Interactive Brokers – Page 11

Posted on January 14, 2019 by user — Leave a comment

Discount Brokerage Weekly Roundup – January 14, 2019

As any avid sports fan or seasoned trader knows, sometimes there are lucky bounces, sometimes not. Fortunately, for many DIY investors, it was the market bears who got the bad bounce off the uprights. For many online brokerages, it’s also good news as long as the bounce sticks.

In this edition of the roundup we’ve got a stacked line up of developments for DIY investors to stay on top of. First, another week in 2019 and another new cash back offer to announce – this one also from a bank-owned online brokerage. Next, we look at a slew of stories that crossed our radar last week, including the big news of the ETF alliance between RBC & iShares, leadership changes at Interactive Brokers, how Twitter is being used by DIY investors to connect with Canada’s online brokerages as well as couple of great stories of online brokerages supporting good causes. As is customary, we’ve also got chatter from the DIY investor forums to share and what folks were saying on Twitter about (or to) Canadian discount brokerages.

HSBC InvestDirect Launches New Cash Back Offer

After a long break from the deals & promotions section, HSBC InvestDirect is stepping back in with a new cash back offer for DIY investors and also offering up some serious competition for its fellow bank-owned online brokers. The new tiered promotion, which is open to both new and existing clients, offers between $188 and $1288 in cash back bonuses for deposits ranging from $25,000 to $1M+.

There are two important observations about this new offer from HSBC InvestDirect that are worth noting.

The first is that for the deposit range between $25,000 to $50,000, this happens to be the best cash back promotion by a substantial margin (88%). On the heels of the aggressive cash back reward on their banking side, this new offer by HSBC InvestDirect is one that might cause DIY Investors to at least kick the tires on this discount brokerage. And, even though this offer is not the best for investors with deposits between $100,000 and $250,000, it does come close to other bank-owned brokerage offers.

Another important observation for this offer is the duration of it.

This cash back promotion is set to expire at the end of April – which is much later than offers from BMO InvestorLine (expires Feb. 28^th), CIBC Investor’s Edge (Mar. 24^th) or Scotia iTRADE (Mar. 31). This sets up an interesting scenario heading into the spring where, in addition to folks thinking about their RSP contributions, there’s also going to be consideration given to what to do with any income tax refunds as well. As it stands, that would leave HSBC InvestDirect with very little competition in the cash back promo segment.

Of course, there are also important details for DIY investors to consider about this offer. Unlike other cash back offers currently in the market, in order to qualify for this offer, DIY investors have to execute a minimum of three trades before the end of April, which at HSBC InvestDirect’s standard commission rate (for North American equities) of $6.88 works out to be about $20.64 that DIY investors have to pay.

Even so, at certain tiers, it still works out to being a relatively small price to pay to qualify for a cash back reward and, bonus win for HSBC InvestDirect, DIY investors will know how low the trade commissions are per trade and might just be impressed enough to stick around.

As we had mentioned in last week’s roundup, the competition for DIY investors’ assets is heating up.

With another bank-owned brokerage jumping into the mix, it is going to be hard for those not in the deals pool to stay on the sidelines for much longer. The same could also be true for DIY investors considering opening an online trading account.

This is probably the ideal time of year to consider opening an online account if getting an extra incentive is at all important – especially for cash back promotions.

Based on this latest move by HSBC InvestDirect, we suspect it won’t be the last announcement of a new promotion for a Canadian discount brokerage before the RSP contribution deadline of March 1^st, 2019. Stay tuned!

Lightning Roundup

Blackrock Canada’s iShares Teams Up with RBC

This past week there was a colossal shift in the wealth management space that surely sparked intense conversation (perhaps some panic) among some of the major ETF providers in Canada.

RBC Global Asset Management and Blackrock Asset management announced earlier this week that they would be forming a strategic “alliance” and combine forces to create RBC iShares. The new ETF powerhouse will have about $60 billion in assets under management and roughly 150 ETFs. Most notably, however, it gives RBC a leg up on BMO’s ETF selection and position in the Canadian ETF marketplace.

While things should largely stay the same for DIY investors, there will be a few changes made to the rosters of funds being offered which appear to be scheduled to take place around early April 2019.

Importantly, there will be no change to the names or ticker symbols of RBC ETFs or iShares ETFs as a result of the alliance, which means trading them should be seamless.

For more information on the new RBC iShares offering, the website: https://www.rbcishares.com/ offers up more details.

Interactive Brokers’ Founder Hands Over the Reins

Some big news for Interactive Brokers this past week as founder, chairman and CEO of the online brokerage announced that he is “retiring” as CEO and appointing long time president of the company, Mr. Milan Galik, as his replacement. According to the press release, Galik has been with Interactive Brokers for 28 years and has served as its president since 2014.

DIY Investing on Twitter

This past week we noted an interesting development on social media – specifically about what DIY investors are talking about when it comes to Twitter.

Even though it was a small ‘blip’ on the radar it was nonetheless important to flag that DIY investors – many of whom are on Twitter and actively trading or watching developments in the markets via their Twitter accounts, have called out bank-owned online brokerages for a lack of presence on the social media channel.

I checked to see which banks had a Twitter feed for their discount brokerage operations. BMO InvestorLine & CIBC Investor’s Edge do not. @TD_DirectInvest & @Scotia_iTRADE do. RBC Direct Investing also not on Twitter, so only 2 of the Big 5 are. https://t.co/NgZ8PMPE06

— Ellen Roseman (@ellenroseman) January 8, 2019

To clarify, this tweet indicated one user’s frustration with being able to access RBC Direct Investing via Twitter when – according to this user – other bank-owned online brokerages offer a direct route to their self-directed investing units on this channel. For RBC, the Twitter handle @AskRBC is the single point of contact for all of the banks brands – so often answers about the specific arms are routed to those divisions.

What stood out about this encounter, however, was that an influential voice in personal finance and consumer advocacy, Ellen Roseman (at the Toronto Star), also weighed in on the presence of online brokerage-specific Twitter accounts.

Further, someone at the senior level of RBC wealth management also responded directly on Twitter to this DIY investor. And, while not unprecedented, it is rare to see executives at these institutions weigh in on individual issues. Of course, we’ve noted that an online brokerage doesn’t need its own Twitter handle for executives to get involved.

The president of BMO InvestorLine, for example, does have a Twitter handle and has personally responded to individuals even though BMO (like RBC) has a central Twitter handle. Conversely, we haven’t really seen Scotia iTRADE’s senior executives take to the Scotia iTRADE Twitter handle to respond directly to a user in the same fashion – that is typically handled by their social media team.

The conversation about the conversation on Twitter among DIY investors and online brokerages is an interesting one.

On the one hand there is typically a lot of sensitive information that neither party would want to disclose to the general public. On the other, part of the strength of a platform like Twitter is that it provides a very public and documented opportunity to call attention to the strengths and shortcomings of a particular brand – in this case an online brokerage – to a wider audience.

Moreover, it appears that at least at some bank-owned brokerages, comfort with engaging directly on Twitter is growing (albeit slowly). Most importantly, however, it shows that it is important for online brokerages (not just the parent brands) need to consider making themselves accessible to DIY investors on the online channels that they’re clearly spending time on.

Capitalize for Kids Student Competition Deadline Approaching

Also spotted on Twitter this past week was a notice from Capitalize for Kids, the non-profit organization dedicated to helping raise funds for research in children’s mental health.

Another trading competition for students across Canada is being launched with the top prize of $10,000 going to the winner of the contest. The lead sponsor of the competition is CIBC Investor’s Edge. Visit the Capitalize For Kids website here for more information & be sure to share.

Questrade Delivers on Massive Donation to Food Banks Canada

Another very inspiring bit of news to kick off the new year (also spotted on Twitter) was the tweet from Food Banks Canada announcing the support given by Questrade to donate the equivalent of 250,000 meals to the organization.

In many respects it is a win-win-win with. The benefit for Questrade is that they’re demonstrating their commitment to being a socially responsible organization. For a certain demographic (i.e. millennials) what a brand stands for (and what they actually impact) is an important component in deciding whether to work for or purchase from that brand.

Questrade’s recent tv/video commercials have also positioned them as a challenger to traditional fee-based advice, so this initiative amplifies some of the messages about their brand they’re trying to create. And, as a bonus, organizations such as the Food Bank of Canada stand to benefit and in turn, provide assistance those in need.

https://twitter.com/foodbankscanada/status/1083406906243325954

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Don’t Be Fooled by Rocks We Got

The wealth management waters are getting choppy. This forum user notes RBC’s move to partner with Blackrock and takes to the forums to see what this means for investors and how it changes the landscape for other wealth management firms.

