading experience. Intriguingly, this thread touched off quite a bit of discussion around the mobile trading app at Questrade and whether it cuts the mustard as an online trading app.

Here are some of the critical things that people said:

“Who else is sick of the spinning wheel on Questrade app? Anytime you switch to other apps and come back to Q it shows spinning wheel. Looks like Questrade is still using mom and pops app developer or platform.”

“sick and tired of the spinning wheel of you’re not going to trade today.”

“Yeah… the “app” is terrible. I mainly trade on my computer because of it, but it would be great to be able to trade from phone if I’m away from my computer without the spinning black wheel and having to constantly log back in. It would be a dream for a new app to come out. Wealthsimple has Questrade majorly beat in this category.“

Given there is no one clear leader across the board when it comes to online investing in Canada, DIY investors have to make some tradeoffs when it comes to features at different brokerages. It’s not uncommon for online investors to have multiple online trading accounts with different online brokers specifically to access certain features (e.g. US trading).

It is therefore interesting to learn from a user associated with Questrade’s reddit account that this online brokerage is planning on launching a new and improved mobile trading app later this year.

Also on deck for the year ahead are improved research tools.

Although many Canadian online brokerages are continuously hard at work with new features and enhancements, there’s often a gap between what they’re doing and what they’re prepared to talk about. The one exception to this appears to be Wealthsimple Trade (see below for more details), who publishes their feature request directory along with how many votes each feature receives.

With Canada gradually achieving increased vaccinations (11+ million Canadians have had at least one vaccine shot at the time of publication), and the US already administering over 225 million vaccine shots, with almost 95 million people fully vaccinated, economic activity (and therefore stock market activity) is pointing towards recovery.

What that could mean is that the trend that has caused so many investors to be able to have the time to spend focusing on the markets is coming to an end. Users simply cannot pay attention to their jobs full time and maintain the pace of active investing. Further, without significant swings in volatility, active traders will also likely step back.

Canada, because of this lag in vaccinations, is likely to see online investing from home continue for longer than it will in the US. That said, once things start opening up again, being able to monitor and place trades on the go will become more important. Reliability (especially uptime and speed) is going to be paramount for anyone who’s considering very actively investing.

Although Questrade is already telegraphing improvements to its mobile trading app experience later this year, in reality, the macro picture of economic recovery and demographics of new traders likely suggests that other online brokerages in Canada are also thinking about, if not working on, improving their own mobile experiences.

That said, by letting people know that they are working on this new feature and targeting a launch later this year, Questrade is one brokerage that Canadian DIY investors won’t be guessing about for much longer when it comes to mobile trading.

Wealthsimple Trade Hints at USD Trading Accounts “Coming Soon”

There’s no doubt that Wealthsimple Trade has made significant strides in becoming a popular choice among cost-sensitive online investors. With their zero-commission trading offer, at least for Canadian securities, online investors have flocked to this online brokerage en masse.

Despite all the things people typically cite (beyond just the price) that they enjoy about Wealthsimple Trade, there are clear concerns and gripes that also accompany DIY investor conversations about this online brokerage. In an earlier Weekly Roundup, we covered what people don’t like about Wealthsimple Trade in some detail.

Among the list of things that users wanted to see changed at Wealthsimple Trade is having US dollar-denominated trading accounts. The reason: foreign exchange fees. Currently, Wealthsimple Trade charges 1.5% per transaction to convert from CAD to USD (and vice versa).

Earlier this month, one user on reddit posted a screenshot of a support interaction in which Wealthsimple stated that they are planning to support USD trading in “the near future” – potentially as part of their new suite of premium features.

This response from Wealthsimple’s client support was especially interesting given that Wealthsimple Trade publishes a list of roadmapped features (along with the votes in favour of those features). Specifically, US dollar accounts has been on the requested feature board for two years, and has received 282 votes to date (at the time of publication). Unlike other features which have tags to indicate that they are either planned or launched, the US dollar accounts feature isn’t tagged as being planned.

Given the significant response on reddit to this feature, and that (many) users are discussing what they would be prepared to pay per month to have this feature, this suggests that even if it goes live as part of the newly launched Wealthsimple Trade premium program, it could see considerable interest.

There are many questions about how USD accounts at Wealthsimple Trade would work, and often the devil is in the details. The most important detail for now, though, is when exactly this feature will go live.

Updates from Sparx Trading

We’re doing it for the ‘gram

What do Die Hard and the Sound of Music have in common? The answer is on the newly launched SparxTrading.com Instagram page.

We’re firm believers in having fun between the YOLOs & FOMOs of every day stock market conversations. So, for a lighter side of what we’re celebrating and working on at SparxTrading.com, be sure to follow @sparxtrading and let us know if you have any requests to see DIY investor bulls & bears having some fun in everyday life.

