Seasoned traders understand that in volatile situations, sometimes it’s best to sit on your hands. Though that advice would certainly be applicable outside the world of self-directed investing (*cough* Will Smith *cough*), within the world of self-directed investing, activity is tied to profitability, at least for online brokerages. So, it is a fine balance between taking action and being patient.
In this late-in-the-week edition of the Roundup, we check in on an important shift taking place at Canadian online brokerages that will see mutual funds come back into the spotlight for the next several months. Speaking of near term visibility, our next story looks at what one popular US online brokerage is noticing with respect to skepticism on the part of active investors. To close out, we highlight investor chatter about mutual fund commission charges and margin rate questions.
Can’t Fight this Fee-ing Anymore
One of the core tenets of self-directed investing is controlling or minimizing unnecessary costs.
Despite the characterization or popular mythology around self-directed investing as a “fast money” or a high activity endeavour, a significant portion of online investors are not very active and prefer to “take it slow and steady.” For example, a study on retail investors conducted by the Ontario Securities Commission in 2021 found that 43% of investors surveyed make fewer than 10 trades per year and 31% make 11 to 50 trades per year.
While activity is certainly influenced by what is out there to buy, prevailing opinions also suggest that up-front commissions have a part to play in influencing purchase behaviour. The rise and popularity of the zero-commission trading online brokerage Robinhood provided a dramatic example of this in the US, as has the growth of Wealthsimple Trade in Canada.
As most of us have come to learn, though, there is no such thing as a free lunch.
Despite the reluctance to go to zero commission trading on stocks, Canadian online brokerages are not unfamiliar with the practice of zero commission trading on mutual funds. Unfortunately, for many Canadian online investors, this has resulted in a scenario in which self-directed investors have been paying commissions for things that technically they’re not supposed to be paying commissions for from an online brokerage, namely, advice.
Though this story has taken a backseat during the pandemic, the timing of the deadline for online brokerages to transition investors into suitable alternative investments is nearing. As such, the response by some online brokerages to start charging commissions on mutual fund trades is surfacing in the news as is the access to previously unavailable mutual funds.
This month, for example, CIBC Investor’s Edge started to charge their standard commission rate, $6.95, to buy or sell mutual fund units. RBC Direct Investing rolled out new pricing this month as well, charging 1% of the gross trade amount up to a maximum of $50 for purchases of mutual funds. On the other end of the spectrum, it’s business as usual with no charge for mutual fund purchases at TD Direct Investing and BMO InvestorLine.
A side benefit of the new regulatory requirements is expanded choice for some online investors at firms like RBC Direct Investing. Previously, and much to the chagrin of self-directed investors, Mawer mutual funds were not available at RBC Direct Investing. As of this month, however, Mawer Investment Management announced that 13 of their funds are available at RBC Direct Investing.
With new regulations governing trailing commissions set to take effect June 1, there are still pockets of uncertainty relating to charges for mutual fund trades. The structural shift in product lines has been taking place over the past two years against the backdrop of the pandemic. However, with a deadline looming, the flurry of activity and announcements from online brokerages early this year suggests they are cutting it a bit close as far as communicating these changes to their clients. Ultimately, that could prompt a customer service risk, especially if there are any big market shocks that set off a surge of requests for contact centre support.
Although fundamentally different in spirit and appeal than individual equities or ETFs, the fact that mutual funds remain a very popular choice for certain DIY investors who do business with bank-owned online brokerages (say, those who might remember or know that REO Speedwagon hit referenced in this section’s title?) means that how individual banks approach the selection and pricing of mutual funds can be a differentiating factor. That is especially important to consider as online brokerages attempt to provision for an influx of younger investors.
We want people to come for the advice and stay for the performance. So, younger individuals who don’t want to take advice and want to go DIY on their own. Generally speaking, those don’t work out that well, right? That said, we also know that we have sophisticated investors who do want to run their own money as part of managing their overall portfolio, so they may have a relationship with a portfolio manager and run 15% on their own, in our case in an iTRADE account. And we want to support both of those positions.
And I think what you’re going to continue to see, I think, is us introducing more channel options to address the different needs of each of those segments. I would say as a fiduciary, and we are very clear about this with the regulators, we are nervous about the propagation of — you can build your own portfolio and retire 15 years earlier by saving a few dollars on fees. We think it’s a very dangerous message to send to Canadians at a time where they’re very anxious even about their mortgage debt. People should remember, it’s very important for Canadians to get advice on banking, investments, insurance and debt, not just investments. And I think as we begin to see more and more feedback from young Canadians about how are they going to save for a mortgage, save for a house, they have to come in for a conversation on that. They can’t do that on their own around the kitchen table. Historically speaking, it’s not successful.
Another interesting angle to the mutual fund shuffle taking place at online brokerages is that it offers a hint of how commission free trading could be handled at bank-owned online brokerages. A great case in point is TD Easy Trade. The new service allows for 50 commission-free trades of stocks but has limited selection of ETFs to just TD products.
Like “commission free” mutual funds, commission free trading at bank-owned online brokerages is going to have to come with some kind of value capture.
Stepping Aside: Interactive Brokers’ Clients Prefer to Wait and See
One of the strategic places to pay attention to in the online brokerage market is with active investors. In a world of commission-free trading, it is interesting to ask who would actually pay commissions to an online brokerage for trading services. The answer: Interactive Brokers clients would.
In a short interview on CNBC, founder of Interactive Brokers, Thomas Peterffy, shared some interesting details about the status of cash and margin position for Interactive Brokers’ clients that seemed to suggest that they are atypically not borrowing money nor putting cash into positions. Of note, the typical profile of a customer is also something Peterffy shared, since the profile of assets Interactive Brokers customers has is significantly larger than say, Robinhood customers.
Why this was of particular interest is that, typically, volatile markets are favoured by active traders.
Ahead of periods of heightened uncertainty, Interactive Brokers has served as an interesting harbinger of near-term behaviour. They are typically agile at tightening margin requirements if they foresee risk to their firm. In this case, the conclusion arrived at by Peterffy is that Interactive Brokers clients aren’t buying in this market because they don’t buy the strength of the rally. They are selling, it seems, into strength.
If interest rates rising are a disincentive for margin trading, however, it would suggest that there is limited upside, at least in the near to medium term. The fact that investors that are both knowledgeable about markets and who are prepared to pay for quality trade execution are not seeing a favourable risk/reward seems to paint a cautionary tale at least to that style of investing activity.
The consequence of activity pulling back for stock trading among the most valuable category of online brokerage clients is something that would be difficult to approximate the impact to among Canadian online brokerages; however, it almost goes without saying that it isn’t ideal.
This active group is likely to play a much more prominent role in the planning for online brokerages going forward since they not only typically trade stocks but also options. And, as data has shown, the small category of very active traders (50+ trades per month) can generate substantial revenue (and are prepared to do so) so long as the trading experience is reliable.
Getting those investors to pay attention to online brokerages against a backdrop where there is skepticism on market direction and rising interest rates will be especially challenging. The limited number of Canadian online brokerages that could cater to these active traders appear to have their work cut out for them.
From the Forums
Take a Hike
The headline news is replete with interest rate chatter. Interesting (no pun intended) then that the pace of those rate changes is also in the spotlight and why one eagle-eyed investor in this post noted a rather sharp increase in the margin rates at a popular bank-owned brokerage.
Chatter around mutual funds at online brokerages is at an unusual high point. Commissions are once again in the spotlight and one question from a Reddit user is certainly indicative of what others are thinking: which online brokerages are now directly charging (or not) for mutual fund purchases and sales.
Into the Close
That’s a wrap on another edition of the Roundup. It’s been a choppy past few days; however, all eyes continue to be fixed on how fast and furious interest rates are going to climb. Whether we can all make the leap to a new normal of interest rates is what everyone is working to figure out.
With Tom Brady seemingly defying the laws of aging by announcing his take back on retiring, it goes to show that age is truly just a number. It’s a fitting theme, especially at online brokerages in Canada and the US, as firms in this space are only just beginning to wrap their heads around the surge in young investors who’ve embraced self-directed investing.
In this edition of the Roundup, we attempt to wade into multiple pools of data about young investors entering into the world of self-directed investing and the impact this group is having on online brokerages in Canada and the US. We cap things off with a quick scan of post-RRSP season commentary from the investor forums.
Young Investors Making Waves
One of the interesting things about tsunamis is that when they first begin, they don’t appear to be very big at all. Over distance and time, however, their size and force are undeniable.
Although not a new story by any means, the “rise of the retail investor” is one whose effects are now gathering in intensity, and impacts are becoming increasingly more visible across the self-directed investing landscape, in particular, at online brokerages.
Tracking this wave has not been easy, especially in Canada, but a slate of recent publications and feature launches from Canadian online brokerages, combined with data and developments from US online brokerages, paint a picture of an industry that is quickly trying to understand and cater to this new generation of investors.
A Sea of Change
Earlier this year, TD made a splash of its own by launching TD Easy Trade, the successor to GoalAssist. There are certainly many interesting things to comment on here; however, at the top of the list of features that got many people talking was the 50 commission-free trades per year that come standard with the platform.
At first blush, it certainly seems like this “mobile-first” trading experience was engineered to supplant Wealthsimple Trade; however, the reality is more nuanced. Yes, Easy Trade and Wealthsimple Trade (even from a branding perspective) are comparable in design and features, but the launch of Easy Trade this year is less likely the result of Wealthsimple Trade per se and more likely because of the seismic shift in self-directed investor demographics during the pandemic. After all, TD Direct Investing is widely cited as having the largest market share in Canada of online brokerage accounts, and as popular as Wealthsimple Trade has become, it is still likely far behind other online brokerages either in terms of number of clients or assets under management, or both. As such, Wealthsimple Trade, now a competitor to be considered was not really a “threat.”
The press release of the TD Easy Trade launch was, perhaps, the most telling. Specifically, the quote by Tony Ierullo, TD Direct Investing’s Vice President, New to Investing and Emerging Investor Solutions. Ierullo stated:
“During the pandemic, we saw a significant increase in demand for online investing, with more people trying DIY investing from home, and for the first time. As a result, trades and new account openings hit record highs. This growth in new accounts and trading volumes was driven largely by new and younger investors, which is why it was important to us to launch an app that is easy-to-use, with low trading fees and available support to ensure investing is accessible to this emerging, fast growing investing segment.”
Rather than competition driving the change, it was customers. And lots of them.
Though TD’s release was short on specifics about this group of new investors, another bank-owned online brokerage, RBC Direct Investing, published the results of a survey they commissioned (no pun intended) to understand young investors.
Their latest survey, however, revealed a more precise figure: nearly half of new clients at RBC Direct Investing that joined during the pandemic were under the age of 35.
Although RBC Direct Investing was the one who published a more concrete number, the reality is that these results are likely typical at most Canadian online brokerages. And, in many ways, this survey offers some very compelling takeaways for all Canadian online brokerages, as well as those watching the industry closely.
One interesting nuance of the data, however, shows just how important the sampling frame – or when the sample was collected – is to the conclusions to be derived from surveys.
In April 2021, just after the meme-stock mania hit a crescendo, the Ontario Securities Commission (OSC) published their survey of self-directed investors in Canada. Though timely, the survey of 2,000 Canadian investors was fielded between November 17 and December 6, 2020. In that survey, only 19% of respondents indicated that they had an account opened for a year or less. In contrast, in the RBC Direct Investing poll, 1,530 investors were surveyed between October 26 and November 5, 2021, with 900 of those being DIY investors and 630 “interested in” DIY investing. The figures from the latest RBC Direct Investing research point to a much higher proportion of new investors stepping into the markets in 2021 than was the case in 2020.
To help compete the picture though, another bank-owned online brokerage, BMO InvestorLine, shared numerical data on the numbers of new account in the Canadian online brokerage segment all the way back to 2014. Although the source of the data should be treated with a grain of salt (i.e. unlike data that comes from publicly traded online brokerages in the US, the Canadian data is based on voluntary disclosure, and thus cannot be independently verified), the picture does line up with data from online brokerages in the US. New online brokerage accounts surged to unprecedented levels in early 2021.
Why this matters so much is because when new investors step into a market largely forms a crucial first impression of what constitutes normal.
For an overwhelming majority of new investors, in particular young investors, volatility and opportunity for once-in-a-generation (maybe?) price disruptions were a catalyst to opening new trading accounts and trading stocks online. Meanwhile, older and seasoned investors saw volatility as a reason to seek out safety (or sensibly “do nothing”). And therein lies a crucial difference between the new cohort of investors compared to established investors. New investors are clearly willing to trade – even under circumstances where risk (i.e. volatility) is extreme. And their entry into the world of self-directed investing happened against the contextual backdrop of enormous global disruption and economic distortion.