Lip Service

Despite digitization taking hold of the world, there are clearly pockets of the wealth management space still working on analog. This forum user was shopping for portfolio managers and tried to find tips on where and how to find the right fit.

Into the Close

If the pace of 2019 already being set is any indicator, this is going to be a very eventful year. Interest rates may not have made the same new year’s resolutions as a lot of others, and instead look to be taking a breather – which will be good news for equity investors – for now. Perhaps the best news is that we now know the official date that Winter is Coming – which will be later this spring. Go figure. Either way, investors will want to stay frosty for the volatility ahead.

Posted on December 21, 2018 by user — Leave a comment

Discount Brokerage Weekly Roundup – December 21, 2018

In addition to frenzied shopping, and trading platforms flashing more red than Rudolph’s nose, if there’s one thing to look forward to in the end of year hustle, it’s blockbuster releases. And, here at SparxTrading, we did not want to disappoint.

This final edition of the roundup for 2018 ends on a high note with a review of the launch of our special series: the Canadian online brokerage look back on 2018 and preview to 2018. We’ve been teasing this launch for a few weeks now and we’re very excited to have rolled out the blog version earlier this week. To give loyal readers of the Weekly Roundup a little thank you for reading, this roundup also has a first look at the full magazine version here before it goes live on our blog (yay presents!). Of course, that’s not the only gift in this roundup. In time for Christmas, there’s also a new online brokerage deal to announce from one of Canada’s largest online brokerages that will be sure to excite investors shopping around for a new trading account. Also, we’ve got a great stocking stuffer with the latest set of Canadian online brokerage rankings and ratings. Finally, it wouldn’t be a proper roundup without the discount brokerage tweets as well as chatter from investors in the forums.

Look Back & Look Ahead: 2018 Online Brokerage Review & Preview to 2019

After lots of anticipation, coffee, trimming, cutting and wrapping it’s finally here (and just in time for Christmas)! The much-awaited third edition of SparxTrading’s exclusive Canadian Online Brokerage Look Back / Look Ahead series for 2018/2019 is now live.

This year’s edition features nine of Canada’s online brokerages big and small, who’ve shared their milestones for 2018 as well as what’s around the corner for 2019. And wow, are there ever some interesting announcements.

To recap, the annual look back & look ahead series is an opportunity for Canada’s online brokerages to directly, and in their own words, share with DIY investors what it is they’ve been up to and where they see the priorities for the year ahead.

The format we’ve developed is a unique one in the Canadian online brokerage space. Unlike the structure of a review or rating, this compilation provides a good look at what online brokerages accomplished in the year as well as their vision for their priorities into the next year. Given the highly competitive nature of the industry, it is a challenge and somewhat rare to find online brokerages providing as much detail as we saw this year – so this is a definite score for readers. To be clear, there were still several intentionally vague answers about what 2019 holds for some brokerages, however, judging by both the activity in 2018 as well as from those brokerages who have telegraphed what they’re going to doing in 2019, the industry is definitely not standing still. In fact, quite the opposite.

Among the themes that we review in this year’s piece, is the influence of millennial investors on so many different elements of the online brokerage industry. This digitally savvy segment of the market has forced a reimagining of online investing. From mobile-first design, to expectations about performance, pricing and user experience to the access they demand to investment products, catering to the requirements of this increasingly important demographic is pushing technology teams at online brokerages into overdrive.

Another major theme that appeared to be a driver of online brokerage strategy is buffering against commission drops and the entrants of competitors, like Wealthsimple Trade.

While Wealthsimple Trade has rightfully grabbed the spotlight for their commission-free trade announcement in the summer of this year, a black swan competitor appears to be poised to challenge existing online brokerages. Jitneytrade, which was acquired by Canaccord Genuity earlier this year, announced that they are launching a mainstream-investor focused online brokerage trading experience.

After years of catering almost exclusively to professional or highly active investors and traders, Jitneytrade announced their intent to launch a more mainstream service. Without giving too much away, some of the features of their new brokerage offering will include free ETF trading, young investor pricing, digital account openings and mobile applications to name but a few. This feature set would put them on par (if not possibly ahead of) many other mainstream-investor-oriented online brokerage offerings from their competitors.

The result of consolidation and acquisitions in the Canadian discount brokerage space is that the bigger and better capitalized entities are able to make bolder bets on the Canadian DIY investor. These bets may be driven, in part, by a wager that even DIY investors will be open to having portions of their wealth in a ‘managed’ format.

From a big picture perspective, Canaccord Genuity, CI Financial and Desjardins via Aviso Wealth have collectively introduced serious competition for share of investor wallet to the standard bank-owned brokerages’ wealth management practices. In particular, they are equipped to provide a suite of services historically dominated by bank-owned brokerages. In the case of CI Financial and Aviso Wealth, there is the full spectrum of wealth management – including robo or digital advice – that investors can access.

While the launch of InvestEase by RBC, the coming digital wealth management offering by TD Direct Investing and digital advice programs at BMO, Questrade and HSBC, it is clear that those online brokerages that don’t currently have a digital advice product live, are likely in pursuit of getting this offering on a roadmap to launch soon.

And, speaking of what’s coming around the corner, there were several interesting clusters of developments that emerged as priorities for Canadian discount brokerages in 2019.

One of the clearest areas in which online brokerages appear to want to improve and focus efforts on is the mobile investing experience. Firms such HSBC InvestDirect, Jitneytrade and Qtrade Investor have each mentioned this as an area in which they would be looking to enhance their current online trading offering.

A second important area of focus for online brokerages will be content. From educational offerings, to product and platform orientation to market intelligence and personal financial planning, financial content production appears to be ramping up in 2019. In this regard, the larger bank-owned online brokerages have an edge as they have deep talent pools of analysts and existing stock market research that they can leverage and turn into content investors, especially DIY investors, would be hungry for.

Finally, one of the most interesting things that we noted in this year’s look back and look ahead series comes from what was NOT said – namely pricing. None of the online brokerages who participated in this series mentioned dropping their commission prices (yet) however it’s hard to imagine that online brokerages aren’t already planning out how to navigate in that (soon to arrive) commission-free trading world.

The sum total of activity reflected in the submissions of Canada’s online brokerages about 2018 and 2019 indicate that they are working quickly to build strong value drivers. While order execution may be something that can be commoditized, user experience and account management can’t. Similarly, great service, attention to details and support are also things that clients may be willing to pay a bit more for.

For DIY investors, 2018 saw brokerages make substantial enhancements that will start to pay off with more stable, scaleable technology experiences in 2019. Competition for DIY investor business continues to drive commission prices for online trading lower as well as introduce interesting incentives (such as deals), valuable resources and a concerted effort by online brokerages to win over (and keep) investors. In spite of market volatility, heading into the new year, this could be the best year yet to be a DIY investor hunting for an online brokerage account for the long haul.

TD Direct Investing Launches New Promo in Time for the Holidays

Just in time for the holidays, the online brokerage arm of the big green bank, TD Direct Investing, delivered some festive cheer in the form of a new commission rebate promotion. There were several interesting observations about this promotion that stood out – especially against the landscape of current offers – that might signal a subtle shift in how discount brokerage deals are run.

First, however, let’s take a look at the details of the offer. This is a commission-rebate offer which means that trade commissions that meet eligibility requirements, will be rebated by a certain point after the trades are placed. In this particular offer the number of trades that can be rebated are between 25 and 200. To qualify for this offer a minimum deposit of $15,000 is required.

In terms of the window of time that trade commissions can be rebated, the deadline to place eligible trades is before July 1^st, 2019. This means that users that open accounts sooner derive more benefit from this offer than those who open an online investing account later, in that early birds have more time to use the commission rebate.

It is noteworthy that of the discount brokerage offers that are currently live, TD Direct Investing has elected to stick to commission rebates (e.g. a form of commission-free trading) rather than compete directly with cash-back offers. This pits TD Direct Investing’s offer against the other commission-free trading or commission rebate offers from National Bank Direct Brokerage, Desjardins Online Brokerage and Scotia iTRADE. Of course, TD Direct Investing enjoys a massive advantage in terms of recognition and market share so relatively speaking, they don’t have to bid as aggressively to win new assets.

Another very interesting feature of this offer is that individuals need to register first in order to qualify to be eligible. While other online brokerages, such as Questrade, RBC Direct Investing or Scotia iTRADE have attempted something similar, they have often disclosed codes in their terms and conditions which means that filling out a form is optional. In the case of this offer from TD Direct Investing, filling out the webform is one of the mandatory conditions attached to this offer. From a marketing point of view, this means that users who submit their information into TD’s system then become prospective clients that TD can follow up with. Though subtle, it is one way that TD may be able to improve their success rates at DIY investors opening an account with them.