Check Out Our Newsletter

The Weekly Roundup is an awesome way to kick off your week, however, there are times when it’s maybe too hard to tune in to all of the interesting things taking place across the online brokerage space.

Cue the Sparx Trading newsletter!

The latest edition of our newsletter is now live, and it features quick recaps of the big stories shaping the world of online investing.

If you’re looking for something that feels even more awesome than starting your week with the Roundup, the newsletter is it!

Subscribe to the newsletter to make sure you get the next issue delivered straight to your inbox.  

From the Forums

Dialed into Service

The last year has presented a real challenge to online brokerages and DIY investors alike in terms of communicating by phone. One DIY investor had enough, and was compelled to make a change of online brokerage based on needing to have access to phone support. Read what other DIY investors had to say in this post on the Financial Wisdom Forum.

Broken Records

One DIY investor new to the world of trading online found out that keeping detailed records of online trading is only half the battle. Reporting those trades also presents a challenge. Find out what tips fellow DIY investors offered to help ease the angst of filing trade information.

Into the Close

That’s a wrap on another edition of the Roundup. It’s a mixed bag of news – hope for vaccinations and also stories of things continuing to worsen before they get better, or weirder. Markets, however, are positioning for better days ahead, so if there’s a beacon of positive news that seems to be it. Stay safe & profitable in the week ahead!

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Discount Brokerage Weekly Roundup – April 19, 2021

Apparently, stock markets are not sheepish about sounding like a broken record, especially when they’re breaking records. Yet another week has gone by, and with it, stock markets continue to press higher, appeasing the bulls, unnerving the bears, and delighting online brokerages.

In this edition of the Weekly Roundup, we take a deep dive into the big news from the past week: a major rebrand of one of Canada’s most popular online brokerages: Qtrade. Dig in to learn about the updates to the brand, and what it means for DIY investors and online brokerages in Canada. Also on the menu for this edition, interesting chatter from the investor forums.

Qtrade Charts a New Course for DIY Investors

This past week, a lot of things changed about Qtrade, one of Canada’s most popular online brokerages. Specifically, they launched a major brand overhaul, which included a new logo, new colour and design schemes, and an update to their website. They also changed their name to Qtrade Direct Investing.

While these substantial changes are visually apparent, there are also subtle changes that have taken place. When analyzed in conjunction with one another, these big and small changes paint a very interesting picture of the new direction for Qtrade, and potentially for the Canadian online brokerage industry as a whole.

New Logo, New Identity

Though there are over a dozen different online brokerages in Canada, they all face the same problem: standing out.

Advertising and marketing have been important tools to help online brokerages in Canada get onto the radar of investors, however, the reality for many DIY investors is that price often becomes the most important differentiator between online brokerages. Now that most online brokerages offer trading commissions at about the same price, communicating what makes an online brokerage special or unique is becoming increasingly important.

Beyond pricing, one common way to segment the Canadian online brokerage space is into “bank-owned” online brokerages and “independent” online brokerages.

Why this matters so much for Canadian online brokerages is because the same thing that is an advantage for bank-owned online brokerages, which is the affiliation with the larger parent bank brand, is also a limitation when it comes to leading change and innovation. The criteria, such as convenience or perceived security, that bank-owned online brokerages tend to have associated with them are not necessarily things that can be evolved quickly.

As a result, the larger online brokers have many more moving parts to coordinate, so change can almost by definition only happen slowly and, in many cases, reactively.

For independent or non-bank-owned online brokerages, however, the advantage to being small(er) and potentially more focused on online investing is that innovation and change can happen more frequently. Accordingly, the features can be tailored specifically towards DIY investors without running afoul of other considerations of the parent brand – such as banking or lending products, or even other investment services (such as mutual funds).

As such, for Qtrade, the launch of a new brand identity – including a new logo – is an opportunity to reaffirm to the market of DIY investors what is special about their brand, and to position themselves for a new vision of the future.

Breaking Bored

In an industry that is increasingly viewed as a commodity, standing out is not only important, but arguably vital. Big bank-owned brokerages are associated with boring because that’s generally what older online investors have valued: stability. What new entrants, like Wealthsimple Trade, and even edgier independent online brokerages like Questrade have shown, however, is that a newer DIY investors are paying attention to innovation.

Loyal, excited clients have to see the value in the brand and they have to connect emotionally with the brand. Typically, however, this kind of excitement is driven by online brokerages who can deliver a stable trading experience and strong value (read: low trading costs).

In the current landscape of Canadian online brokerages, it is hard for most DIY investors to be aware of more than a handful of providers, let alone know what the corporate branding looks like or get emotional about it.