The places and people that new investors turned to for direction during the pandemic, as well as what they invested in and how they invest, were all very different for younger investors who stepped into the market in the past 18 months compared to the previous almost 18 years.
How Can Online Brokerages Ride the Wave?
There’s lots more than can (and will be) said about the rising influence of younger investors among Canadian online brokerages. Thematically, however, it is immediately clear that focusing on “price and device” underpins the first leg of a strategy for online brokerages.
In the device category, as recently as this past week, Interactive Brokers announced the launch of their new trading app IBKR GlobalTrader, a simplified version of their trading experience tailored specifically towards newer investors. It happens to be a mobile app, with fewer features (i.e. less complexity) than the typical Trader Workstation, and thus is expected to be easier to use.
The fact that bank-owned online brokerages as well as active-trader-focused brokerages are looking at gaining market share of the same segment of users is indicative of the importance of winning market share with newer investors.
In the price category, in addition to lower standard commission prices, making the process of regular investing behaviour frictionless would be appealing.
Features like fractional shares or commission-free ETFs (like the ones that people want, not just the ones that brokerages are willing to make available) have curb appeal for newer investors. It’s no accident that Amazon decided to split their stock recently which then made the stock seemingly more accessible to stock and options traders.
Other than prices and devices, however, Canadian online brokerages appear to be leaning hard into investor-oriented content. From magazines to videos to podcasts, there is a growing ecosystem of content that online brokerages are making available to self-directed investors that is partly educational and partly contextual. With so much information about investing available online, however, it will be a challenge for online brokerages to balance providing a “streamlined” user experience and a wealth of content around investing topics.
New investors are reshaping the online brokerage industry the world over. For many online brokerages, navigating this new normal is a serious exercise in rapid adaptation.
The sudden surge in self-directed investors overwhelmed existing systems because those systems were designed around “traditional” thinking, and the past two years have shown that, going forward, online brokerages need to rethink what investing online could look like.
As the wave of change continues to evolve, one of the biggest challenges to face online brokerages won’t be getting new online investors to pay attention, it will be to keep it.
From the Forums
Fee-ling’s Not Mutual
Although there is a lot of conversation among self-directed investors about ETFs and stocks, mutual funds are still a very popular vehicle used by Canadians to build wealth. In this post from Reddit, however, one investor is re-thinking using mutual funds because of a recent fee change at one big bank-owned online broker.
Savvy vs Saasy
Subscriptions are all the rage, especially with tech companies. But will paying a monthly fee for services pan out for self-directed investors? One Canadian online brokerage seems to think so as they explore a monthly fee for more premium features. Investors in this post on Reddit, however, beg to differ.
Into the Close
That’s a wrap on another in-the-middle-of-the-week edition of the Roundup. Perhaps the only upside to Daylight Savings is that St. Patrick’s Day shows up an hour earlier. Here’s to channeling lots of green in stock charts and tree branches, as well as a cheers to new beginnings and signs of spring. We definitely need all of it.
Let’s call a spade a spade: things are in a terrible state. While we continue to watch from afar and hope that peace comes quickly to Ukraine, markets and investors closer to home are trying to digest world events having local consequences. And right now, we could all use something uplifting.
Fortunately, there are a few bright spots in this edition of the Weekly Roundup. To begin, we review the latest online brokerage deals and promotions, with a detailed look at how developments during the RRSP season portend what DIY investors can expect through the rest of the year. From there, we dive into a master class in continued growth by Interactive Brokers, whose latest metrics reveal that they’ve successfully navigated the new normal. Finally, tune into chatter from the investor forums to see what self-directed investors were focused on (other than oil prices).
Deals and Promotions: Rise of the Hybrids
While the holiday season is typically the time of year for gifts, it seems this year it was the RRSP season that gave self-directed investors the gift that keeps on giving: online brokerage deal extensions.
Things around the Canadian online brokerage industry are a bit unusual these days (see next story for more). Prior to the pandemic, there was a trend of online brokerages offering incentives and promotions that would typically start in November and last until the RRSP contribution deadline at the beginning of March the following year.
While last year was characterized by a tsunami of new investors clamoring to open online brokerage accounts, this year traffic is comparably quieter and thankfully more measured. And, despite crowd sizes returning to more manageable levels for online brokerages, the deals and promotions offered around RRSP season reflect a massive step change in the promotional landscape, driven in large part by increased competition and a whole new set of investors that are looking at trading online.
Before diving into the analysis of March’s deals and promotions reveal about the current competitive landscape, let’s begin with a recap of who’s in and who’s out.
What is interesting, however, is that on a year-over-year basis, the profile of the offer from CIBC Investor’s Edge was about the same, whereas for TD Direct Investing the minimum deposit requirement dropped 90%, from $15,000 to $1,500. Across multiple deposit tiers, TD Direct Investing also offered the highest (or was tied for highest) cash back amounts.
As small as this sample size is, it is illustrative of how Canadian online brokerages appeared to approach RRSP season this year.
On the one hand, there are firms that chose to stick to the traditional script, and on the other, firms that took a dramatically different route. Based on the numbers, it is clear that TD Direct Investing employed a different playbook, whereas CIBC Investor’s Edge stuck to their familiar game plan.
That said, as the RRSP season went on, we witnessed three exceptional developments that suggest the current competitive landscape among Canadian online brokerages has shifted in a direction we believe is bullish for self-directed investors looking for a promotion when opening an online trading account.
A series of fortunate events
The first big shift in tactic came from Qtrade Direct Investing. At the outset of the RRSP season, Qtrade launched a cash back offer that looked like past offers. That is, they weren’t trying to be “first” when it came to cash back amounts.
That all changed in late January when Qtrade Direct Investing revised their cash back offering upwards and lowered the threshold to qualify for the promotions as well. They lowered their minimum deposit requirement from $15,000 to $5,000 and raised their minimum deposit bonus from $50 to $100. On a year over year basis, the revised Qtrade promotion was 80% lower for the minimum deposit threshold (from $25,000 down to $5,000) and two times higher in terms of minimum bonus. And it didn’t stop there.
Qtrade Direct Investing also raised their cash back amounts across numerous deposit tiers, matching the top bonus amounts in almost all of them. The only range where Qtrade Direct Investing was not tied for the highest cash back amount was in the $25,000 to $50,000 tier.
And this brings us to the second big development during the RRSP season, which is promotion extensions.
Historically, the expiry date of most online brokerage promotions would coincide with the end of the RRSP contribution season. This year, however, we saw expiry dates stretch out well beyond that point into March and April. And, as the RRSP season drew to a close, we started to notice deal extensions further into the calendar year.
For example, Qtrade’s cash back promotion now expires at the end of May (moved from an original expiry at the end of March). The RBC Direct Investing promotion, a fascinating development in its own right because of the number of commission-free trades (100) and term over which they can be used (two years), was originally scheduled to expire at the end of April and is now set to expire at the end of October. Joining this list of extensions is BMO InvestorLine, which has now extended its RRSP season cash back promotional offer into the end of May. Scotia iTrade has not extended their current offer (yet?), however, that is set to expire at the beginning of April.
Finally, another telling development during RRSP season this year was the launch of Easy Trade by TD. This new trading platform (which is separate from TD Direct Investing) offers 50 commission-free trades per year to its users. There is no doubt that when one of the largest banks in Canada launches a product that promises 50 commission-free trades per year, that self-directed investors (and other online brokerages) are going to pay attention. And, just in case they weren’t paying attention, TD heavily advertised the launch of Easy Trade during the Super Bowl and is continuing to advertise on social media as well.
Collectively, these developments are bullish for self-directed investors looking for better value (on commission pricing) and suggest that deals and promotions are going to fare more strategically into the approaches of online brokerages in the near term. In particular, those online brokerages that don’t want to drop their standard commission prices can, instead, launch a competitive commission-free trading promotion (as was the case with RBC Direct Investing). The events over this RRSP season also may serve as a harbinger of commission-free trading finally gaining widespread adoption in Canada.
Prior to the launch of full zero-commission trading at National Bank Direct Brokerage, this bank-owned brokerage offered 100 commission-free trades which were good for one year. Eventually, that promotion was superseded by the new pricing scheme. But in taking a measured approach towards zero-commission trading, it stands to reason that they could have reviewed the data associated with that promotion to decide about the impact of going to zero.
As TD showed with Easy Trade, zero-commission trading doesn’t necessarily mean full access to the suite of tools and capabilities that their TD Direct Investing online brokerage platform has.
It’s certainly a salient metaphor these days, but the “hybrid” option (aka unbundling) introduced by TD of paying for some trades or features and not for others could be how other online brokerages who currently charge for commissions approach the new world of zero-commission trading.
If other online brokerages follow suit, then just like at the pump, DIY investors looking for premium will be prepared to pay up. For everyone else, however, getting started with investing appears to be getting a lot cheaper.
Interactive Brokers: Numbers Reveal a Winning Formula
As we near the two-year anniversary of the official declaration of a global pandemic by the World Health Organization (March 11, 2020), the true impact of this once in a generation (hopefully) event is starting to become clearer. Although COVID is by no means behind us, almost anyone in the online brokerage industry can attest to how exceptionally different things are now than in the “before times.”
One area that probably doesn’t get much attention, however, is benchmarking. Specifically, how do you compare what’s taken place over the past two years to anything?
As it relates to online brokerages, be they Canadian or US, data from the past two years is showing that the changes to the industry have been profound. In many ways, not only is there a “new normal,” but new approaches are required and many of these are largely going to be written on the fly.
Earlier this month, as per usual, Interactive Brokers released their monthly performance metrics (for February 2022). Contextualizing these numbers, however, is particularly challenging because of how dramatically different the performance figures were in January and February of this year compared to last year. Though it may not be news that 2020 and 2021 were busy times – even by historic standards – what is particularly noteworthy is what you can see when net new account growth is plotted out back to 2019.
Because a picture is worth a thousand words, take a look at this graph of data of net new accounts at Interactive Brokers from 2019 to 2022.
Among the many things that jump out, it is striking to see the step change in interest in trading online that coincides with the start of the pandemic. Even more imposing is the surge in net new accounts in the first three months of 2021. Against that backdrop, the latest account growth figures reported by Interactive Brokers could be good, excellent, or terrible. Thankfully, context matters, and as such even though just under 39 thousand net new accounts represents a month over month decline in February of almost 22%, this still puts the strength of new account growth several times above where things were pre-pandemic.
Surges in interest aside, the longer-term picture points to a sustained interest – at least for Interactive Brokers – in trading online as indicated by net new account opens.
Prior to the pandemic, the average number of net new accounts in a month in 2019 was about 7.6 thousand. Excluding the period between January and March of 2021, the average between March 2020 and February 2022, the average number of net new accounts at Interactive Brokers has climbed to just shy of 38 thousand per month, a whopping 5x increase.
Focusing in on a more recent timeframe, it appears that the launch of cryptocurrency trading at Interactive Brokers in the late summer of last year helped to provide renewed enthusiasm for new account growth. Net new accounts opened in November 2021 (almost 55 thousand) reached the highest level seen since the end of the meme-stock craze in March.
Interactive Brokers’ continued account growth serves as a remarkable example of what is clearly a winning combination for active investors/traders.
Granted, some of the growth in their numbers is from acquisition. However, most new accounts have come through organic growth. Even more fascinating is that a material portion of their new clients have come to Interactive Brokers because of recommendations and referrals from existing clients.
Perhaps most remarkable of all, though, is that this data shows that growth can happen at an online brokerage that has a core business that charges commissions per trade, and against a backdrop where commission-free trading is the norm at many peer firms.
When comparing account growth figures across Interactive Brokers, Schwab, and Robinhood for 2021, it was revealing to see how poorly Robinhood fared against its peer firms in the back half of year – especially in the category of account openings. In contrast, Robinhood, which blew the doors off account growth in early 2021, saw a precipitous drop in account growth once meme-stock momentum faded.
As mentioned above, the truly exceptional nature of what happened in 2021 to the world of online investing makes comparing subsequent time periods against those first few months somewhat futile. The open question for online brokerages is whether the new entrants into the world of online investing are here to stay or simply a temporary phenomenon.