Finally, the timing of this offer indicates that TD is once again focusing its promotional campaign squarely on the RSP season rush. 2018 was a big year for new account openings, spurred at the outset by strong momentum in cannabis and cryptocurrency stocks. With the recent volatility across markets, however, this should be an interesting RRSP season for online brokerages. With this offer from TD Direct Investing now going live, DIY investors have the best selection of deals that they’ve had since last RSP season, however they’ll have to weigh these incentives against the choppiness in the market. Either way, a new deal to choose from just before the holidays is a great present for all DIY investors.

2018 Online Brokerage Rankings from Surviscor Released

The latest online brokerage rankings from financial research firm Surviscor were released this past week. The big takeaway according to founder and president of Surviscor, Glenn LaCoste, who appeared on BNN Bloomberg, was that there was not much of interest that took place in the industry since the last ranking.

One thing that did stand out as a negative, according to the Surviscor analysis, was deteriorating service. According to their mystery shop data, response times for online enquiries at Canadian discount brokerages slipped, with no firm apparently responding faster than 12 hours.

Taking top spot again this year was Qtrade Investor followed by Questrade and BMO InvestorLine. At the bottom of the pool was HSBC InvestDirect. Interestingly, this set of rankings included Interactive Brokers which placed 7^th out of 12 brokerages analyzed.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Miss Understanding

With the changing representation of the DIY Investor in social media and some Canadian online brokerages recently (e.g. National Bank Direct Brokerage – who recently overhauled their website with a more balanced inclusion of women) there seems a shift happening in the visual identity of the “typical” online investor. Nevertheless this shift is not happening as quickly in the real world. One unhappy forum user shared on Personal Finance Canada this week her experiences with poor service and misinformation about ETF’s that suggests perhaps some people are reluctant to get past gender stereotypes at the expense of compromising customer satisfaction.

Flying in Coach

A newcomer to Wealthsimple – whose tagline is investing on Autopilot – took to the forums this week asking for advice on automated auto-rebalancing and fees. Wondering whether they should “copy the portfolios” themselves or put it in the hands of the online brokerage, the user put the two options up for debate.

Into the Close

That’s a wrap on a very eventful roundup on top of a very eventful year. With Christmas just around the corner, good luck to all the brave souls who live for thrill of the last minute gift chase! It’s been a great year here at SparxTrading.com so thanks to all the loyal readers and site visitors for making this year our best yet. We’re thrilled at what’s coming around the corner in 2019 and so to prepare we’ll be using the “down time” over the holidays to be doing some retooling and work behind the scenes. On behalf of the whole team here at Sparx, have a very safe and merry Christmas and a happy New Year! Have a great weekend and we’ll see you again in early January.

Posted on December 7, 2018 by user — Leave a comment

Discount Brokerage Weekly Roundup – December 7, 2018

Only in the stock market does everybody get more when everybody gets less. The cuts in oil supply provided a much-needed relief to an otherwise dour stretch into the final month of the year. With most of the gains of 2018 now erased on major indices and selloffs despite good jobs news, the good news is, it could be worse.

Fortunately, there is actually good news for online investors to be had. In this edition of the roundup we review the latest crop of deals that will add some Christmas cheer for DIY investors hunting for a great deal on an online trading account. Of course heading into the end of a year, it’s also a timely opportunity to review a portfolio – which is what we do by taking stock of the year that passed and what’s coming around the corner (hint: it’s exciting!). As always, we capture the reactions and questions of online investors on the forums and on Twitter.

December Deals

It’s the holiday season, and, true to form, there are lots of presents and still a few surprises left for Canadian DIY investors. December kicked off with a healthy count of 25 discount brokerage deals and promotions ranging from cash back deals and commission-free trades to transfer offers.

The big stories in this month’s deals section include the return of Desjardins Online Brokerage’s commission credit offer (along with some festive imagery befitting the season); the promotional offer accompanying the launch of RBC InvestEase as well as the return of Scotia iTRADE to the deals section with a cash back or commission-free trade offer.

With participation by Canadian discount brokerages at a healthy level, DIY investors hunting for a bargain on an online trading account certainly have a lot to choose from.

Of course, December wouldn’t be complete without a few surprises. There are already whispers of two online brokerages keen on launching some interesting promotions. Whether they get here in time for Christmas is a bit of a jump ball at the moment, however it’s a safe assumption that those brokerages currently on the sidelines without a commission-free trade or cash back offer won’t be staying off the promotions field for too much longer.

As a segue into the next story, it’s important to remember that last year at this time, the world was going crazy about “investing” in cryptocurrency and marijuana stocks. It’s likely that the enthusiasm for trading these was amplified across the holiday season with friends and family gathering to talk about these “investments” – so there’s still a good chance that, in addition to talking turkey, there’ll also be talk of investing.

We’re also really excited to see what happens to the promotional landscape next year as Wealthsimple Trade starts to roll out live trading accounts. Competing against commission free trading will be a challenge for the incumbent online brokerages, however our bet is that many DIY investors would still be open to cash back offers and incentives which is something Wealthsimple Trade may find difficult to match (since they’re already taking a hit on commission fees). Making a few trades a year (even at a “nominal” cost) may not be worth as much as the cash incentive on the way in.

In light of that, one interesting scenario that could play out in 2019 is that strong cash back (or better commission credit offers) could majorly slow the roll of Wealthsimple Trade. At that point it will be a faceoff between low pricing and design technology (i.e. user experience) and a mature functionality in the form trading platforms with news, research, screeners and more.

Looking Back & Looking Ahead

With just about three weeks until the end of 2018, it’s an opportune moment to reflect back on the year that was and where things are going in 2019 for online investors.

Last year at this time we were knee deep in crypto mania; it’s a good thing weed has been legalized because there are some people who are going to definitely want/need to chill after the drop in both cannabis and crypto stocks over the past few months.

Also around this time last year, SparxTrading pulled together a collection of 9 voices from across the Canadian online brokerage space to provide a platform for them to share what the year was like in their own words and what DIY investors could look forward to in 2018. In that piece, we highlighted three important themes that seemed to emerge from all of the submissions:

There’s a technological arms race
Delivering more value to DIY investors
Focus on better trading experiences

Although these three items are interrelated, we saw evidence of distinct activities to address these themes over the course of the year.

From multimillion-dollar investments in the technology stack from firms like TD Direct Investing, to the adoption of youth or ‘student’ friendly pricing at major bank-owned online brokerage CIBC Investor’s Edge to trading platforms to roll outs of upgrades of custom-built trading platforms at Questrade there were numerous examples of these themes unfolding at many of Canada’s online brokerages.

One thing that also stood out over the past year was the consolidation of the online brokerage market.

After the merger of Qtrade Investor and Credential Direct under the umbrella of Aviso Wealth, the acquisition of BBS Securities by CI Investments and the acquisition of Jitneytrade by Canaccord Financial, the war chests of non-bank owned online brokers have gotten much stronger. The industry as a whole seems to be in a ‘rebuilding’ phase – with investments in their business and technology taking place to enable them to serve investors of the future. Case in point, the launch of robo-advisors/digital advice platforms at RBC and the announced roll out of one at TD clearly signal this as a product line ‘must have’ for 2019 and beyond. They’ll have their work cut out for them, though, as Vanguard is also reportedly pursuing a launch of a robo-advisor as well.

Coming up next week we’ll launch the online brokerage look back on 2018 and look ahead to 2019 and this is definitely (and literally) going to be a page-turner.

With an exciting new look and rendering for this unique piece, interesting new themes on where online brokerages are focused as well as the unique opportunity to hear what online brokers have to say about themselves and what they’re looking forward to in 2019, we’re thrilled to be rolling this out. Be sure to follow SparxTrading on Twitter for exclusive sneak peeks at this year’s set.

Lightning Roundup

There were more noteworthy developments that took place this past week in the online brokerage space here in Canada as well as in the US.

Interview with Interactive Brokers Founder

Earlier this week, founder and CEO of Interactive Brokers, Thomas Peterffy was interviewed at the Goldman Sachs Financial Services Conference. In this informal fireside chat, there were a number of very interesting nuggets shared by Peterffy.

The first was his perspective on the “zero commission” trading trend emerging in the US online brokerage market. He specifically mentioned Robinhood and JP Morgan in this respect but he had some rather ominous words for the latter. Peterffy mentioned that JP Morgan’s decision to also do so was “a big mistake” and that ultimately “they will regret this.” Within that conversation about commission-free trading, he also laid out the simple truth to online brokerages which is that they need to make money or break even in order to exist so the money will have to come from somewhere – including with administration fees. This could be an important consideration for those online investors contemplating platforms like Wealthsimple Trade or who might be hoping for online brokerages to lower their trading commission pricing.