Instead, most online investors tend to be aware of online brokerages by name only – whether that be by parent brand affiliation (such as a bank-owned online brokerage) or the name of the online brokerage directly.

With those challenges in mind, the new Qtrade logo and brand identity appear to position them to look bold and distinct. Their choice of colours, and even the logo itself, are very different to what is “traditionally” seen among their competitors. This makes Qtrade immediately striking.

The new Qtrade logo focuses on their core brand name, Qtrade – something we’ll touch on in more detail below – which is crucial to existing clients and existing DIY investors who would or should know the name. Gone from the logo, however, is the word “Investor,” which has also been dropped as part of their new name update.

Another interesting feature of their logo is that it progresses up and to the right – something that is very noticeably different than other online brokerage logos which move horizontally from left to right. The direction of moving up and to the right is incredibly meaningful to online investors, as that is the general direction that most investors want to see the progress of their investments move in.

Finally, the fact the new logo presents the word Qtrade in all caps instead of just capitalizing the first letter the way the previous logo did, ties together the whole brand name and subtly elevates the word “trade” to new prominence.

The new Qtrade logo communicates confidence and is thoughtfully designed with features that speak to the online investor experience. No longer is it just about the “Q”, which encircled the previous logo, but rather where the brand can potentially take an investor.

It is this last point that really drives home the power of what a logo can communicate without needing to deconstruct it in a (*cough*) long post. The visual medium communicates information more quickly and impactfully than processing words can. And, in a world where interactions take place in fractions of a second, the new Qtrade logo is able to communicate a lot because of the way it has been designed.

New Colours

Another related component to the new Qtrade brand identity is the colour palette. If it was Qtrade’s goal to stand out from their peers with the use of colour, then it’s safe to say they have achieved it.

Their use of vibrant colours sets them apart completely from many of the colours that dominate their financial service competitors, and the colours that comprised their previous brand identity.

Most of the colours used by Canadian online brokerages are green, red or blue, however Qtrade’s use of dark pinks, mandarin orange, and lime green against the dark backgrounds (blues and grey) instantly communicate something bold and noticeable.

While there is a lot that could be said about psychology of colour that would be relevant to this rebranding of Qtrade, the most important point is that the new colour palette differentiates Qtrade from their online brokerage competitors and on a more subtle level, the vibrancy of colour choices is not meant to communicate “calm” but rather something quite opposite – and rare in finance – “excitement.”

New Website

The next major components to unpack are the changes to the Qtrade website.

If the new site feels like the difference is “night and day,” it’s because the updated website has a dark mode feel to it, in stark contrast to the previous site, which used white as a background.

Some noteworthy items dropped from their previous website include:

  • removing the photos and imagery
  • removing the financial data ticker with different market indices

But the most interesting change, aside from the visuals, is the absence of pricing. There are no longer commission prices or commission-free ETFs prominently displayed (or displayed at all) on the homepage.

Instead, the focus of the new homepage is on the key value drivers they want to present going forward. The top three for now (presumably because they are mentioned on the homepage) are:

  • Industry-leading tools
  • Award-winning platform
  • Canada’s best support

Further, there are short but meaningful explanations for investors of different experience levels that are featured prominently on the homepage.

Compared to the websites of their peers and against the previous version of their own site, the new Qtrade website has struck a balance between having fewer items on their website that don’t directly communicate what they do, the features/benefits of their platform, and wandering entirely into the minimalist design. Again, psychologically, it seems like a great deal of thought went into positioning Qtrade as a brand that exudes and communicates confidence, and the new website ties this together really well.

Another notable difference is the age and diversity of the individuals in the imagery chosen for their photos. While there is still a reliance on stock photographs, it appears that these images are more reflective of the diversity of their client base as well as from an age point of view, an indication of who they are hoping to resonate with: a younger investor.

What’s in a Name?

The new look and feel of Qtrade also features a new name. Qtrade Investor has now officially become Qtrade Direct Investing.

While changing colours and logos are big decisions on their own, changing the name of the brand is also a very big decision, especially given the fact they’ve had their name for 20 years and have earned a significant amount of media coverage with it. Thus, dropping or changing the name Qtrade to something else seems like it would be a tough sell.

That said, Qtrade has also, for better or worse, often been confused with Questrade, the other online brokerage in Canada that starts with a Q and has “trade” in the name. So, despite the rebrand efforts, abbreviated discussions (like the kind that happen on social media or reddit) will likely still result in some confusion.

Choosing to drop “Investor” and replace it with “Direct Investing” is a curious decision from a branding perspective, however.