What the longer-term account data provided by Interactive Brokers suggests, however, there is more permanence to new users and continued interest in sophisticated platforms. Robinhood’s latest performance data has shown that especially when it comes to trading stocks, the new cohort of investors and traders were not nearly as interested in that asset class as they were in options or cryptocurrency trading.
Interactive Brokers has clearly figured out a winning formula to attracting new clients. Their platform and user experience, however, appeal to a narrower segment of users than something like Schwab or even Robinhood. What is undeniable, is that by creating a best-in-class product, maintaining a reputation for low-cost pricing and catering to the most influential user group in active trading, Interactive Brokers has shown that new clients will come.
Perhaps less obvious, Interactive Brokers has been playing a long game strategy.
Though they could not have foreseen a global pandemic tilting interest in their favour, their platform was nonetheless equipped to scale and did so when needed. They stuck to their strategy of focusing on their core segment (active traders) while recognizing the need to innovate (cryptocurrency, ESG investing, commission-free trading) to adapt to changing investor demands.
While it is difficult to extrapolate directly onto the Canadian online brokerage market, the key themes emerging from the latest Interactive Brokerage results, as well as the longer-term picture on account opening data across the big publicly traded online brokerages in the US, reaffirms that simply going commission-free doesn’t guarantee new account growth, nor does it guarantee loyalty.
That said, the pricing at Canadian online brokerages, for the most part, is very disconnected from the value offered.
Unless incumbent online brokerages are prepared to dramatically shift their development focus on delighting influential segments of self-directed investors, they should be prepared to significantly lower their commission pricing (or offer substantial sign-up bonuses).
When the new crop of online brokerages launches in Canada, COVID will be a fading memory and the conversation for most investors will be focused squarely on pricing and ease of use. As Interactive Brokers has shown, staying relevant is the best way to ensure you remain in the conversation, no matter where events in the world turn.
From the Forums
When trusting an online brokerage with something as valuable as a nest egg, it’s important to know exactly what kind of assurances there are in place in case of a default. In this post from the investor forum on RedFlagDeals.com, one investor compares coverage available at two popular online brokerages and how vastly different the terms are.
Point of View
One of the latest features to emerge from Wealthsimple is a small but convenient improvement – a singular view of Wealthsimple Invest and Wealthsimple Trade accounts in one place. In this post revealing the new feature, users weigh in on the new view.
Into the Close
That’s a wrap on this edition of the Roundup. It was a bit delayed in going live, but perhaps we can chalk this one up to a chip shortage, the potato kind not the silicon kind (thanks Frito Lay). Besides, it seemed like there was more than enough to digest this week with market volatility keeping investors on edge. Here’s hoping for calmer waters and heads prevailing.
This year more than most, February is a month that embodies competition. From the Super Bowl to the Winter Olympics to the final stretch of RRSP season, there’s no shortage of high drama, stats, scores, and podium finishes. And while there might not be any formal winner declared to RRSP season, the reality is that Canadian online brokerages are battling hard to lock in new clients and assets ahead of the RRSP contribution deadline.
In this reboot to the Weekly Roundup, we took our cues from the biggest sporting events in the world to bring an exceptional edition filled with high degrees of difficulty to compare one of the most influential touchpoints of DIY investors making decisions on which online brokerage to choose: Canadian online brokerage rankings. Grab some snacks (maybe a coffee too), this is going to be a good one – but if you don’t have time, check out the key takeaways below.
It is increasingly more difficult to distinguish between Canadian online brokerages, let alone to find out which online brokerage is best
Different online brokerage rankings (Globe and Mail and Surviscor) ended up with very similar opinions about Canadian online brokerages this year, despite measuring them differently
When comparing online brokerage rankings, consistency between rankings provides greater confidence, whereas, inconsistency is a warning that experiences may be variable (aka YMMV)
Most online brokerages in Canada are generally OK to meet the needs of most self-directed investors; however, ranking as a best online brokerage means hitting important feature metrics, not just having the lowest commission pricing
Which Online Brokerage is Best? Comparing Online Brokerage Rankings to Find Out
The 2022 RRSP season is on the cusp of wrapping up, and, as in previous years, there has been a predictable surge among self-directed investors to find a new Canadian online brokerage. Unlike in past years, however, this year it seems that competition between Canadian brokerages is even more heated than ever before. And despite that competition (or perhaps a result of it), it is becoming increasingly more challenging to distinguish Canadian online brokerages from one another.
While commission price has historically been a key distinguishing feature for value-conscious self-directed investors to base their decisions on, zero-commission pricing has now gained a foothold among Canadian online brokerages.
The fact that there is more than Wealthsimple Trade – which was the sole zero-commission option for several years – to choose from since the start of this year’s RRSP season also heavily impacted an important touchpoint for the online brokerage industry and consumers alike: Canadian online brokerage rankings.
Online Brokerage Rankings Launch Ahead of RRSP Season
Earlier this month, the 2022 edition of the Globe and Mail’s online brokerage rankings was released, just in time for the peak of the wave of investor interest in online brokerage account opening. Now in its 23rd year, Rob Carrick’s long-running review is hands down one of the most influential online brokerage reviews with Canadian self-directed investors. And in late December 2021, the other big name in online brokerage rankings, Surviscor, released their 2021 online brokerage experience rankings, a comprehensive ranking of online brokerages in Canada based on detailed criteria about the online investing experience.
While it comes as no surprise that in the lead up to the 2022 RRSP contribution deadline two very important Canadian online brokerage reviews have been released, it was surprising to see the degree to which both rankings ended up agreeing with each other.
At Sparx Trading, we don’t rank online brokerages, but we do have a long history reviewing online brokerage reviews. We’ve continuously held the perspective that “the best” online brokerage for Canadian investors is one that suits their particular needs as a self-directed investor.
That said, for self-directed investors who turn to third party reviews for guidance and perspective on which online brokerages are leaders or laggards (or to find out “which online brokerage is best?”), our recommended approach would be to see what different brokerage rankings have to say.
The challenge, however, is that each of these reviews take very different approaches to defining and measuring which online brokerages in Canada are the best, and so it is important to understand what each of these online brokerage reviews measure and how they measure it. But comparing online brokerage rankings is not easy.
From a consumer perspective, there is quite a bit of analysis and more homework/guesswork than most are willing to do, which is why we’ve tried to simplify this in our online brokerage review pages by providing ranking data from different sources alongside information about the brokerages themselves below.
An important trend that we’ve observed with online brokerage rankings in Canada is that the difference between online brokerage ranking scores has been shrinking.
For the past two decades, online brokerage reviews from third party sites and sources have played an important role in helping Canadian self-directed investors understand how to choose an online brokerage, as well as provide recommendations on which Canadian online brokerage is best. That said, the spread between the top and bottom ranked firms has been closing across different reviews, a signal that it is becoming increasingly more difficult to distinguish between online brokerage firms.
While the appeal of these online brokerage rankings is that they offer a quick point of reference for investors to be able to determine which online brokerage(s) are the segment leaders and which are the laggards, there hasn’t been an easy way to compare Canadian online brokerage rankings – until now.
To address this analysis gap and to highlight the trend towards homogenization among online brokerages (i.e. that it is harder to tell online brokerages apart from one another) we wanted to put the latest online brokerage rankings from the Globe and Mail and Surviscor into a format where they could be compared side by side. By doing this, a much clearer picture emerges of where there is consensus from subject matter experts on which Canadian online brokerages are leaders and which are lagging their peers.
Specifically, the most important thing (we think) to pay attention to when comparing online brokerage rankings is where there is agreement and the extent of that agreement, because it demonstrates increased confidence in the experience that self-directed investors can expect from a particular Canadian online brokerage.
How We Compared Canadian Online Brokerage Rankings
Before diving into a comparison of the two different online brokerage rankings, it is important to provide some context as to how these numbers were generated.
The scoring criteria for the 2022 Globe and Mail online brokerage rankings uses letter grades in combination with +/- components. (For those who wish to take an in-depth look at how the grading system changed over time, you can check out one of our original articles explaining how the Globe and Mail online brokerage rankings evolved from 2002 to 2012.) As in the past, there are multiple criteria that Canadian online brokerages are evaluated on with a final letter grade assigned based on a combination of scoring and impression of the online brokerage (from the perspective of the “average” online investor).
In contrast, Surviscor reports a numerical percentage for their Canadian online brokerage experience rankings. The methodology for their analysis takes a criteria-based approach and measures features that online brokerages do (or do not) have. This year’s online brokerage experience review audited Canadian online brokerages during October and November 2021 and analyzed over 400 criteria in six categories and 27 subcategories.
To enable a fair comparison, we decided to convert the letter grade ranking system used by the most recent Globe and Mail online brokerage rankings, into a numerical system that is used by Surviscor.
Interactive Brokers Canada was analyzed as part of the Globe and Mail’s 2022 online brokerage rankings, whereas Surviscor’s brokerage ranking did not include them. Conversely, Wealthsimple Trade was rated by both firms; however, they were only scored in the Surviscor rankings. In the Globe and Mail online brokerage rankings, Wealthsimple Trade was given an “I” for “incomplete.” As such, both Interactive Brokers and Wealthsimple Trade are not directly comparable in the two different rankings.
The table below contains the raw rankings from both online brokerage reviews. As mentioned above, the online brokerage rankings from the Globe and Mail are reported in the form of letter grades, whereas the rankings of online brokerage experience from Surviscor are reported in percentages:
Also, for ease of comparison, we’ve calculated the average score between the two sets of online brokerage rankings, as well as the difference between the scores (in percentage points) to highlight the degree of agreement (or disagreement) between the two different rankings’ results.
What We Found When Comparing Canadian Online Brokerage Rankings
Again, in the interest of a fair comparison, it is important to reiterate that we are comparing two different Canadian online brokerage rankings that measure different aspects of trading online via a Canadian online brokerage.
The Globe and Mail’s online brokerage rankings take the perspective of what the “average” Canadian self-directed investor would typically need or want. By comparison, Surviscor’s rankings measure the “online brokerage experience,” which reflects what their perception of a leading online brokerage experience could look like.
One of the first things that jumps out from the results of this year’s rankings is that averages from the Globe and Mail (75%) are lower than those from Surviscor (81%). Moreover (and for the stats nerds), the standard deviation – or measure of variance of the average – for each set of scores show much more consistency for the Globe and Mail’s online brokerage ranking than for Surviscor’s (7.31% vs 8.88%). It is important to note that the scores for Wealthsimple Trade on Surviscor’s rating (20%) were not included because they were so far below everyone else’s that it would have significantly skewed the analysis.
What these averages and standard deviations point to is that the perception of the overall online brokerage offering for Canadian self-directed investors is generally not bad.
Aside from a couple of outliers – in particular Wealthsimple Trade – an online investor could pick just about any Canadian online brokerage and be OK. Thus, choosing a Canadian online brokerage in 2022 for most individual investors is not a decision to fret over – especially if their needs are fairly straightforward or basic.
Importantly, a low number on these rankings doesn’t necessarily imply a “bad” or poor online brokerage, but rather one that doesn’t meet a full spectrum of user needs based on what else is out there. As such, not all investors will end up wanting or needing all features that are available elsewhere, which might be just fine for those investors.
Another interesting observation right off the bat is that the average score for Canadian online brokerages is lower in the Globe and Mail ranking than it is in the Surviscor ranking. One interpretation is that Rob Carrick is a tougher grader than Surviscor, something that is somewhat of a surprise given the qualitative data and commentary on the online brokerages coming from each ranking. While it is clear what Surviscor’s position is on firms like Wealthsimple Trade, other than that, according to Surviscor’s scores, most Canadian online brokerage firms appear to be faring well (in a relative sense) when it comes to features.
One of the unique features of analyzing the Canadian online brokerage rankings this way is that it is possible to combine the scores into an average score between the two different rankings. In doing so, not only does this enable readers to more easily compare Canadian online brokerages based on the average alone, but it also highlights where these rankings agree and the extent to which they do.
To be fair and consistent for the analysis on combined scores, Interactive Brokers (which was analyzed only in the Globe and Mail) and Wealthsimple Trade (which was not graded in the Globe and Mail and was a severe outlier in the Surviscor analysis) were not included.
The table below shows the combined average scores from each Canadian online brokerage, as well as the difference (in percentage points) between the two rankings. Firms that had the same average score but lower difference between rankings were rated higher in this analysis, thus it is possible to have a lower average score but place higher because there is greater confidence associated with a particular average.
The scores for the combined rankings ranged from a high of 90% (Qtrade Direct Investing) to a low of 62% (HSBC InvestDirect) with the overall average of the group coming in at 78% and a standard deviation of 7.7%.