Another major development shared by Peterffy is that as of January 1^st 2019, Interactive Brokers will be paying interest out to accounts with balances underneath $100,000. Specifically, the interest paid on an account will be indexed against the $100,000 threshold so that investors who, for example, have a cash balance of $50,000 will get an interest rate that is half the rate of an account with $100,000 or more in cash. This will definitely spur a larger segment of investors to consider kicking the tires on Interactive Brokers who simply want a better deal on their uninvested cash.

Mobile Trading Apps Spinning Their Wheels

Interactive Brokers was once again in the spotlight but this time in Canada where financial research firm Surviscor released the findings of their mobile online brokerage experience study. The mobile trading experience at Interactive Brokers blew the doors off its competitors according to the Surviscor study.

According to the rankings, Interactive Brokers’ mobile trading experience scored a 94% followed next by Questrade at 64% and then BMO InvestorLine at 57%. Perhaps most surprising is the number of firms who scored under 50% (8 out 11 firms). Desjardins Online Brokerage’s mobile trading experience ranked last with a score of 24%.

Glenn LaCoste, President and CEO of Surviscor cautioned that while the scores may appear shocking, that “it is important to understand that they do not reflect the overall merits of any of the firms. The take-away is that most industry firms fail to provide a seamless mobile accessible experience for the base online offering.”

Earlier this year, a similar sentiment was echoed by J.D. Power in their Canadian Self-Directed Investor Satisfaction Study in which Mike Foy, Senior Director of the Wealth Management Practice at J.D. Power stated “Investment firms in Canada, in general, are significantly behind the curve when it comes to their mobile app offerings, capabilities and customer engagement.”

From the Forums

Robo-Wars

Vanguard Canada is the latest wealth manager to join the robo-advisor phenomena. The news hit the forums this week as one user kicked off a discussion on the global investment company’s choice to compete in the growing market. Check out the discussion points here.

Passive or Active Retirement

One forum user took to personal finance Canada on reddit this week, wondering if a DIY investment approach would be the way to go after years of a passive strategy. With a personal aversion to financial matters at the age of 60, this proves an interesting post both for those looking for advice on what to do with their finances after retirement and for those who are curious to know if they’re on the right track.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

Into the Close

With just over two weeks to go before Christmas, the procrastinators among us are still not worried about getting that great gift in time for the holidays. For the traders, however, that deadline day for making trades in 2018 is coming. Circle December 27^th as the final day to make trades in Canada that will settle in 2018 (Dec. 31^st). Speaking of settling and end games – now that the weekend is here, it’s a great time to relax and marvel at the great indoors, starting with a trailer for the Avengers Endgame. Have a great weekend!

Posted on November 9, 2018 by user — Leave a comment

Discount Brokerage Weekly Roundup – November 9, 2018

Midterms are finally over. It’s a phrase that university students and now most of the world are glad to hear. If there’s one thing that both market and political pundits are obsessed with, its speculation. That said, even though the stock market acts like a big voting machine, the favourite candidate of the market is always growth-focused.

In this edition of the roundup, we take a look at the zeitgeist – or spirit of the times – for online investing in Canada. Kicking things off, we start with a look at a slow-moving trend towards socially responsible investing and how there may be a catalyst for online brokerages to quickly adopt and support this style of investment. And, speaking of support, the next story in this week’s roundup looks at a very interesting snapshot of an interaction with customer support that showcases what life is like for a DIY investor actively trading a hot sector. As usual, we’ve got the latest chatter about online brokerages from Twitter and from the DIY investor forums.

Looking for a Win-Win

Trying to figure out “what’s next” taps into our natural human desire for certainty. In that way markets of all sizes are not that different than the people that comprise them. In the case of major financial service providers such as discount brokerages and robo-advisors, they too would like to have some certainty (even if its just less uncertainty) when it comes to figuring out what features or products their rapidly evolving client base will tap into next.

The good news, is that there may already be a hint of what online investors want and what service providers are gearing up to provide.

One interesting example of a trend that appears to be gathering momentum in the Canadian online investing space – both at online brokerages as well as with digital or robo-advisors – is socially responsible investing (SRI). And, over the past several months, we’ve started to observe a few more important names in the online brokerage space start to deploy some kind SRI-related product offering to their client base.

Within the discount brokerage space, one of the biggest (and perhaps earliest) firms to get behind the socially responsible investing theme for DIY investors was Scotia iTRADE. In early 2017, Scotia iTRADE launched their socially responsible investing tool that enabled DIY investors to research and analyze companies based on their environmental, social and governance (ESG) profiles.

Fast forward to the latter half of 2018 and socially responsible investing has now found its way into two important touchpoints for online investors: the homepage of Desjardins Online Brokerage in the form of Desjardins’ Responsible Investing ETFs; and Questrade’s latest managed portfolio product – Questwealth Portfolios – with a new line of socially responsible investment (SRI) portfolios. Also joining in the SRI space is Interactive Brokers who recently added the ability of traders to use their trading platform, TWS, to scan for ESG factors courtesy of a new integration with Thomson Reuters.

A quick scan of other Canadian discount brokerage sites shows that at this point, the SRI conversation has yet to make it into the spotlight, which means that for the time being there are only a very select group of online brokers who are aligned publicly with ESG or SRI-related themes.

Given the length of time its taken for SRI to take root in the online brokerage space, one might ask whether it is something investors actually want i.e. is there a demand for it? Based on some key data points and some strategy (and speculation), to quote a magic 8 ball, the answer points to yes.

First, and perhaps most importantly, if it matters to millennials, then that ought to be enough to put it on the radar of online brokerages. There are a number of research studies of purchasing habits and expectations of millennials that show that having access to purpose-driven products matters and can differentiate between why they would choose one brand over another.

Secondly, in a world where commission pricing is less of a differentiating factor between online brokerages, what they offer and what they stand for will increasingly influence where the DIY investors of the future place their trades.

Of course, the broader picture for socially responsible investing is also bullish.

A 2018 report from the Responsible Investment Association stated that “Responsible investing now makes up a majority of Canada’s investment industry, as RI assets now account for 50.6% of all Canadian AUM – up from 37.8% two years earlier.” With respect to ETFs from 2015 to 2017, it goes on to state “Assets in exchange-traded funds dedicated to RI have more than doubled over the last two years, from $97.9 million to $240.6 million.”

While Scotia iTRADE tends to be a difficult choice for beginner investors, Questrade – and in particular Questwealth, has a much lower barrier to entry to open an account and to ease into SRI investing. Similarly, popular roboadvisor Wealthsimple also offers up easily accessible socially responsible investing options for investors.

For an online investor who wants to “do good” with their investing dollar (and stretch that dollar as far as possible), they can purchase one of many SRI ETFs through any online brokerage, and if they choose to do so through Questrade’s online brokerage or National Bank Direct Brokerage, they can do so while potentially not incurring trading commission fees to purchase these.

Although it has taken quite a bit of time for socially responsible investing to find its way into the spotlight at Canadian online brokerages, the latest moves by Desjardins and Questrade appear to help serve as a catalyst for broader adoption of SRI. The move by Interactive Brokers also opens this style of investment strategy up to more active traders.

Fundamentally, the data is clearly pointing to market demand for consumers wanting to do good and to do business with brands that are purpose-driven. As such, it will be interesting to see which Canadian brokerages also jump into the SRI pool in terms of content as well as products or incentive offers. There’s clearly a win-win-win for DIY investors as well as the online brokerages and of course, the planet as a whole.

Trading Documentation

With so much happening in terms of feature development or deployment at online brokerages here in Canada and the US, there was one fascinating story that we didn’t get the chance to highlight last week.

One of the more interesting realities of the world in 2018 is the impact of social media. While celebrities, such as Dwayne ‘The Rock’ Johnson can command 120 million followers on Instagram, there are examples of the reach ordinary people have too. Case in point, an Instagram post in March 2018 by Judith Kasiama highlighted a lack of diversity in the popular outdoor brand Mountain Equipment Coop’s marketing and advertising campaigns. That one Instagram post then became a catalyst for change in the way in which MEC represents its clients in their marketing and advertising.

According to a U.S. national parks study, only 7 percent of black folks visit national parks. While 78 percent of all parks visitors are white. There seems to be a narrative that BIPOC don’t enjoy the outdoor compare to their white friends. This is not rooted in actual reality but a myth perpetuated by marketing that caters to predominately white audience. If you don’t believe, check out companies such as @mec, @arcteryx @arcteryxcanada @hellyhansen who fail to diversify their adds. Painting a narrative that people like me don’t enjoy the outdoors. I love nature and spending time outside! I hope these companies can diversify their adds. Sadly I couldn’t find any studies in Canada. #truthfultuesday Pc: @neverbadtimeforchanges

A post shared by Juju Milay (@jujumil) on Mar 6, 2018 at 3:38pm PST

Having covered what gets said about Canadian online brokerages on social media (and Twitter in particular) over the past four years, it was a tweet that contained a YouTube video last week that caught our attention.