On the one hand, “Investor” does imply a certain type of personality – perhaps a “buy and hold” type – something that is at odds with the future direction that Qtrade wants to move towards. That future, it seems, would favour individuals who have the confidence to “trade” rather than those investors who might remain passive and “do nothing.”

On the other, if there was some brand confusion before, adding “Direct Investing” to the mix may also run the risk of confusing DIY investors since there are already two big bank-owned online brokerages (TD Direct Investing and RBC Direct Investing) that use the “direct investing” label, as well as smaller brands CG Direct (Investing) and CI Direct Investing (that’s also going to be very confusing for DIY investors when that shift takes place for Virtual Brokers).

Thus, while Qtrade’s brand refresh is intended to have them stand out, by virtue of their name, it seems like Qtrade is going to be sometimes confused with other “direct investing” providers and still with Questrade. As an aside, the move to “direct investing” as a name to describe what online brokerages do, also suggests a continued move away from “discount brokerage” or “online brokerage,” which is potentially something we may see other online brokerages adopt – especially now given Qtrade’s name update.

Why Qtrade’s Rebranding Matters

Clearly, rebrands are a big undertaking with significant investment required to make the kinds of changes that Qtrade Direct Investing has. The simple question, it seems, is why? In particular, why now and why to this degree?

One possible answer is competition.

While competition among Canadian online brokerages is not as fierce as it is in the United States, there are, nonetheless, several firms that are consistently active when it comes to updates and improving their position in the market. Qtrade is definitely one them.

Regardless of their platform or website front end, Qtrade has been one of the few online brokerages in Canada that has kept itself in the spotlight, primarily by winning or earning recognition from various online brokerage reviews.

Given that rebranding is a decision with a timescale of years, however, it seems that winning top billing in the limited number of online brokerage reviews in Canada isn’t going to be enough to carry the brand forward into the future.

With so many online brokers in Canada, and even more on the way, the reality is that one of the biggest challenges to the online brokerages is figuring out how to stand out.

By changing their name and visual identity, Qtrade Direct Investing is signaling they are embarking on a new direction for their business. Their bold colour palette, excited tone, and increased inclusion both from a diversity standpoint and with younger investors in their imagery, means that Qtrade is focused on appealing to a new cohort of investors who represent the future of Qtrade Direct Investing.

The decisions to include emotion and excitement in the world of finance is a signal that financial services brands need to appeal to novelty rather than history. It doesn’t seem to matter to younger investors that an online brokerage may be new, but rather that the client experience be easy and fast.

The first impression of the digital touchpoint will be formative, so the new front end of the brand needs to be striking and memorable just to establish relevance in otherwise noisy world.  The fact is, a lot of online investors will start their journey either with their own bank-owned brand (out of convenience) or will look to the conversation online, especially in forums and social media more so than in traditional media – such as a magazine or newspaper (even an online one). As such, rankings and ratings won’t be enough. Investors will need a reason to get excited about Qtrade Direct Investing (or any other online brokerage).

Despite the amount of time and effort that has already been invested in crafting the next chapter of the Qtrade story, the reality is that a lot more work lies ahead of this online brokerage to win the attention and accolades of online investors in the places that those investors consume content.

It seems clear that for the time being, Qtrade wants to shift the conversation away from pricing and towards features and client experience, two areas in which they are competitive. To do so successfully, however, Qtrade will have to put itself on the radar of those DIY investors for whom those other features matter. For that reason, we expect to see a ramp up of activity across content and marketing channels to reach investors and amplify the new brand direction of Qtrade.

There is a lot more to dig into with regards to the Qtrade Direct Investing rebrand, however, given their perennial appearance in the online brokerage rankings, it is safe to assume that their competitors are paying close attention to this development at Qtrade.

The shift in tone and design towards building a more emotional connection with users is something other online brokerages will undoubtedly look to emulate as a result of this latest brand relaunch by Qtrade. As such, there will certainly be more to say about the consequences of this rebranding effort, including how DIY investors and competitors ultimately react to an online brokerage that is turning the energy level up.

From the Forums

Off the Charts

Active DIY investors are always on the lookout for charting tools, however, not all Canadian online brokerages offer them at a competitive price. In this reddit post, some DIY investors have found a clever solution to get their chart fix.

One Trade to Rule Them All

When it comes to passive investing, the ideal approach is “set it and forget it.” In this post, one online investor was looking for a single investment to make that would take the work out of DIY investing, and it seems that redditors were able to provide a suggestion.  

Into the Close

That’s a wrap on a big week. Markets aren’t the only things flying higher and online brokerages aren’t the only ones launching things: the first ever helicopter flight is set to take place on Mars. While we’re certainly facing our own share of struggles here on Earth, it’s great to have a reminder that there’s still lots of opportunity to celebrate. Hope your week is out of this world!