With these numbers in mind, the results of the best ranked online brokerages (as well as the worst) take on greater meaning.
In particular, based on the average values and the range of scores alone, Qtrade’s performance is very close to being significantly better than the other firms ranked, falling just three percentage points shy of being two standard deviations better than the average. Conversely, HSBC InvestDirect’s ranking does (barely) cross the threshold into being significantly lower than its peers.
As for the rest of the field, which is essentially every other online brokerage, the experience is generally OK. This could explain the observation that many Canadian self-directed investors don’t feel compelled to switch online brokerages, even in the face of low or zero commission alternatives. Even if costs may be somewhat higher, things are not so materially bad to induce a change. It’s only likely after a negative service interaction (or feature shortcoming) or some significant convenience boost (e.g. consolidating other financial services or very cool feature) that would form the catalyst to change brokerages.
Areas of Agreement
What became clear in comparing these online brokerage rankings is that there were clearly some instances where both sets of reviews arrived at similar conclusions about the performance of a particular online brokerage.
The range of agreement was between 4 and 16.5; however, the latter score (the result of the difference in scoring for Scotia iTRADE) was certainly an outlier. Excluding that from the analysis, the average difference between the Globe and Mail rankings and Surviscor ratings was about 7.15 percentage points with a standard deviation of 2.24.
When including a “confidence” measure, which is really a consistency between rankings measure, the most consistent conclusions were about BMO InvestorLine (average combined score of 80%) and CIBC Investor’s Edge (average combined score of 73%). Rankings for both of these firms were within four percentage points of each other, suggesting that both Surviscor and the Globe and Mail analyses arrived at a similar conclusion about what self-directed investors can expect. In this case, when comparing BMO InvestorLine versus CIBC Investor’s Edge, according to the rankings, BMO InvestorLine would provider higher probability of a better outcome for investors.
Where the confidence measure really impacts the average scoring and ultimate ranking of online brokerages is when the difference between online brokerage rankings is considered high. In this case difference scores of 8 or higher were considered to be an indicator of a “YMMV” (your mileage may vary) for investors in terms of what their own experiences with an online brokerage may be. Several firms fell into this cluster including (in descending order of disagreement):
The most extreme example of disagreement between online brokerage rankings was for Scotia iTRADE, which had a 16.5 percentage point difference. The Globe and Mail’s online brokerage rankings rated Scotia iTRADE at 74.5%, a score that put it in the middle of the pack in terms of grading; however, in the Surviscor rating, Scotia iTRADE earned a 91% rating. According to Rob Carrick’s commentary, the website interface came across as dated but in the Surviscor ranking, the overall online experience was close to exceptional. In short, this is a good example of a firm where consumer experience is likely somewhere between good or excellent, depending on the user.
Other interesting names on the YMMV list were the two online brokerages with zero commission trading: National Bank Direct Brokerage and Desjardins Online Brokerage.
Despite being a “tougher” judge overall, it was the Globe and Mail ranking for National Bank Direct Brokerage (78%) which was higher than Surviscor (69%). The situation was almost the opposite at Desjardins Online Brokerage, which scored higher on the Surviscor ranking (76%) compared to the Globe and Mail (68%). And despite not being captured in the comparison analysis shown above, Wealthsimple Trade is also a zero commission brokerage that did not score well on the online brokerage rankings.
The shift to this low-cost structure for consumers would almost certainly be considered a win, but as these online brokerage rankings clearly show, pricing is just one of many factors that online brokerages need to get right in order to score well on these brokerage rankings. In fact, it appears that when it comes to Canadian online brokerage rankings, each of these aggregate ratings favour the online brokerage offering features and “frills” rather than the most essential online trading experience. Most “average” investors don’t make a significant amount of online trades in a year, so the “value” of zero commission trading might be minimal compared to other features (such as portfolio tracking) that would be of interest.
Online brokerage reviews and rankings have and will continue to play an important role for self-directed investors who are interested in opening an online brokerage account. For Canadian online brokerages, rankings – especially those from the Globe and Mail and Surviscor (as well as from JD Power) – are a particular point of pride, and demonstrate to investors that these online brokerages can meet certain standards of quality that, in turn, should give investors confidence in doing business with them.
While historically there might have been substantial differences between firms, in 2022 it is clear that most Canadian online brokerages are doing an adequate job of providing self-directed investors with the essential functions of being able to trade and track their portfolios online. The customer service wait times, which became a dominant topic of discussion in 2021, were also part of the conversation this year, but what that data also showed is a) improvements have been achieved in most places year over year, and b) customer service channels are, like pricing, only part of what earns good grades in an online brokerage ranking.
Our conversion of the letter grades used in the Globe and Mail’s online brokerage rankings into percentages is not a perfect one-to-one mapping. For that reason, the percentages that we’ve used are at best, a reasonable approximation of what it takes to conduct an apples-to-apples comparison of the different online brokerage rankings that are highly influential during the current RSP season and throughout the rest of 2022. Despite the limitations, the ability to compare different online brokerage rankings does show that firms like Qtrade Direct Investing and TD Direct Investing have earned their way to the top of the list of firms who are providing broadly appealing features and value to Canadian self-directed investors. The fact that there are both strong averages as well as reasonable agreement can give self-directed investors some degree of confidence when trying to decide on a “good” choice for an online brokerage.
That said, the online brokerage rankings are a line of best fit for the “average” or typical investor. And despite some firms scoring lower, it is important to recognize that a “lower” score doesn’t translate necessarily into a firm that doesn’t please its customers. Different features matter to different investors, and as such, firms that didn’t receive much spotlight in these rankings and analysis, in particular Interactive Brokers and Wealthsimple Trade, have passionate users who genuinely enjoy using these brokerages.
Thus, if there is one big cautionary note in relying on the rankings and ratings generated by both the Globe and Mail and Surviscor, is that these ratings reflect the perspectives of the respective entities that developed the rankings. The rankings do not, unfortunately, factor in customer satisfaction or sentiment, which is a highly prized but very difficult factor to get reliable data on.
Nonetheless, much like the Olympics, the competition between Canadian online brokerages is so intense that the difference between a podium finish and being out of the spotlight is small. The gap between the best online brokerage and the rest is closing. Canadian online brokerages who are agile enough to continuously improve, especially in what kind of features they can bring to market, should continue to do well in the rankings. If there’s one important lesson from the world of sport that holds true for Canadian online brokerages, however, it’s to try and eliminate unforced errors, especially once RRSP season is done. The data now exists in an easier format for Canadian online investors to compare online brokerages, but whether or not they’re driven to look it up after RRSP season is a function of how well each online brokerage can perform.
Into the Close
It’s great “two” be back in the thick of things just in time for sprint to the RRSP finish line at the end of February.
There’s lots that’s happened since our pause so we’re looking forward to digging out from the vacation responder emails, as well as reviewing the latest developments taking place with Canadian self-directed investors and online brokerages.
Of course, anyone who’s also had a newborn knows that sleep is a precious commodity, as is family time. So we thank you for your patience as we get back online and promise that there are even more dad joke puns about to make their way into the Roundup from here on out.
Fingers crossed, it’s going to be a nail-biter of a week in more ways than one.
Happy New Year and welcome to 2022! The start of a new calendar year is typically the time of year when we all struggle with writing the correct year for a few weeks and then eventually get the hang of (or accept) being in a new place. Ironically, time distortion is a hallmark of a pandemic, and aside from not knowing what day of the week it is (every day is sweatpants day!), it seems that timing was topsy-turvy at online brokerages in Canada and the US. But this is the definition of the new normal, and like markets tend to do, we’re embracing the ability to adapt with the times.
Change is a big theme in this mega-edition of the Roundup. First, we dive into the biggest review of Canadian online brokerages: the Look Back / Look Ahead for 2021/2022. This in-depth look at the latest issue picks out some important themes that impacted Canadian online brokerages and self-directed investors in 2021 and what’s in store for 2022. Next, we recap the year with memes & themes in an epic rundown of the big (and small) stories of 2021. So, in case you missed the past year or simply just need a quick(ish) primer on what happened with Canadian online brokerages in 2021, be sure to read through this ultimate roundup of Roundups. Finally, be sure to get to the end for an important announcement on the schedule changes to the Roundup coming this January.
Online Brokerages Review 2021 & Offer Exclusive Preview of 2022
When given the opportunity and spotlight to speak directly to online investors, what did Canadian online brokerages have to say about an exceptional year and how to build on top of that?
On a thematic level, it was clear that one of the biggest challenges and opportunities for the online brokerage industry in Canada was the meteoric rise of retail investor interest in trading stocks online. The stats provided were incredible. Desjardins Online Brokerage, for example, shared that 30% of their user base is between the ages of 18 and 30, and BMO InvestorLine reported nearly 50% of their new clients are under 35. And they’re likely not alone. The huge demographic shift in clients means that online brokerages are working to deliver features and experiences that align more closely with this group – including investor education resources.
Having covered the online brokerage industry in Canada for the past decade, an important theme of this issue we’ve witnessed is effort into investor education gradually recede. When Sparx Trading first launched, at least half a dozen or more online brokerages would regularly hold investor education seminars, webinars, or education-focused events. Gradually, however, as markets moved steadily higher and volatility subsided, interest in education waned, and whether it was supply or demand driven, “investor education” resources began to disappear.
Fast forward to today and it seems we are experiencing a renaissance of investor education based on the feedback from online brokerages, as well as in several of the trends we’ve been tracking throughout the industry. National Bank Direct Brokerage, for example, highlighted the fact they offer Options Play for free to their clients. This digital tool enables clients to simulate and learn about options trading strategies – something that is of growing interest to younger investors, especially coming out of the meme-stock craze of early 2021. At RBC Direct Investing, education is also on the roadmap for 2022 as is building out additional content for investors via the Inspired Investor magazine. And, at the industry giant TD Direct Investing, it is clear that investor-focused content will play an important role given their sizeable investment in building an entire content team that is likely going to be producing content at an unmatched volume.
Of course, the big story for 2021 in the Canadian online brokerage industry was the launch of commission-free trading by National Bank Direct Brokerage in August. Undeniably a surprise for many, the fact that a bank-owned online brokerage with a national footprint would be the first to offer full commission-free trading changed the competitive landscape for larger and smaller players alike. Not long after NBDB lowered their fees, Desjardins Online Brokerage followed suit. With both of these Quebec-based institutions taking trading commissions to zero, clearly commission-free trading is on the minds of self-directed investors and online brokerages alike. When polled about the issue, Canadian online brokerages revealed that they are clearly aware of it and would be looking to enhance value for investors with new features and offers rather than lower prices for trading commissions – at least at this point.
As we round the turn into 2022, however, zero-commission trading looms large. Just ahead of the end of 2021, Mogo Trade announced it had received the official green light to launch its commission-free trading app, and in our special section on commission-free online brokerages, we listed a total of four (including Mogo Trade) that we are currently tracking that are likely to come online either in 2022 or 2023. So, the reality for Canadian online brokerages is that zero-commission trading is coming, as is more competition.
Given the pace of innovation and change that are on the horizon, the Look Back / Look Ahead series provides visibility on which Canadian online brokerages are actively innovating, which firms are working on important infrastructure components, such as client experience, and which firms are clearly capable of doing both.
For self-directed investors, moving from online brokerage to online brokerage is (at least for now) a slow and painful exercise. Consumers would much rather stay where they are; however, without confidence in their online brokerage’s ability to innovate or be competitive on cost or value, alternatives are increasingly present.
Perhaps one of the most compelling stories in 2022 beyond commission-free trading will be a new feature telegraphed in the Look Back / Look Ahead from National Bank Direct Brokerage: paid securities lending.
In addition to offering zero-commission trading, the fact that clients could be compensated for lending their securities out to those seeking to short them lays a strategic foundation for NBDB to not only hang on to clients in a way that other brokerages are not (at least not yet), but it also is a draw for active traders who are looking to source shares for shorting. It’s a feature that currently exists only at Interactive Brokers, which is a signal or validation that active investors are either direct or indirect benefactors of this program. In short (pun intended), our call on National Bank Direct Brokerage in early 2021 appears to continue to play out: they are increasingly going to be an online brokerage to watch as they expand their presence across Canada. Until another major online brokerage in Canada drops their commission pricing to zero or close to it, National Bank Direct Brokerage is going to continue to be a top contender among self-directed investors looking to for a value-oriented online trading experience. Unlike other providers, however, NBDB isn’t waiting around for that to happen – they are clearly positioning themselves well with Options Play and the paid securities lending feature to be an attractive destination for active investors, as well as passive ones, and they’re working towards launching a mobile app which would only deepen the appeal with younger investors.