In the following video there is a YouTuber Richard De Sousa from RichTV Live who also is an active trader who documents his frustration and interaction with TD Direct Investing’s client service representative for almost a solid 15 minutes.

This video is fascinating on so many levels. From the consequences of UX decisions in trading platforms to the kinds of communications scenarios that online brokerages have to be prepared for, being any brand in 2018 means being subject to the very public scrutiny that takes place on social media. Mix in an individual with a substantial subscriber base and an incredibly impactful medium like video, and you have what could be a volatile situation.

So why is it worth watching almost 15 minutes of a customer service call? For starters, because it is possible.

Often times there are only angry rants that are summarized in tweet format or in long walls of text in forums or on Facebook. In this case, even though only a portion of the total call is shown, it offers a unique vantage point into the world of DIY investing and what the experience of talking to a rep at TD Direct Investing is like.

Another interesting angle to this video is that for many DIY investors, there is a lot of DIY learning that comes as a result of trial and error as well as from talking to customer service reps. In this case the trader in the video discovered what was essentially a “problem” with the way in which prices that were longer than 2 decimal places were being displayed. The trader learned the hard way that there can be disparities and surprising blindspots when executing a trade – such as getting the detailed information on the exact price of an order fill. Those blindspots can also be internal – without knowing where on a platform to get detailed information on an order fill, for example, the interpretation of events that something went ‘wrong’ is more likely.

This last point highlights the impact of the importance of user experience testing.

As we referenced last week in the roll out of National Bank Direct Brokerage’s website, there can be bugs or oversight of user issues when a piece of technology rolls out (note that National Bank Direct Brokerage has tidied up those issues we flagged last week) however those bugs can result in customer service agents left dealing with irritated (and valuable) clients for large chunks of time. Clearly there’s a business value to doing more time testing.

A third interesting observation of this interaction is that it captured the professionalism of the representative. Yes, the call started with an irate customer however it ended with a conversation and the client stating their general satisfaction with TDDI. Like volatile stocks, so too are the emotions that active traders experience and bring with them onto phone interactions. Being a front-line service representative is no small feat.

Finally, in terms of zeitgeist, the latest enthusiasm for cannabis (and crypto) stocks has gone beyond just traditional investor forums and made the leap into channels like YouTube where it is now easier than ever to ‘watch’ in real time people trade the market. For a generation of investors (and future investors) that are very familiar with watching how-to’s or consuming content on YouTube, this video showcases how relatively simple it is for anyone passionate enough about what they’re doing to chronicle it online and build an audience.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Money across the Miles

A long-term former resident of BC asked the Personal Finance Canada forum this week about options for foreign currency investment in their TFSA. Find out how this tricky request was answered with lots of help from the reddit forum here.

How Safe is a GIC?

It’s always good to learn from the mistakes of others. On that note, this forum user caused a number of responses in this post on the Personal Finance Canada forum on the topic of safety and reliability of GIC’s within large banks. It begs the questions, is anything ever really guaranteed? Check out the advice from the thread here.

Into the Close

That does it for another wild week. In all of the hustle and bustle, please take a few moments to remember and pay tribute to the brave men and women who have made the ultimate sacrifice and for those currently serving our country. Have a wonderful weekend.

Posted on October 26, 2018January 10, 2022 by user — Leave a comment

Discount Brokerage Weekly Roundup – October 26, 2018

Trading is definitely a numbers game. This week for most investors the numbers weren’t that great (unless you were short) yet, as many of the bank-owned online brokerages are well aware of, it’s not so much today’s numbers that are giving them cause for concern, but rather, the numbers of the future.

In this edition of the roundup, we take a deep dive into the story of one bank (who owns an online brokerage) who is publicly putting out a target of customer growth. Scroll down to learn more about the market fundamentals that may finally be the catalyst for some big changes to Canada’s online brokerages and other financial services. Following that, we’ll scan over a few minor developments by online brokerages including some interesting sponsorships for investor education. As usual, we’ll be sure to include conversations of DIY investors on Twitter as well as from the investor forums.

BMO Looking for One Million New Clients

There’s been lots of talk lately in the news about winning big. For one Canadian bank, however, the jackpot consists of customers, one million customers to be precise. While it has a certain Austin Powers ring to it, for the Canadian market, a million new customers is not as simple as it sounds however that is just what BMO is very publicly going after.

To make things a little easier, the timeframe BMO has given themselves to hit that target is 5 years. Of course, getting past the headline numbers, the challenge in front of them (and their peers) is not only to get one million new customers, but to keep those (and their existing) customers as well as keep everyone happy and wanting to deepen their relationship with BMO, which is a lot easier said than done. For some additional context, as of Q1 of 2018, BMO reported having 8 million customers in Canada.

First some math (yay) – the population of Canada in 2018 was reported to be just over 37 million people (as of July 2018) and by 2023, the forecast under the most optimistic projection puts the population at 40.7 million people, which means that there will be a net increase of 3.7 million people into the system. Of course, it’s not just about how many are coming in, it’s also about composition of the population – how many folks 18+ will be in the system from now through 2023?

One model of the Canadian population puts the proportion of individuals aged 15 to 64 at 65.7% in 2018 (24.3 million people) which will then contract to 62.9% by 2023 or about 26 million people – even so, that’s a net gain of 1.7 million people in that key segment over that time. In the 65+ segment, the estimate for 2018 sits at 16.9% or 6.25 million. By 2023, that number (again under the best growth forecast) would reach 19% of the 40.7 million forecasted population – or about 7.7 million people.

So, on a net basis there is forecasted to be about 3.3 million more people (give or take) who could open a personal bank or investment account by 2023 under the best of scenarios.

For some additional context, the significant driver of population growth is projected to come from migratory increase rather than natural increase.

Finally, another important set of details, according to the Financial Post, was that RBC mentioned that they too are looking to grow their client base by 2.5 million clients by 2023 (which would work out to just over 900K per year) and the Bank of Nova Scotia is working hard to win 1 million clients also from Canada and around the world. Assuming TD sets its sights on a figure like RBC’s and CIBC sets its sights on a projection similar to BMO or Scotia, that means the big five banks would be looking for about 8 million new clients (presumably they mean “net” new clients) collectively when there will only be about 3.3 million more people in Canada by that point in time – which is a huge discrepancy.

What could this mean for DIY investors in Canada – and the online brokerage market in general here in Canada?

Probably the first thing that jumps out is that the projections for desired new customers (which also don’t factor in other smaller financial services providers) doesn’t really add up with amount of “new” customers in the system. Clearly, there will likely be several banks (and the online brokerage units within those banks) that will underperform. It’s safe to say that the banks will be looking beyond just Canada as a source for new customers, however, competing and winning on home turf is much easier (and less risky) than having to venture out into other markets.

Another really important implication is that there will likely be a significant push to cater to new immigrants. Over the next decade or so, the majority of growth in the Canadian population will be from immigration. Thus, from a branding point of view, the banks and financial service providers will need to reshape their visual and brand identity to be in line with an evolving definition of what it means to be Canadian.

For DIY investors, there’s also a strong likelihood that online brokerages will be pushing harder to get clients. From aggressive switch campaigns to stronger incentive offers or greater investment in technology to deliver value, Canada’s discount brokerages still have a few levers they can pull.

Finally, with such aggressive growth targets set by the banks, it is not inconceivable that we see further consolidation in the online brokerage space in Canada – after all why fight to acquire new clients when you can acquire them directly? At some point soon, the valuation on that strategy will make more sense if it doesn’t already.

While BMO (and by extension their online brokerage BMO InvestorLine) was the focal point of this story, they are clearly representative of their peers in this space.

The challenge for financial services providers to grow in Canada is genuine and the race to innovate here in Canada is proof that financial services providers must become more efficient and scalable in the delivery of their services. There are already signs they are pushing the ‘innovation’ agenda – earlier in the month BMO announced the roll out of a digital wealth advice tool called WealthPath which should help simplify the provision of financial advice and in September, TD announced the partnership with The Hydrogen Technology Corp to provide a digital advice platform to TD Direct Investing clients.

If the US online brokerage market is any proxy, Canadian DIY investors can also look forward to technology playing an even more meaningful role in streamlining the online investing experience as well as lower commission prices. As the race for market share outpaces the growth in the Canadian investor market itself, the million customer question is which online brokerage or financial service provider will make something that Canadian investors will truly get excited about?

Quick Roundup

While there weren’t many seismic moves taking place in the Canadian online brokerage space this week, there are some interesting developments making small waves.

Options Education Day Coming Up

In just about two weeks, the fall edition of the Montreal Exchange’s Options Education Day will be taking place in Toronto. Now largely confined to Toronto and Montreal, Options Education Day offers the chance for DIY investors interested in learning about trading options to hear from practitioners and experts. Given the size of the Toronto market and its importance, there are four Canadian discount brokerages who are sponsors, with three of them having a significant footprint in Montreal. Sponsoring this event are CIBC Investor’s Edge, Desjardins Online Brokerage, Interactive Brokers and National Bank Direct Brokerage. This event is a great opportunity to meet and connect with fellow DIY investors in the options trading space while also learning some interesting perspectives or suggestions on options trading.

CIBC Investor’s Edge Sponsors Trading Competition

Trading competitions are typically a way to get a hands-on feel for trading in the stock or options markets. While not novel in and of themselves, the Capitalize for Kids organization has done something unique by melding a trading competition with raising money for kids’ mental health.

This unique organization brings together some of the most prominent figures in Canadian (and in some cases global) capital markets to collectively support improving mental health care in Canada for children. Since launching in 2014, Capitalize for Kids has raised over $5 million dollars for various children’s mental health organizations.

For their part CIBC Investor’s Edge is this year’s key sponsor of the trading challenge and has provided the top prize of $10,000 in a CIBC Investor’s Edge account as well as the opportunity to meet with CIBC executives. The runner up in the competition gets $2,500 in cash credited to a CIBC Investor’s Edge account as well as a meeting with a CIBC Executive.

The trading competition runs for most of an academic year (October through March) and participants are given a virtual one million dollars to manage. The winner at the end of the competition is the individual with the best performing portfolio. Participants are only allowed to trade equities, ETFs and REITs listed on the TSX, NYSE and NASDAQ with a $500M or higher market cap. No commission fees are charged on these simulated trades. Interestingly, the trading platform participants get to use is powered by IRESS, so there is a unique opportunity to access top shelf trading software.

Even though there are a number of dynamics at play that would impact what these participants might choose to invest in, it was nonetheless interesting to see that the top 5 most widely held securities were:

Amazon
Canopy Growth Corp.
Aurora Cannabis Inc.
Tesla Inc.
Aphria

In addition to holding a trading competition, the Capitalize for Kids organized a conference featuring high profile capital markets personalities and executives from across the globe. That conference took place earlier this week and provided exclusive access to investment ideas from the pros and where these individuals would be putting their money to work. Click here for a recap of the conference including what professionals had to say.

Progress on the performance of students in the competition can be monitored here.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Too Many Financial Cooks

When it comes to DIY investing, looking at the bigger picture is always a wise approach in fine-tuning your finance strategy. This investor put their financial “master plan” on the Personal Finance Canada forum for feedback and for help to tell them where they were going wrong. Have you got a master plan? See what others had to say here.

Tomayto, Tomahto

This curious investor was looking into robo-advisors and draws an interesting comparison between two seemingly similar institutions, Wealthsimple and Wealthbar. But with any comparison of online investing services it comes down to other factors aside from features and deals. Read how the two compared in this Personal Finance Canada thread.

Into the Close

That’s a wrap on another turbulent trading week. With markets clearly pulling back and a myriad of other sources working against equities, this has not been a dull week by any stretch. Of course, with baseball, basketball, football and hockey going on, the hardest decisions will undoubtedly be what to tune into and what to tune out of. Oh and for those who are celebrating Halloween (or just the weekend), have a spooktacular weekend!

Posted on October 19, 2018 by user — Leave a comment

Discount Brokerage Weekly Roundup – October 19, 2018

This fall, the colours of the leaves in Canada were distinctly green as legalization of recreational cannabis officially took effect. There was lots of excitement in the months and weeks leading up to this major milestone. For DIY investors, that has translated into lots of volatility and trading which online brokerages are always happy to receive.

Even though Canada was clearly in the spotlight across the globe this past week, for this edition of the roundup, we shine a spotlight on the US online brokerage space yet again. Earnings for major US brokerages were reported as well as what management at these brokerages had to say about some very weighty issues, so continue reading to get more details on what those reports mean for online investors on both sides of the border. As usual, we have the tweets from DIY investors and a pair of interesting forum posts to share.

Mind on My Money, Money on My Mind

Like all good students of any market, it pays to do your homework. So, when it comes to tracking movement in the online brokerage space, the publicly-traded US online brokerages provide ample reading – especially at this time of year when they publish their quarterly earnings results. Unlike many quarterly earnings calls and discussions in the past, however, there was definitely one event/issue on the minds of analysts and online brokerages alike: zero-commission trading.

While Robinhood was or is perhaps best known for their “zero-commission” trading model, it was the announcement last fiscal quarter by J.P. Morgan that they too will enter the commission free trading game that sent shockwaves through the online brokerage space.

This week it was the shockwave of that announcement and the maneuvering the industry has done in response that appeared in earnings calls (and calls with management) at Interactive Brokers, E*Trade Financial and Charles Schwab.

For many online brokerages, the launch of Robinhood in 2015 and their no-cost trade model certainly raised the notion that trading commissions could go to zero a lot faster than anyone had ever anticipated. Still, Robinhood faced many hurdles and incumbent online brokerages were content with monitoring the situation and reacting accordingly. Fast forward to 2018 and as Robinhood has crossed above six million accounts, which put them at least for a time ahead of E*Trade Financial.

Because there is so much back-story to each of these organizations, it is tricky to distill the path that each has taken to respond to zero-commission trading but the short version is that they will really only entertain a zero-commission model if there is no other choice, and right now, it appears that there are still many options on the table. That said, price reductions for equity commission trading are already on the minds and the financial models of both Schwab and E*Trade. Interactive Brokers, at least for the moment, is content with their pricing structure standing firm for some time.

Just for posterity, it’s important to mention that Q3 of 2018 for publicly traded US online brokerages was a massively profitable one. The number of accounts at Interactive Brokers is at its highest point, DARTS are incredibly strong and the pretax operating margin of 66% is enviably efficient. E*Trade is doing so well that they announced they will be distributing a dividend for the first time and on top having performed a $1B share buyback program in 2018, are also planning to do another in 2019. Schwab saw a net income for the quarter jump of 49% year over year to $923 million, with 1.2 million new accounts opened year to date.

The take away: the major players in the US online brokerage space are extremely well capitalized, have very large war chests, and are highly motivated to defend their market position.

So, how are US online brokerages preparing for a world of declining commission prices? For starters, diversification of service delivery is one key strategy.

If online brokerages aren’t reliant on direct online investing commissions alone then commission revenues have less of an impact. For Schwab, there are digital and in-person advisor services that are generating material revenues. At Interactive Brokers, they are looking to offer more traditional banking-style features like paying high interest on cash balances, direct deposit and a Mastercard tied to an individual’s portfolio account. And, at E*Trade, their corporate services division is bearing significant fruit and enabling them to differentiate relative to their peers.

Diversification for online brokerages also means encouraging or facilitating online investors’ use of higher margin (i.e. more profitable) products, in particular options. In both Interactive Brokers’ and E*Trade’s calls options were specifically cited as a product that, because investors weren’t trading as much, impacted revenues. For Canadian DIY investors, this is especially important because, like the US, options trading in Canada is highly profitable for the Canadian online brokerages, so there is likely going to be more emphasis on enabling and/or training individuals to be able to trade options.

Another strategy to defend against zero commission trading is to go on offence. In this regard, online brokerages have a number of interesting levers to pull.

For example, both Interactive Brokers and Schwab stated that advertising campaigns are going to be key. In fact, founder and CEO of Interactive Brokers, Thomas Peterffy will be looking to have the narrative around commission-free trading to be a net negative for consumers stating:

“So, this is a serious issue for us now that JPMorgan joined Robin Hood offering free trades. We have to take this very seriously as I said. So, we are currently working on commercial to explain to people why that is bad for them, but the fact is that if you look at our [track record] for example, we regularly gain customers, two, three, four customers a day from Robin Hood and I’ve never seen a customer who went from us to Robin Hood.”

Of course, there’s also the use of incentive offers and promotions to try and win over new customers or court them to switch. Not all brokerages are crazy about the use of promos, however, as noted by Walth Bettinger from Charles Schwab who stated:

“That’s always been an area of competition…where incentives are offered to new clients around possible cash or free trades. It’s certainly not something that we necessarily like because it’s not an ideal way to build a long-term relationship with a client. Unfortunately, I would say, in some ways, promotions like that work. And so therefore, as long as they are commonly utilized in the industry, it’s difficult to take a hard stand that we’re not going to have similar types of promotional offers. But they are inconsistent with our long-term approach of building trust-based relationships with clients.”