With 2021 now officially in the books, the Look Back / Look Ahead series is a great opportunity to get a unique perspective from industry insiders on the world of self-directed investing. As it falls on the tenth official year of the launch of SparxTrading.com, it also represents a significant milestone to have been covering the activity in this space to the depth and consistency that we have. Over the course of the decade, it’s been amazing to connect with industry analysts, online brokerage leaders, and self-directed investors to chat all things online investing. Most fulfilling, however, has been getting to be able to level the playing field for DIY investors and help, even in some small measure, make self-directed investing easier and more accessible.
True to the spirit of the Look Back / Look Ahead series, we also took the opportunity to announce the launch of Sparx Trading Pro. While it is still in development, we’re excited to be building something special for the community of users that regularly turn to SparxTrading.com for in-depth insight and analysis of the online brokerage industry. We love analytics and numbers, so a big part of what we hope to introduce is more data on what self-directed investors are interested in, and as a result, help serve as a catalyst to drive innovation.
Finally, on behalf of the entire Sparx Publishing Group organization and SparxTrading.com team, thank you to our loyal readers, visitors, and supporters. We’re amazed that 10 years has flown by, and we’re bullish on where the next chapter in self-directed investing goes from here. Thanks for tuning in!
Themes and Memes: Online Brokerage Highlights from Q2 2021 onwards
April: In with the New
From Qtrade’s new look and new name (Qtrade Direct Investing) to the preview of long sought-after features from Questrade and Wealthsimple Trade, April showered self-directed investors with the promise of new things to come.
The launch of the new brand direction for Qtrade Direct Investing was a huge milestone for this popular Canadian online brokerage. Executing a rebrand is no small feat; however, Qtrade managed to strike the right balance between a connection to what people know it for (i.e. its first name) and what it wants people to know it for. With a bold, new look and energy, it felt like Qtrade was ready to embrace the new landscape of online investing and bring something emotion into what has typically been a conservative brand.
Also looking to stir up some excitement, Questrade telegraphed the launch of a new mobile app – something that they hoped would help them compete more effectively against a design-savvy, mobile-first competitor: Wealthsimple Trade. It wouldn’t actually launch until November (see below) but the hype train on the new mobile app officially pulled out of the station in April.
And speaking of Wealthsimple Trade, new feature releases were a regular occurrence throughout the year, but one big announcement from the zero-commission brokerage was the news that they would be launching US dollar trading accounts. Long the Achilles heel for this very popular brokerage, the final form of the US dollar trading offering from Wealthsimple Trade ended up launching in December (see below).
May: Statistics and Outliers
Strange, almost by definition, is not normal. For the (fellow) statistics nerds out there, data is a great way to get a handle on what is considered normal and what’s an outlier. This month happened to be filled with DIY investor data from all over the world.
One of the big developments was the online brokerage ranking by Surviscor, which put online brokerage fees into the spotlight. Remarkably, even before going to zero commissions, National Bank Direct Brokerage took the crown of lowest cost provider which is no small feat in a fiercely price sensitive industry.
Another watershed pricing moment came later in the month from popular bank-owned online brokerage BMO InvestorLine. In a calculated move, BMO InvestorLine launched 80 commission-free ETFs, and while they are not the only Canadian online brokerage to offer completely commission-free ETF buying and selling, the move gave both active and passive investors a compelling reason to choose this online brokerage over others (especially bank-owned brokerage competitors).
June: More New Features
Summer is typically the time for big blockbuster movies. Although the silver screens weren’t as busy this past year, DIY investor screens were filled with blockbuster reveals in the summer.
Perhaps the biggest one for Canadian self-directed investors (up until that point) was the launch of fractional share trading by Wealthsimple Trade. This highly-prized feature is something that US online investors were able to have access to from a variety of online brokerages, but for mainstream investors in Canada, Wealthsimple Trade was able to make a huge splash by bringing this trading to the masses in Canada.
The Robinhood IPO and the opportunity to “buy buy buy” into the game-changing commission-free online brokerage was undeniably one of the biggest stories in the space this past year. By venturing into the public markets, it was possible to look under the financial “hood” to see how this commission-free brokerage managed to grow so rapidly, and, more importantly, how they made their money despite keeping commissions at zero. As it turned out, the prospectus for Robinhood’s IPO made for some fascinating reading.
No stranger to life as a publicly traded online brokerage, however, Interactive Brokers managed to pull off a deft mic drop moment of their own when they waved bye-bye-bye to inactivity fees for their clients worldwide. This included Canadian online investors, so it was a huge win for DIY investors everywhere who, prior to the removal of inactivity fees, were reluctant to have more than their most active accounts with Interactive Brokers. By lowering the friction to stay a customer of Interactive Brokers, this savvy online brokerage turned the math of customer churn on its head and managed to find a way to get customers to stay, even if they needed to step back from active trading for a while.
August: Coming This Fall
Twenty twenty-one was many things, but typical it was not. For that reason, we probably should have known better than to think it would be business as usual – or more appropriately – quiet business as usual. August happened to be an historic month for Canadian online investors because that was the month National Bank Direct Brokerage chose to launch commission-free trading.
Not only did National Bank Direct Brokerage take their commission fees for trading stocks to zero, they simultaneously took the vacation plans for other online brokerage leaders to zero as well.
And, while there wasn’t a story bigger than that, there was one that came close. We spotted and reported on the potential launch of yet another commission-free online broker, FreeTrade, here in Canada. In addition to Mogo Trade, FreeTrade represented yet another online brokerage interested in launching direct trading services in Canada with no commission.
Between the news of National Bank Direct Brokerage and the potential launch of another commission-free online brokerage in Canada, a clear trend is forming, and now it seems only a matter of time before existing big-bank online brokerages follow suit with significant commission rate drops.
It has been a spectacular journey, and despite a very different landscape for online investors today, it was clear that a resource like Sparx Trading is needed as much now as it was when we first started. We also recognized that to prepare for a very dynamic future in the online brokerage space, we had to make some big changes – starting with a full redesign on the website, and in September, we also added the ability for online investors to research what other people are saying about online brokerages on Twitter and reddit, two areas which saw huge gains in participation by retail investors.
We weren’t the only ones launching a retail investor sentiment tool, however. As it turned out, TD Direct Investing launched the TD Direct Investing Index to measure Canadian investor sentiment in the stock market. With several Canadian online brokerages regularly reporting what their clients have been trading, this new feature from TDDI takes things to a whole new level by providing data on demographics and location, as well as sectors.
Of course, when it comes to online investors in 2021, stocks weren’t the only asset class of interest to them. In a stunning pivot (and/or a capitulation to giving people what they want), Interactive Brokers announced they would be enabling cryptocurrency trading to their clients. The big story here is that founder and very public face of Interactive Brokers, Thomas Peterffy, has been an outspoken critic of cryptocurrency for years, and so to see him personally acknowledge the material relevance of cryptocurrency as well as make the feature available to Interactive Brokers clients underscores the trading adage of “not fighting the tape.” Demand for cryptocurrency trading was simply too high despite the potential regulatory peril it could represent. Interactive Brokers was by no means the only big name in the US to adopt or support cryptocurrency trading, but it does signal that there is a sufficiently high level of interest among new and experienced investors in trading this digital asset class.
October: And Another One
And speaking of listening to customers, the launch of the QuestMobile app by Questrade generated a tonne (yes, it felt like the metric kind) of responses from clients and observers who weighed in (pun intended) on the new feature. There are only a handful of examples of feature launches from online brokerages over the past decade that generated so much response online, and the QuestMobile launch ranks high on the list of lightning rod discussion points.
Questrade’s unique success online with DIY investors ultimately became its undoing in this case because so many of its clients were not shy about providing their (negative) feedback on social media and investor forums. Regardless of the merits of the app, the roll-out of a new interface is a highly instructive case study change management, especially in an era of increasingly tech and design savvy clientele.
It seemed fitting in a month often known for trick or treating that a huge treat for self-directed investors was the announcement that (yet) another commission-free online brokerage was looking to formally launch in Canada in 2022. TradeZero, a name familiar to very active traders, indicated their plans to expand globally with Canada being an important jumping off point in that roadmap. Excluding the perennial “are we there yet?” questions about tastyworks coming to Canada, the announcement by TradeZero brought the total number of new online brokerages (new commission-free online brokerages) looking to launch in Canada in 2022(ish) to three. In the decade prior to 2021, the number of commission-free online brokerages that were publicly looking to launch in Canada was exactly Wealthsimple Trade long (we announced this back in 2018).
In a month that has now become synonymous with bargain hunting, November didn’t disappoint for DIY investors either. There was a dizzying amount of news to report on but the biggest story for self-directed investors in Canada was the unofficial (but now kinda official) launch of RSP season. While the contribution deadline comes at the beginning of March 2022, the deals and promotions for online trading accounts have now started to appear at the beginning of November, and 2021 was no exception. Some big players in the Canadian online brokerage space came out swinging early, among them, CIBC Investor’s Edge and TD Direct Investing, both of which provided a preview to the highly competitive promotional offers available this season.
Another big theme for this year was in the non-bank-owned online brokerage group launching features to help self-directed investors get started and funded as quickly as possible. Qtrade Direct Investing announced the launch of rapid account opening knocking down the time required to open an online trading account at Qtrade from days to minutes. While getting an account opened quickly is a huge step forward, another big hurdle to clear is account funding. Competitor online brokerages such as Questrade and Wealthsimple Trade worked feverishly in 2021 to address instant account funding (albeit with limited amounts).
On the topic of opening accounts quickly, Robinhood, the poster child for rapid growth in online brokerage accounts, in 2020 and 2021 reported earnings, and for anyone keeping score on their stock price recently, the outlook was not great. Being winter, the phrase “getting ahead of your skis” characterizes the Robinhood story, and the now publicly traded stock has seen a massive sell off in large part because of the stall in momentum from retail investor trading. Specifically, the pull back in options and cryptotrading have clearly hurt the top and bottom lines for this zero-commission brokerage. Beyond the trading in those products, it also appears that after the meme-stock debacle, the “for the people” branding took a significant hit, something that might be keeping newer clients away from considering Robinhood as their online brokerage of choice.
And, speaking of choosing, Interactive Brokers once again reflected that the power of capitalism is ultimately in listening and providing to the market what the market wants. Ironically (or perhaps appropriately), ESG-driven trading is something that Interactive Brokers offers to its clients with the launch of their IMPACT app. Commission-free trading that enables you to make the world better through your investment decisions pretty much nails it for the demographic this app is clearly targeting.
December: Free Fallin’
Even with ice and snow on the ground, it seems like stock markets (and a couple of online brokerages) were doing all the slipping and sliding heading into the end of the year. Yet again, 2021 proved that time distortion and normalcy are not a thing because feature launches and big announcements continued to roll in despite it traditionally being a month when activity among online brokerages gears down for the holiday season.
But the giving season did giveth, or at least asketh to taketh, in the case of Wealthsimple Trade which launched a new subscription-based service. The commission-free brokerage finally addressed (sort of) one of their clients’ biggest pain points, the high cost of trading US-listed stocks by launching access to US currency trading accounts. The devil, however, was in the details, and despite the sizzle on rolling out the feature, there were many important unanswered questions about how converting between currencies would work with the subscription model.
Questrade managed to slide in some interesting new features ahead of the end of the year as well, launching a wonderfully named “RoundUP” service to help make investing digital spare change easier as well as a “cash back” shopping feature in which the worlds of online shopping and online investing collide.
Finally, we shipped the annual Look Back / Look Ahead series for 2021/2022 in December (see above), and with it we wrapped up what has clearly been an eventful year with insights from Canadian online brokerage leaders. As busy as the year was in 2021, all signs point to even more activity in 2022, with new features continuing to launch, new pricing drops likely to come from existing online brokerages (who haven’t already lowered their prices), some interesting new players on the field, and, naturally, the unknown.
Into the Close
If you’ve made it to this point reading top to bottom, congratulations! Not only are you all caught up on the biggest developments in the online brokerage space for the year, but you’re also well prepared for what’s about to come next in 2022. The start of a new year is often a time for reflection and resolutions, but this new year brings even greater cause for reflection as well as celebration.
After 10 years of publishing the Weekly Roundup from pretty much everywhere life has taken me, there are only a handful of instances where publication has been paused, and they’ve been to tend to the greatest investment anyone can have: family. For that reason, the Weekly Roundup will be going on pause until mid-February.
In the interim, we will continue to be publishing deals and promotions updates, as well as monitoring and sharing interesting content to our Twitter channel and newsletter, so be sure to subscribe to those if you haven’t already done so. Also, we will continue to monitor the online brokerage space for big developments, and like all of life’s great surprises, perhaps don’t be surprised if we drop some interesting posts between now and the return of Roundup.
Until then, Happy New Year, and wishing good health, prosperity, and joy to you and your loved ones for 2022! Here’s hoping we get back to a time where can all fist bump in person again soon.
Inflation isn’t the only reason interest is heading higher at the end of the year. For the online brokerage industry in Canada, it seems that new features and announcements are also grabbing attention and fueling speculation as to what’s next as we head into the new year.
With just a few weeks left in 2021, and some big announcements of our own to report on, the Weekly Roundup is shifting gears into “year-end” mode. To kick things off, we look into the newest big feature drop announced by Wealthsimple Trade and unpack what it means for investors and competitor brokerages heading into RSP season. Next, we launch into rewind mode and review the big milestone developments from earlier this year as a prelude to the launch of our exclusive Look Back / Look Ahead magazine later this week. Finally, we wrap up with DIY investor chatter from the investing forums.
Wealthsimple Trade Launches SaaSy New Subscription
Just in time for the holiday season, Wealthsimple Trade rolled out a brand-new enhancement that has caused quite a stir among Canadian self-directed investors.
Wealthsimple Trade Plus, a new subscription model-based program offered by Wealthsimple Trade, will soon be removing per trade currency conversion and replacing it with a modified currency conversion option, adding in real-time data (though not streaming real-time data), and increasing the amount available for instant deposit to $5,000. The fee for this new service model is $10 per month, up from the current $3 per month being charged for Wealthsimple Trade Premium.
The new Plus program is slated to replace the Wealthsimple Premium plan. Premium is scheduled to be sunset in March 2022.
Like most big new features at Wealthsimple Trade, there’s a waitlist and a gradual rollout plan to contend with. However, despite what is clearly an attempt to address some of the most highly sought-after features by their clients, the early feedback from self-directed investors is mixed.
Arguably, the price tag is a sticking point. Paying $10 per month for a service might seem small; however, among the discount investor crowd, what amounts to an annual fee of $120 (if used through the year) is considered friction. In fact, introducing optional monthly fees at a time when other leading online brokerages, such as Interactive Brokers eliminate monthly fees (coincidentally, at $10 per month), and when competing online brokerages in Canada such as National Bank Direct Brokerage and Desjardins Online Brokerage have lowered their commission rates to zero (while providing access to USD accounts without forced currency conversions), means that the new Wealthsimple Trade Plus offering will have limited appeal.
For some clients of Wealthsimple Trade, this new capability will make financial sense – they can transfer a large dollar amount into USD and pay a one-time conversion fee of 1.5%. What hasn’t been made clear yet is how clients will be able to withdraw the funds, and whether it will have to first be converted back into CAD or if users can link directly to an external USD account. Additional questions have been raised, such as the ability to journal shares for cross listed securities and what will happen for clients with existing USD securities who sign up for Wealthsimple Trade Plus, and most importantly, what happens when a user opts out of the Wealthsimple Trade Plus program?
Of course, the timing of the announcement is certainly convenient given the proximity to RSP season; however, the fact that there is going to be a waitlist and a phased rollout of the new feature means that competing online brokerages have an opportunity to reposition themselves against this new offer. And the longer those questions about the new feature release remain unanswered, the greater the window of opportunity for competitors to provide a more tangible alternative.
The marketing and advertising for and in response to this latest development is sure to be heated. Already one key theme that existing online brokerages seem to be highlighting is “certainty” in what investors have to pay. Flat fees per trade are, arguably, more appealing than variable costs. The biggest test for Wealthsimple Trade, however, appears to be waning sentiment among millennial investors towards the commission-free offering which was once the exclusive domain of Wealthsimple Trade. One of the most influential sources of information for new and existing online investors is reddit, and it appears that National Bank Direct Brokerage and Desjardins Online Brokerage are both getting a lot of “earned media” from DIY investors who are leaving their existing brokerage (including Wealthsimple Trade) outright or redirecting a portion of their investment portfolio to these low-cost options.
Data from Robinhood, arguably, the best bellwether for Wealthsimple Trade, shows a substantial pullback in equities trading and user growth on the platform plateauing. Thus, the limits of design are going head-to-head with pricing, and in the self-directed investing space, while design might count for something, pricing (and features) usually win the day.
This latest move by Wealthsimple Trade will likely not spur existing Canadian online brokerages into action, nor will it likely be a significant catalyst to lower prices. Most Canadian online brokerages already offer the kinds of services (or better) that Wealthsimple Trade is bringing online in the new year.
As such, heading into the busiest stretch of RSP season, we anticipate Canadian online brokerages to step up advertising and awareness campaigns. If not to highlight their own features, then certainly to go on the offense to directly challenge competitors. The timing seems right for a big announcement from an online brokerage, and we’re probably not the only ones thinking that right now either.
2021 Online Brokerage Rewind: Part 1
It’s hard to believe that the end of another wild year is here. Time distortion is in full effect, thanks to the lingering impact that COVID-19 and all of its unwelcomed variants have had on the course of “normal” life. Now that we’re collectively almost two years into the global pandemic, there is clearly a shift – albeit a rocky one – towards a new equilibrium.
In January, a new reality was also thrust upon the online brokerage industry in Canada and across the globe at the beginning of 2021 when meme-stock mania and FOMO took hold and yet another surge of online investors wanting to join the world of trading online overwhelmed many Canadian online brokerages’ systems. Robinhood took centre stage as the zero-commission stock (and option and crypto) trading firm saw unprecedented customer growth and customer angst play out simultaneously.
Of course, all of this took place against the backdrop of a historic riot/coup in Washington, DC, a scene that provided a poignant reminder that even despite the chaos experienced in the real world, stock markets continued to drive higher. Regardless of what happened at the Capitol, capitalism remained intact.
Gamestonks continued to be a dominant theme heading into February, and the surge of (noted now as the “rise of”) retail investors grew, shattering trading and new account growth records at all online brokerages in Canada and around the world. The world, it seems, had shifted, and retail investors embraced markets and risk in a way that nobody really saw coming. That fact was laid bare as customer service wait times exploded in Canada just as RSP season was reaching its zenith, and the combination was not pretty. There were anecdotes of multi-hour wait times to get through to client service teams and it was clear that many (many) online brokerages in Canada were simply not equipped to service that level of rapid interest.
#Robinhood‘s interface is CLEARLY designed to make the average investor – Americans like my nephew – feel like they’re gambling in a casino.
Despite the turmoil on the client service channels, the beginning of 2021 saw what would become an overarching theme across the Canadian online brokerage industry for the year: the release of new features. Twenty twenty was an exceptional curveball that all online brokerages had to figure out how to contend with; however, once teams had transitioned to working remotely (itself a phenomenal effort for the financial sector), the work restarted on launching new features. Big bank-owned brokerages, such as BMO InvestorLine and RBC Direct Investing, took the lead with new bells and whistles added into their offering.
And speaking of shiny new things, the tail end of February saw the beginning of a new chapter in the digital life of SparxTrading.com, as we officially rolled out a new website. The brand-new look and feel of the site as well as the new features, such as an online brokerage deals calculator and new approach to delivering information on deals and promotions, set the stage for a new direction for the site. The big investments in new architecture were not without hiccups though, and behind the scenes we’ve been working hard throughout the year to continuously monitor and improve performance based on user feedback.
The end of the calendar quarter somehow managed to deliver equally headline-grabbing developments. Specifically, we noted on two separate occasions that month that new commission-free trading firms were positioning to come to market in Canada by the end of the year. Easier said than done it seems. Among the big names, Tastyworks, the popular US online brokerage that focuses on options trading, and Mogo Financial, who announced the launch of Mogo Trade, after the acquisition of Moka. Of course, we didn’t know it at the time, but March was also when National Bank Direct Brokerage set the stage for their eventual leap into being the first bank-owned online brokerage in Canada to offer commission-free trading. In March, however, National Bank Direct Brokerage tested the waters by dropping their standard commission rates by about 30% to $6.95 per trade.
There were, of course, many other stories, as well as copious amounts of silly gifs shared in the Weekly Roundups, that we didn’t mention here. To catch up on all of the stories from Q1 of 2021, check out our 2021 archives here, and in case you missed some of the fun artwork, be sure to check out the Sparx Trading Instagram page.
Stay tuned for more updates through the year in the next Roundup, as well as the big launch of the Look Back / Look Ahead magazine!
From the Forums
With the launch of Wealthsimple Trade Plus, inevitably investors are asking whether existing online brokerages are going to drop their fees – even nominally – to offset the slow but steady growth of commission-free trading. In the crosshairs of investors this past week, Questrade, where users on this reddit post debated the current low-cost options for self-directed investing, and challenged the perception of Questrade as a low-cost leader.
On Better Terms
Another week, another interesting thread about the finer points of a popular bonus offer. In this post, reddit users weigh in on the tax treatment of cash back bonus offers, and the perspectives are interesting as they are varied.
Into the Close
That’s a wrap on yet another wild week in the markets. After shrugging off omicron, hot inflation, chip shortages, and crypto crashes, it seems like 2021 is determined to end on a high note. We’re also pretty excited about what’s coming just around the corner with the launch of our Look Back / Look Ahead series for 2021/2022 and to gear down for the holiday season. With so much activity in play, we suspect that January will be an exceptionally busy month, and we’d have it no other way! Have a profitable week!
Just when we thought things couldn’t take a turn for the bizarre, Black Friday showed up, and with it, a whole new COVID-19 variant of concern. As a result, markets rapidly sold off, but as this edition of the Roundup is going live, there seems to be some enthusiasm that things will get better from here.
In this edition of the Roundup, we review Qtrade Direct Investing’s latest move to launch real-time account opening, as well as look into the stats and rankings of online brokerages from Surviscor. As always, we serve up some healthy investor culture to end on.
There in an Instant: Qtrade Launches Instant Account Opening
In a world where we can do almost anything online, it shouldn’t seem like instant account opening is a game changer, and yet, it definitely is when it comes to the world of online investing in Canada.
This past week, Qtrade Direct Investing announced the launch of “real time” account opening for self-directed investors, and in doing so, has managed to get a highly-prized feature ready just in time for the start of RSP season. Importantly for Qtrade, this feature now enables them to provide a competitive onboarding experience relative to other Canadian brokerages that already have digital applications in place.
Aside from being incredibly convenient for customers to be able to open accounts online, the speed with which an investor can get up and running has become an increasingly important determinant of whether or not investors will ultimately select a particular online brokerage. One only needs to look back at the past 18 months to see that the two major waves of self-directed investor interest tested the existing capabilities of online brokerages to be able to sign up clients fast enough.
On both sides of the border, and in fact across the globe, self-directed investors poured into the stock market in unprecedented numbers. And, despite investors encountering long delays on customer service channels, as well as manual processes to actually complete an application, they nonetheless stuck it out because the opportunity (at least in the eyes of any traders) was there.
And while it is difficult to predict whether or not something like the pandemic-driven sell-off in stocks will ever happen again, it is nonetheless important to acknowledge that the investor pool has dramatically changed. Those self-directed investors that have now become active in participating in markets have very different expectations about how quickly an online brokerage needs to be available to jump on fast-moving market opportunities.
While online account opening seems like a natural feature for the online brokerage industry to adopt, the reality is that Canadian online brokerages have been fairly slow at doing so. Even with a more “digital” experience, approval times to get up and running can still take a few days.
Another trend that has emerged over the past year relating to getting started quickly is in terms of funding accounts. Opening an account is only half the battle – there has to be a quick way to fund the account as well to be able to capitalize on market opportunities. In the case of Qtrade Direct Investing, opening an account is now faster, but funding it will still take time. Conversely, competitors of Qtrade, such as Wealthsimple Trade and Questrade, have digital account opening procedures and the ability to fund accounts right away, albeit with limited amounts.
Heading into this RSP season, Qtrade Direct Investing has managed to address an important component of the onboarding process. In what is often a scramble to get an account opened or funded, Qtrade clients and those considering choosing Qtrade are in for a pleasant surprise. Conversely, the handful of online brokerages that still require printing or physical signatures of documents are increasingly going to be relegated to the sidelines until they can match the speed and efficiency of the instant account approval process.