It’s important to note that despite their traction and growth, firms like Robinhood still have many challenges to overcome.

This week, for example, the co-founder of Robinhood Vlad Tenev appeared on stage at a technology conference hosted by Bloomberg, and struggled with the explanation as to why Robinhood sells its clients order flow. Although there was a response posted on their company blog, the communication around selling order flow is a bumpy topic.

Ironically, also this past week, Robinhood found itself in the spotlight for selling client orders to large market making firms in order to benefit from trade rebates. As such, even though they are doing well, Robinhood cannot really afford to fail or take too many missteps.

For Canadian DIY investors, this offers a very interesting perspective on the various kinds of scenarios that could play out here in Canada once a Wealthsimple Trade goes live or if another commission-free trading player were to enter the market. Either way, it’s reasonably certain online brokerages in Canada are having the conversation about what can be done and how to avoid taking commission costs to zero. As is playing out in the US, however, Canadian online investors are also likely to see advertising from Canadian brokerages ramp up as well as promotional offers start to get richer. While it will sound good on the surface, DIY investors are soon going to have many more options to choose from so it looks like there will also be a lot more homework for discerning shoppers to have to do.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Gateway Trade

The general advice from financial professionals is to never try and time the market. That didn’t stop this curious investor from turning to Personal Finance Canada forum to debate if it would be worth moving out of mutual funds into a lower cost ETF’s at the end of a market cycle. Find out what the forum had to add here.

Puff Piece

For DIY investors it’s important to think about the bigger picture when it comes to personal financial planning. This investor turned to the forums after years of “living recklessly and frivolously” when it came to saving, and now wants to utilize his upcoming funds wisely. Read some interesting advice and opinions in this Personal Finance Canada thread.

Into the Close

That’s a wrap – or roll – on this edition of the roundup. While there may be no shortage of sports drama or political intrigue this weekend, there might be a shortage of weed. Howsoever you choose to relax this weekend, just don’t forget to bring the Doritos!

Posted on October 12, 2018 by user — Leave a comment

Discount Brokerage Weekly Roundup – October 12, 2018

The week wasn’t the only thing that was short for Canadian DIY investors. After what seems to have been a pretty steady upward run for the better part of the year, the “fall” season presented a stark reminder that markets can turn quickly. For this week at least, volatility is back however that isn’t the only excitement going on in the markets – as it turns out, there has been lots of activity in the US (not including rappers showing up at the White House) which collectively signal a different kind of step change in the pace at which online brokerages will have to be ready to change.

With last week offering a little extra on the roundup menu, we thought we’d balance things out with a focus on some of the many stories we haven’t yet had a chance to cover, specifically with respect to what’s happening in the US online brokerage space. So, in this edition of the roundup, we’re taking a look at what the many recent feature launches at US online brokerages signal for online investors and the industry as a whole. From there we’ll hear from DIY investors on Twitter and close out with interesting chatter from the investor forums.

Innovation in the USA

As any good student of charts or trends knows, there are times when it pays to step back to a longer time frame to put things into perspective.

This past week, volatility – and in particular stock price plunges – took centre stage. Steep declines in short order are understandably concerning but it takes stepping back to longer term trends to really appreciate whether this appears to be the confirmation of a new trend or simply a healthy pause of a continuing one.

Within the US online brokerage space, there has been a lot of concern (by online brokerages) about drops in commission pricing. The big picture forming, however, is not so much that commission prices are falling (that’s just the turbulence) but rather that innovation is accelerating. Perhaps the writing is on the wall about commission prices falling and the response by industry is to figure out how to mobilize.

For the past several weeks, in spite of all of the stories we have reported on in the weekly roundup, there have been a number of developments which haven’t been published or focused on to a significant degree.

In particular, there have been numerous interesting stories relating to US-based online brokerages such as TD Ameritrade, E-trade Financial, Schwab and Robinhood which have been eclipsed by developments in the Canadian online brokerage space.

The collective picture from many of these developments in the US online brokerage space point to a heated arms race to innovate which is almost certainly going to inspire and influence Canadian online brokers to accelerate their own pace of innovation (even if it will lag what’s happening in the US).

Enough of the vagaries, here are some of the details.

Ai, Ai, Oh

One of the first things that leapt out of the news cycle came from TD Ameritrade announcing earlier this month the launch of an AI-driven investor education content engine. The “Content Intelligence Platform” is intended to provide an even more optimized experience to clients for investor education.

To industry observers, TD Ameritrade already has an industry leading investor education arsenal. According to a recent press release, they reportedly have close to 500 videos, 7 courses and over 2,000 articles on investor education. They also have one of the strongest investor education curricula available in their Investools program.

Pairing the power of AI with investor education, however, is definitely next level stuff. To be fair, AI-driven investor education sounds cool but without actually seeing what’s under the hood and how the content optimization experience works, it remains to be seen how impactful the technology is. At the same time, they were announcing AI-driven investor education content, there was also news that TD Ameritrade invested in a cryptocurrency spot and futures exchange called ErisX. Other firms investing in the exchange include Virtu Financial and Cboe Global Markets (as well as half-a-dozen other rather notable names) with the goal of eliminating the barriers to institutional adoption of digital asset trading within a trusted, regulated ecosystem. In a nutshell, TD Ameritrade is making some big bets on frontier technologies in hopes of being future-ready.

Sherwood Like to See What’s Next

Also crossing the news radar this past week was the announcement by online brokerage Robinhood that they moved trade clearing in house (which is not that uncommon) but did so by building their own clearing system from scratch – and within two years – while doing everything else they have been doing (including prepping for an IPO).

Oh, and to boot, as part of their prep to go public (did we mention they’re prepping to go public), Robinhood has been sharing all kinds of interesting information including the fact that they added 1 million users between May and July of this year, effectively doubling in size of accounts to where they were last year and now sitting at 6 million accounts. Another nugget they shared – they plan to look like a full services consumer finance company in the “next couple of years.”

Traction by Interaction

At Interactive Brokers, things have been equally as busy. Their move away from being listed on Nasdaq to join the startup IEX has been reaping dividends in terms of media exposure. They took the risk of being first and are being summarily rewarded for doing so (at least for now).

On top of that, however, they have also sponsored the new state-of-the-art Bloomberg broadcast studio in the heart of Bloomberg’s New York headquarters. And, just to keep things even more interesting, Interactive Brokers announced this week that they are opening up a portfolio management tool called PortfolioAnalyst free to the general public. That’s correct, a portfolio tracker freely available to the public is not something new but after Google finance dropped this feature there’s clearly a demand for something well-built to keep track of one’s portfolio (and get stock quotes + news). With the experience and technology stack Interactive Brokers brings with it for investors, PortfolioAnalyst will and should give rival brokerages a reason to be concerned; this kind of a tool for Interactive Brokers moves them further forward into the being able to provide ‘traditional’ banking-style services to their clients (sound familiar?).

For context, at the time of publishing, we’re still not two-weeks into October.

We also haven’t mentioned E*Trade’s launching of “themed investing” comprised of investment themes and their associated ETFs. What are the themes covered? Artificial Intelligence, Clean Energy, Clean Water, Cybersecurity, Gamers, Gender Diversity and, wait for it, Millennials.

So, while each of these developments probably merits its own story, taken together, the timing, nature and number of these new features, services, technologies and developments across the brokerage industry in such a small span of time point to something far greater than turbulence.

This activity has the signature of an industry that is in transition and who understand that the next waves of opportunities will require being able to connect with millennial investors in a meaningful and significant way. Part of the future path will undoubtedly require content and design-driven thinking. More substantially, however, survival for online brokerages depends on technological capability and creative foresight. With so much going on in the news, it’s going to be increasingly more difficult for online brokerages on both sides of the border to make a splash. Instead, brokerages are going to or at least should try to, invest heavily (if possible) in delighting their users with great design.

Discount Brokerage Tweets of the Week

Discount
Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

RRSP Regret

When seeking financial advice, it can sometimes be hard to listen to the professionals, especially when it’s tempting to go in the opposite direction. One investor turned to a forum and was reflecting on their decision on a growth strategy for their RRSP and the ratio of certain mutual funds to bonds. Read what the forums’ verdict was here.

Crowd Surfing

They say there is safety in numbers, which likely prompted one newcomer to turn to the Personal Finance Canada subreddit for some advice. After maxing out their TFSA and RRSP they were looking to take the plunge into a taxable account, but the question of “how much is too much?” was a tricky one to answer. See what others had to say here.