Ranking File: Questrade Notches Second Consecutive Top Mobile Experience Ranking
While the end of the year is typically the ramp up to RSP season, there’s also another important season for online brokerages that shows up around this time of year: online brokerage rankings.
Before diving into the results, it is key to mention that when it comes to online brokerage rankings and ratings, methodology matters (a lot). Ultimately, the goal of online brokerage rankings is to be able to compare brokers to one another using some structured criteria. In this case, the mobile experience rankings are intended to measure the overall user experience of a self-directed investor via a phone or tablet device.
Importantly, Surviscor uses a fairly comprehensive set of measures that assess various aspects of the service experience. Those components are then collated into six categories that can be used for a high-level view of the “mobile experience.”
Five of the six items that Surviscor reports on with respect to mobile experience at online brokerages include:
Opening an Account
This year’s review covered 11 Canadian online brokerage firms. The four firms that were not covered were HSBC InvestDirect, Canaccord Genuity Direct, Laurentian Bank Discount Brokerage, and Interactive Brokers Canada. Interestingly, as part of the summary of the results of this year’s review, Surviscor revealed that while all online brokerages analyzed were invited to participate, several of them declined to do so.
While the ranking data alone was interesting to see, to add deeper context on the ranking, we also gathered the scores associated with the above mentioned categories. In doing so, there are some fascinating observations of the state of mobile experience as defined by Surviscor.
The first important note to point out is that Questrade’s Edge platform was the one that was evaluated and not the recently launched QuestMobile. There has been considerable controversy among self-directed investors, in particular on user forums, about the switch to the new QuestMobile look and feel on the desktop platform. It is therefore important to distinguish between the way in which a user will interact with a platform on a mobile device compared to a desktop.
Looking at the overall ranking more closely, the top three firms in the ranking, Questrade (77%), BMO InvestorLine (73%) and TD Direct Investing (72%) were relatively close to one another. Similarly, firms in positions six through nine were also very close in terms of overall ranking (range 54% to 57%). One very interesting result was just how poorly Wealthsimple Trade (33%) performed on this evaluation. Anecdotally, the aesthetic and user experience/user interface for Wealthsimple Trade is something that many self-directed investors specifically highlight as a positive feature. In this analysis, however, other than the account opening category, Wealthsimple Trade came up at or near the bottom of peer firms.
Another interesting thing that jumps out from the full data set is that almost all online brokerage mobile apps do a poor job of notifications. Only four firms did not score 5%, with BMO InvestorLine scoring the highest in this category (95%). Market notifications are a particularly important feature for active investors, so it is curious to note that more firms would not make this component a more refined experience.
One more pattern that emerged from the data is the correlation between navigational design and rank. In general terms, the better the navigation, the higher the ranking. That said, it was also interesting to see that navigation ranged from 67% to 90% and in this category; Wealthsimple Trade was a real outlier at 3%.
In the categories of Opening an Account, Account Management, and Market Information, the data show how variable the mobile experience can be in these categories. From a user perspective, this is the definition of hit and miss. It highlights some of the challenges associated with creating rankings and ratings, namely that there are some features that certain online investors will prefer and prioritize that others won’t.
The mobile experience for self-directed investors in Canada, according to Surviscor’s latest report, has room for improvement and innovation. It seems like most online brokerages have managed to do a decent enough job of navigation but outside of that, there really isn’t a consensus from an industry perspective on what defines mobile experience. One goal to aspire to would be to do everything in an online brokerage account on a smartphone that you could do on a computer.
From an execution standpoint, Surviscor didn’t hold back on a critique of some of the players in the online brokerage industry. The biggest critique, however, was that there was no app that “wowed” the rating team at Surviscor. There isn’t the kind of innovation or pace of innovation in the Canadian market that exists in other markets, such as the US.
For self-directed investors looking for an online brokerage and for which mobile trading capabilities are important, this analysis is a great way to dive into the nitty gritty. There’s clearly work to be done by the online brokerages to provide a better trading experience. However, the tricky part will be understanding what clients generally want.
From the forums
Live and Let Trade
In volatile markets, fortunes can change in an instant. For that reason, having access to accurate information on the latest stock prices is crucial to getting visibility on the best entry or exit points on a trade. In this post from reddit, one user looks to the self-directed investor community to find out which services other investors are relying on for real-time data.
Beware the Deals
Heading into RSP season, there’s no question that online brokerage deals and promotions are in full swing. Among the deal types, cash back offers are the most popular, but they’re not without some important considerations. In this post from RedFlagDeals.com, one forum user asks an important question about getting a cash back bonus for a registered account.
Into the Close
Just when we thought we were out of the woods, Omicron surfaced and volatility came back into stock markets in a hurry and just in time for the weekend. It didn’t help matters much that the US had their shortened work week (because of Thanksgiving). If there’s at least one silver lining, it’s that this time around, the world is much more prepared than previously. Stay safe and kind!
It’s been a tough week all around. As this edition of the Roundup goes to publication, there’s a tragedy unfolding in Wisconsin. And, in BC, there’s been a lot of bad news over the past week because of the floods. After the year and a half that has passed, when things rise to the level of exceptionally bad, it is often a moment to take a pause and reflect on the things to be thankful for.
In this shortened edition of the Roundup, the US online brokerage market is in the spotlight once again. We dive into recently released metrics to examine a possible shift in investor sentiment, as well as the uphill battle faced by Robinhood into the final stretch of 2021. To close out, we wrap up with some interesting chatter from the investor forums.
Growing Pains: Account Growth at Interactive Brokers and Schwab Spells Trouble for Robinhood
It’s barely winter, but already there are signs that online investor sentiment is “springing” back to life – albeit modestly.
Data from two large publicly traded online brokerages in the US, Interactive Brokers and Charles Schwab, appear to be pointing in the same direction with regards to positive month-over-month new account growth, the first time that has happened in 2021.
This year has certainly been a storied one for online brokerages. Right out of the gate, 2021 saw an unprecedented surge in retail investor enthusiasm based on the “meme stock” interest. All online brokerages in Canada and the US saw record-breaking activity in account opening and trading volumes. That interest, however, faded quickly as the meme stocks lost steam and the fast money sought other opportunities (such as crypto trading).
The October stats on new account growth at Schwab showed 397 thousand new accounts opened, an increase of just over 6% compared to September. By comparison, Interactive Brokers reported 46.3 thousand net new accounts opened in October, an increase of almost 6.7% month over month. Aside from the numbers of new accounts being vastly different at the two firms, the target clientele is also quite different. Interactive Brokers tends to target and attract active traders, whereas Schwab could be a better proxy for “main street” investors.
But what about the “new kid on the block” aka Robinhood?
With the surge of interest in online trading this year, a new segment of investor emerged that didn’t fit the traditional understanding and paradigm of “investor” and many (if not the vast majority) of those investors found their way to Robinhood.
Now that Robinhood is a publicly traded company, it is possible to get a better handle on what kinds of investors are gravitating towards this online brokerage and to see how account performance stacks up relative to incumbent firms. To compare apples-to-apples on account growth, it is important to note that, unlike Interactive Brokers or Schwab, Robinhood does not report monthly performance metrics. As such, we have compiled data on new accounts based on quarterly totals so that we could compare how Robinhood’s performance to Schwab and Interactive Brokers.
The chart shown above helps to put into perspective just how big of a wave of interest in online trading the first two quarters of the year represented to Robinhood’s business and the disruptive force Robinhood has been to the online brokerage market in the US. In the first calendar quarter of 2021, Robinhood added more accounts than Interactive Brokers and Schwab did in the first two calendar quarters combined.
Equally as evident in the chart above, however, is the enormity of the drop off in new account growth at Robinhood in Q3 2021. New account opens plummeted from 5.1 million accounts to just 700 thousand – which is still more than Interactive Brokers but well short of Schwab. Another table from the Robinhood earnings release provides additional context on what investors who signed up for Robinhood were most interested in trading, and as a result, where Robinhood earned most of its revenues each quarter.
Against the backdrop of revenue figures, it’s clear that options trading followed by equities trading dominated the revenue picture for Robinhood for Q1 2021, but in Q2, crypto became the primary driver of revenues. In Q3, Robinhood earned most of its revenues from options trading. Based on the revenue mix, it appears that Robinhood has both active traders – who would prefer options trading and cryptocurrency over equities – as well as less active investors, who would prefer equities and ETFs. For Q4 of 2021, Robinhood has already signalled to expect a soft quarter in line with the Q3 performance figures.
The latest numbers from Schwab and Interactive Brokers indicate a possible resurgence in interest with both active and passive investors which should seem like good news for Robinhood; however, we can’t help but wonder whether there is a significant number of accounts jumping ship from Robinhood. Neither the pace of growth in terms of new accounts nor the trading activity at Robinhood is clear enough at this point in the quarter to make a call either way. If Robinhood wants to attract investors interested in gaining exposure to online trading, they will likely have to change the way in which they report performance to bring them in line with other online brokerages. The fact that they haven’t yet done so does beg the question as to why those monthly figures don’t get published?
In the Canadian online brokerage segment, the data on online trading activity and new account openings is much less transparent. The US online brokerage market serves as a proxy for the performance of online brokerages and online investing on this side of the border. Interactive Brokers’ latest account figures reflect their continuous appeal to active investors and traders, and despite charging commissions for trade execution, people are prepared to pay. Schwab, by comparison, has shown that commission-free trading is only a small component of the wealth management opportunity to be had, a model other Canadian online brokerages are likely to look to when deciding which is worth more to their long-term success.
For the growing number of investors interested and curious about options trading, Interactive Brokers offers an experience that is hard to rival here in Canada – even when factoring in commission pricing. That said, if Robinhood is an indicator, commission-free options trading is something that is going to be increasingly sought after while cryptocurrency trading capability is also important to the newer segment of online investors. In terms of the latter, Wealthsimple Trade has an edge that offers self-directed investors direct exposure to cryptocurrencies and equities in one platform. The major downside, of course, is the cost for trading in US dollars and the lack of options trading. On the other hand, almost all popular Canadian online brokerages offer options trading as well as US-denominated trading accounts.
Until all three products: options, cryptocurrencies, and equities are available in a single online brokerage in Canada (and at a reasonable cost), it appears that Canadian self-directed investors are going to have to figure out how to combine providers to get the exposure they desire.
Turning back to the US online brokerage market, the latest performance figures from Interactive Brokers and Schwab point to an interesting scenario which we will be monitoring when Robinhood reports its next earnings release – namely, whether the account growth at Schwab and Interactive Brokers is coming at the expense of Robinhood clients.
It is difficult to know with certainty that clients leave one online brokerage to go to another; however, the revenue mix provided by Robinhood does suggest that Interactive Brokers is now a compelling alternative for cryptocurrency trading (of certain currencies) and definitely for options trading. Interactive Brokers, as of this past quarter, now offers the “trifecta” of options, crypto, and stocks at a professional trader’s level of sophistication. To boot, Interactive Brokers also now offers an ESG-focused trading tool that takes investor values into consideration when screening companies for possible investment opportunities.
At the other end of the spectrum, many of those investors that thought they could make a fast dollar on the meme-stock frenzy might have learned that investing profitably is a challenge and takes time and effort to do well. Those investors might now prefer a more hands off approach, or even value advice, which would point them towards Schwab.
The concurrent uptick in new account growth at Interactive Brokers and Schwab is a positive sign for both firms and an interesting development at this point in the year and stock market cycle. While it is difficult to know the source of those new clients, it’s clear that winning over Robinhood’s clients seems like part of the strategy of the existing players. Despite Robinhood’s success in bringing in new clients earlier this year, learning to hang onto those clients is an entirely different game altogether.
From the Forums
While price is one reason online investors make decisions, there’s sometimes more to the story than that. In this interesting post from reddit, one user explains their reasoning behind saying goodbye to traditionally low-cost online brokerage to find greener pastures elsewhere.
Shopping for Options
With Black Friday just around the corner, it seems like Canadian investors are in the shopping state of mind. In this reddit post, one self-directed investor is interested in choosing a new online brokerage catering to options trading and receives some interesting perspective and suggestions.
Into the Close
It’ll be a short week for trading in the US because of American Thanksgiving, one that will undoubtedly be tough for community of Waukesha. Often in times of tragedy, it is the strength of communities that shine through and the kindness shown to others that makes an immeasurable difference. It certainly showed up here in BC when it was needed the most.
There’s a saying that goes, “when it rains, it pours.” It is a fitting comment in more ways than one, especially in November in parts of Canada, and especially considering that climate is driving much of the conversation in the news and now among online brokerages.
In this edition of the Roundup, we’re keeping things lighter than usual. It was oddly quiet (perhaps too quiet) across the online brokerage space here, so we’ve elected to shine a light on a new feature launch from one US online brokerage that is likely to prompt a trend of helping investors “go green.” From there, we’ll close out with a few quick updates on things that crossed our radar and wrap up with chatter from the investor forums.
Betting on Better: Interactive Brokers Launches new Sustainable Investing App
When it comes to getting ahead of the curve, it seems Interactive Brokers has a knack for good timing. Just as the conversation about the state of the environment is taking place all over the world, courtesy of the COP26 summit, Interactive Brokers announced the launch of their new “sustainable investing” app: IMPACT.
While the prime directive of Interactive Brokers is to generate shareholder returns (they are a public company, after all), the natural question to ask of the online brokerage is how this new app, which is designed to help DIY investors make more value-aligned investing decisions, will be better for business overall?
If there is one thing that Interactive Brokers appears to be deft at, it is getting creative at finding ways to connect to their existing and desired clientele.
Just before the start of the global pandemic, for example, Interactive Brokers launched a simulated sports betting platform targeting individuals who were interested in monetizing their talent and enthusiasm for professional sports. Despite the sports platform itself being quietly decommissioned earlier this year (no pun intended), the thesis of individuals who bet on sports being interested in trading stocks turned out to be wildly true. The crush of interest in trading online that occurred during March of last year and January this year was in some part due to individuals not having sports to be able to bet on.
In the case of the new IMPACT app, it appears it is yet another attempt in focusing in on a key client segment — in this case, younger investors that could use this app and the commission-free trading price point to boost new client generation. The founder and former CEO of Interactive Brokers, Thomas Peterffy, appeared on CNBC this past week and stated this when asked who this app was designed to reach.
Of course, in addition to the IMPACT app, Interactive Brokers recently launched the ability for its clients to trade cryptocurrency at a fraction of the cost of some larger names in the crypto space. After years of skepticism on the digital currencies, it was interesting to see Interactive Brokers capitulate and essentially jump into the crypto trading game because it was such a highly sought-after feature for clients.
Clearly, Interactive Brokers is no stranger to keeping a pulse on what it is their customers want and trying to deliver that service or experience through their services ecosystem. What stands out about the latest mobile app, however, is that none of their direct competitors have something similar in market. For its part, Robinhood published a blog post in October raising awareness of Latinx investors, and published their own ESG report; however, there was nothing near the Interactive Brokers experience in this segment of the market.
Socially responsible investing isn’t just a trend in the US. However, it is clearly a global thesis that has gained considerable ground over the past few years.
What makes the latest move by Interactive Brokers especially interesting, however, is that they have paved the way for other online brokerages to step up with something equally as compelling, especially the “challenger brands” whose identity is predicated on making the world of financial services “better.” In a macro sense, this kind of competition is great for the planet, as it better enables investors to throw their capital behind their values.
And, while the Interactive Brokers solution involves a well-designed mobile app (from a UI perspective anyway), this is the kind of innovation that Canadian online brokerages have been desperately in search of.
Among Canadian online brokerages, sustainable investing tools are a potential place to connect to self-directed investors (especially younger ones) who want to invest according to their values. The current approach of providing thematic choices is a decent starting point, but Interactive Brokers’ latest app demonstrates how much farther Canadian online brokerages need to be prepared to go to truly be seen as market-leading in sustainable investing.
In a small twist of fate, we at Sparx share a similar view to Peterffy when it comes to the power of capitalism being able to find a solution to the climate crisis faster than government action alone could. We think that investors, especially millennials, will be more informed about and willing to seek out brands that prioritize social responsibility as part of their business objectives.
The latest platform launch by Interactive Brokers is an example of their business interest in providing online trading services to as many people as possible overlapping with the next big wave of economic opportunity (imperative): saving the world.
Quick Online Brokerage Updates
Bandits in Sherwood Forest: Robinhood Security Breach
It was a tough week for some clients of US online broker Robinhood as the firm disclosed that five million of its customers had personal information compromised by a security breach. Ouch.
Apparently, the incident arose from a phishing scam that targeted an employee of Robinhood. The breach is yet another example of the hazards of operating online brokerages, and yet another strike on the reputation of Robinhood to contain phishing attacks.
If you can get beyond the characters on Twitter (looking at you, Elon), there’s all sorts of interesting data nuggets to uncover. This past week, an interesting thread started by The Globe and Mail personal finance writer Rob Carrick (famous for his online brokerage reviews) asked a very compelling question of the community of Twitter users. Check out what transpired when users were asked what they like and dislike about online brokerage mobile apps.
Online investors, please tell me what features you like and which are lacking in your broker’s mobile app.
The next edition of the Sparx Trading Look Back/Look Ahead series is just around the corner, and we are very excited to relay the updates shared with us by some of Canada’s largest and most popular online brokerages. We can see why there might be a slight dip in activity among Canadian brokerages this past week because there are clearly some big developments about to drop. Be sure to subscribe to our newsletter and Twitter feed for more details.
From the Forums
Need for Speed
If there’s one big lesson for self-directed investors over the past two years, it’s that when opportunity knocks, it helps to be able to get funded and get going. In this post from reddit, one user is looking for a non-bank-owned online brokerage that can offer faster deposits. Read what users had to say about the options available.
Departures and Rivals
There’s a lot of chatter these days about switching online brokerages. Because National Bank Direct Brokerage and Desjardins Online Brokerage are two of the first traditional online brokers in Canada to offer zero commission, naturally self-directed investors have questions. In this post from reddit, find out what perspectives users offered when considering a choice between these two new low-cost leaders.
The end of 2021 is just a few weeks away. Incredible. It definitely feels like we’re on an express train through the calendar, and it is only going to speed up now that the official start to RSP season appears to be here. Thankfully, those of us fortunate to live in a spot with daylight savings have one extra hour to enjoy it!
In this edition of the Roundup, we review the latest promotions from Canadian online brokerages, including some big offers from bank-owned brokerages to try and sway interest their way in what is the most competitive landscape yet. Next, we call out an interesting trend forming among most online brokerages who appear to be pulling back from digital engagement on Twitter despite the record high numbers of investors flocking to online trading. Finally, we wrap up with the ever-entertaining banter from the investor forums.
What is very different this year, however, is that it seems like TD Direct Investing (the largest online brokerage in Canada) has shown up with an historic offer for lower deposit amounts. TD Direct Investing’s newest promotion offers an eye-popping $100 for a minimum deposit of $1,500 and an extra $100 on top of any tier for individuals who set up regular deposits. In fact, it appears that among the cash back promotions of the (current) three bank-owned brokerages, TD Direct Investing has the best promotion bonus on deposits up to $25,000 and is tied for top deal up to deposits of $50,000.
By comparison, CIBC Investor’s Edge has staked out its sweet spot in the cash back promotion tier in the $100,000 to $250,000 range. In that window, CIBC Investor’s Edge is offering up $500 which is more than either competitor by a lot. After deposits of $250,000, however, all three bank-owned brokerages are offering up identical rewards for comparable deposit tiers. Cash back amounts max out at $2,000 for deposits of $1M or more, which is similar to last year in terms of amount and associated tier.
For its part, BMO InvestorLine appears to have played their cards close to their chest in terms of the offer expiry date. The promotions from CIBC Investor’s Edge and TD Direct Investing that launched at the beginning of November run until the beginning of March 2022. The expiry date for BMO InvestorLine’s current offer, however, is the end of December 2021, which leaves enough time for them to decide how (or if) to respond with a slightly different promotion heading into the RSP contribution deadline.
Despite it still being early on in RSP season, the offer by TD Direct Investing is indicative of the competitive landscape this year. With zero-commission trading now a reality at a bank-owned competitor (i.e. National Bank Direct Brokerage), it looks like TD Direct Investing is going to challenge their peers hard at the sub $50,000 deposit level. This is especially interesting because it pits TDDI against brokerages like Wealthsimple Trade and Questrade by offering a more generous bonus than either of these brokerages provide at these deposit levels.
Unlike other online brokerages in Canada, it is hard to ignore or dismiss TD Direct Investing. For online investors looking to start out, TDDI might be a difficult choice because of inactivity fees for balances under $15,000. That said, it looks as if users who are willing to commit to a monthly pre-authorized contribution plan of at least $100 per month, they also stand to benefit from an additional $100 bonus and be able to waive the inactivity fee for a sub-$15,000 balance.
The early and aggressive launch of cash back offers from both TD Direct Investing and CIBC Investor’s Edge are a clear signal that the value equation has changed for self-directed investing. Now that there are at least three zero-commission trading options in Canada, one of which is becoming an increasingly better-known bank-owned brokerage, deals and promotions need to follow suit.
The reality is that it is a matter of when – not if – bank-owned online brokerages in Canada start to drop their commission fees, and as such, this could be one of the most opportunistic windows for online investors looking for a bonus offer on the way into a new account to secure one before pricing ends up shifting lower and promotional offers with them.
Flying the Nest: Online Brokerages Migrating Away from Twitter
When it comes to quirky stories, Elon Musk seems like as good a reason as any to tune into Twitter. For some Canadian online brokerages, however, Twitter just doesn’t seem to hold the appeal that it used to, and we’ve spotted an interesting communications trend that reflects some of the challenges Canadian online brokerages are having engaging investors online.
Last month, we spotted the rather abrupt disappearance of Scotia iTRADE’s Twitter channel. And upon further inquiry, it seems that this channel had been folded into the customer support Twitter handle for the parent of the online broker: Scotiabank.
Normally, the disappearance of a social media channel would seem innocuous; however, Scotia iTRADE is not the only Canadian online brokerage over the past year to pull a sudden about-face on social media (much to the confusion of many users). As recently as last month, Virtual Brokers also folded up their Twitter handle because of their rebranding as CI Direct Trading, and earlier this year, Wealthsimple Trade also did something similar, opting to use the parent Wealthsimple handle instead.
A quick scan over other Canadian online brokerages who had Twitter accounts also shows that there hasn’t really been a whole lot going on there either. The last published tweet from the TD Direct Investing Twitter account, for example, was from February 2021. With that paucity of activity on social media despite having lots to talk about in other areas, it could be a signal that TD Direct Investing might take a similar approach to Scotia iTrade and wrap up its Twitter presence in favour of other channels being actively used by TD for either customer support or content creation.
As it stands, Questrade and Qtrade Direct Investing appear to be the only Canadian online brokerages using their Twitter handles for both broadcasting of messages as well as customer support responses. With many of their peer firms appearing to abandon pursuing a direct presence on Twitter, it could signal an opportunity for either of these firms to pull ahead with audiences who spend time on the social network.
Given the strategic importance of Twitter to the kinds of individuals that would pay attention to market-moving eccentric billionaires (like very active traders), it seems curious that online brokerages with tools and services catered to active traders aren’t doing more on Twitter. A quick look at the Twitter accounts of TradeZero or Interactive Brokers confirms that there is content being created for active traders there.
Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.
The most recent lightning rod tweet from Elon Musk got over 3.5 million people to cast a vote. Granted, he occupies rarefied air for a businessperson to be among celebrities whose primary job it is to entertain, so for brands such as online brokerages (especially Canadian ones), it is tough to compare. That said, if there is any lesson to be gleaned, perhaps it helps to realize that in order to succeed being on Twitter, it’s to make content that’s engaging and entertaining.
From the Forums
Hold the Music
Wait times on customer service lines are back – at least as a topic of discussion. Several weeks ago, we noted the hold music at TD Direct Investing had been replaced with banter. This past week, it seems like the wait time combined with the choice of non-musical accompaniment ruffled a few feathers. Here’s more of what redditors had to say about wait times and musical choices on customer service lines.
Practice accounts are intended to give users a sense of what the trading experience is supposed to be like – much like a test drive. Unfortunately, one user on reddit discovered that their last name didn’t meet the minimum length requirements to sign up. Find out what others had to say in this post here.
Into the Close
That’s it for another week of curious developments in the online brokerage world. We’re hurtling towards the end of the year and for any die-hard readers of the Roundup, the good news to report on here is that we’ve got a very exciting Look Back / Look Ahead edition planned for this year. Stay tuned!
On another note, this upcoming week is Remembrance Day, and we wanted to take the opportunity to thank the brave individuals who have served and sacrificed in our armed forces, as well as those who continue to stand at the ready. Thank you.