Into the Close

That does it for another wild week. From incredible rocket launches to incredulous UFC fights to the double black diamond drop off on the charts this week, perhaps legalization of marijuana can’t quite come soon enough. On the plus side, Halloween is just around the corner so anyone looking for a costume idea (market sell off?) or little bags to cure the munchies is in luck. Have a great weekend!

Posted on October 5, 2018 by user — Leave a comment

Discount Brokerage Weekly Roundup – October 5, 2018

As with any good Thanksgiving meal, there’s usually a generous helping of something good. In keeping with the spirit of Thanksgiving, we’re dishing out an extra helping of interesting developments in the Canadian online brokerage space. Whatever the equivalent of eating pants are for your brain, we hope you’ve got them on.

In this edition of the roundup, we take a look at a very interesting move by a bank-owned online brokerage to become more accessible to younger investors. From there, we’ll take a look at a perennial crowd pleaser – deals and promotions, including one special offer that we spotted being chatted about online. As a bonus, we continue coverage of the celebratory year from another bank-owned discount broker who dropped some very interesting stats on their business and how it has grown over time. As usual, we’ll dish up the latest conversation starters on Twitter and in the investor forums. Bon appetit!

CIBC Investor’s Edge Launches Student-Friendly Pricing

Getting into DIY investing just got a little cheaper for some investors this past week. CIBC Investor’s Edge rolled out a new pricing structure geared specifically towards students that offer friendlier pricing and account maintenance terms. The new student commission pricing lowers the standard commission per trade to $5.95 from $6.95 and waives the annual $100 fee associated with accounts that have less than $10,000 in them.

While not a novel idea, providing a different pricing tier for students and/or youth does provide some extra incentive to try out a particular brokerage, especially for those new to investing. For CIBC Investor’s Edge, their already low commission rate makes them a natural contender for DIY investors looking to save on commission fees so, for students, who are typically on a budget, this is an attractive option.

One important requirement to qualify for the Investor’s Edge student pricing is that individuals have to open up a CIBC Smart Account for students before they can qualify for the Investor’s Edge student rate. Taken together, the fact that only those with student banking packages can access the student commission rates suggests that Investor’s Edge is looking to build a deeper relationship with this (mostly) younger demographic of client.

Interestingly, starting a banking relationship with CIBC also opens up the opportunity to get other products, such as a credit card, which a recent Rob Carrick article in the Globe and Mail is an important strategic decision that young people (typically post-secondary students) should consider to build a credit history.

While student-friendly pricing may not move the needle right away for CIBC Investor’s Edge in terms of higher commission revenues (except for those riskier clients who like the pot and crypto stocks), the fact this program exists might be enough to tip someone away from a competitor bank-owned brokerage. And, because of the requirements of the student bank account, there is a relatively low cost to using CIBC’s banking services while still getting the convenience associated with a large bank.

For other Canadian online brokerages, it will be interesting to see which of the bank-owned brokerages follows suit. Being friendlier to students and younger investors is one way to maintain a relationship with a key demographic. While user experience is key, at some point it’s hard to ignore the cost for services. So, for the non-bank-owned brokerages, there has to be more value to offset the inconvenience of having a separate funding source for an online trading account.

An example of an online brokerage getting creative in terms of retention is Interactive Brokers. One way they’ve pursued keeping a tighter rein on their clients has been to offer services like direct deposit and credit cards. Although that service is not available to Canadian DIY investors (yet) the reasoning is similar – the goal is to keep clients from trying out (and potentially liking) a competitor brand.

For CIBC Investor’s Edge, they’re hoping that they can build a long-term relationship with a generation in which Tinder is a thing; it will be interesting to see if these new features will have younger DIY investors swiping right to find a good match.

Discount Brokerage Deals & Promotions Update

The fall crop of Canadian discount brokerage deals is looking a little leaner than usual as we head into October. As mentioned a couple of weeks ago, CIBC Investor’s Edge launched an exclusive cash back offer for SparxTrading visitors towards the end of September and as a result, pits them against BMO InvestorLine as the only bank-owned brokerages (for now) with a cash back promotional offer.

This past week, we also had another deal from RBC Direct Investing cross our radar. The offer is for 20 commission-free trades that are good to use for up to one year. Although this offer from RBC Direct Investing is aimed at healthcare professionals, according to several forum users and looking through the terms and conditions, the deal is technically able to be accessed by non-health care professionals.

As we approach the end of the year, there is usually an uptick in activity with respect to TFSA’s and shortly thereafter, RRSPs. An interesting trend at Canadian discount brokerages over the past two to three years is that they are starting sooner in the year with their marketing efforts. The result for DIY investors is not unlike the experience of shopping at Costco where merchandise for Christmas shows up on store shelves in September. Perhaps they’re onto something.

For DIY investors in the market for interesting offers in October, the news is somewhat mixed. On the one hand, there’s strong variety in transfer fee coverage and, interestingly, in referral programs. On the other, previously popular categories such as cash back promotions and commission-free trade deals are leaner. That said, these latter two categories still have some strong offers for DIY investors on the fence about the brokerages offering up the promos.

With the year now in the home stretch and many financial services providers hitting their fiscal year end, the next several weeks will be interesting to watch. There are whispers of new offers coming to market soon and we are still watching out for the Wealthsimple Trade launch to officially start rolling out which may also create a sense of urgency for brokerages to step up with some interesting offers.

BMO InvestorLine Reflecting on 30

There continues to be interesting content emerging from the 30th-anniversary celebration of BMO InvestorLine. Instead of frosting or sprinkles, however, this treat came in the form of interesting data on the online brokerage and how it is reaching DIY investors.

Late last week, the president of BMO InvestorLine, Silvio Stroescu, highlighted some of the milestones and interesting stats associated with the online brokerage and ‘digital advice’ segments of the business (aka SmartFolio). One of those stats had to do with the total number of online brokerage accounts, which was quoted at 400,000. For context, the number of accounts at online brokerages in Canada is typically very opaque, unlike their publicly traded US online brokerage counterparts. So, it is interesting to see them share these stats publicly. Further, it was also interesting to learn about the number of SmartFolio and AdviceDirect clients (5,000 and 4,000 respectively). It is certainly a bold decision to telegraph numbers but it does help put into perspective the scale of how fast the online investing space is changing. Given that the number of accounts at the online brokerage unit was quoted as “over” 400,000 that could represent a much higher number, however for some perspective, the waiting list for Wealthsimple Trade stands at just over 76,000 interested parties and they haven’t even launched publicly yet. While it remains to be seen how many of those interested in this account actually open a trading account (and subsequently use it), there is clearly a competitor brewing in the DIY trading segment.

Another point highlighted by Stoescu that stood out was the bimodal distribution of the online investing demographic. Simply put, there are “younger” and “older” investors who appear to be gravitating towards online investing via the self-directed platform. There is clearly an interest in the younger tier with upgrades planned by TD Direct Investing also referencing this group and the story mentioned above relating to CIBC Investor’s Edge and the launch of student-friendly commission pricing.

Perhaps the most fascinating stat, however, was the reference to the growth of the adviceDirect platform, a service that blends DIY investing with accessibility to support from licensed wealth management professionals. In the period from January to September, they have seen more transfers of accounts worth more than $1 million compared to the past six years since the service launched. While the numbers and specifics are somewhat opaque, it nonetheless points to an interesting level of confidence in the service.

BMO InvestorLine has definitely earned quite a bit of coverage in the roundup for their 30^th anniversary, however as a milestone year, it appears that there are reasons to celebrate. What also seems pretty clear, however, is that things are changing in the online investing space quite rapidly. Paradoxically, how old a financial institution doesn’t determine how quickly they will grow nor does it determine how well it will handle the future wave of technology-driven challenges. This alone is proof enough that age is just a number. And, for Canada’s online brokerages, it’s also an instructive lesson on staying agile to keep up with the younger generation of investors.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – 10-05-18 – Curated tweets by SparxTrading

From the Forums

Sow it Begins

How challenging is it to get started with online investing? One “newbie” investor posed an interesting question in this Reddit’s Personal finance Canada thread, drawing a comparison between two well-known passive investing options. Find out where the discussion led, and why so many comments favoured index funds and ETFs.

Mutually Beneficial

An overwhelmed investor took to this Personal Finance Canada forum seeking direction on which mutual fund to invest in. Willing to opt for a more risk tolerant profile, check out the helpful advice that was offered with some useful links too.

Into the Close

That’s a well-seasoned turkey wrap on the cusp of Thanksgiving weekend. This weekend is not really known for self-restraint, so whatever you choose to indulge in, on behalf of everyone here at the SparxTrading.com team, we hope you have a safe and happy long weekend. Just a reminder that Canadian markets are closed on Monday for Canadian Thanksgiving but US markets are open. Have a great weekend!

Posted on September 21, 2018 by user — Leave a comment

Discount Brokerage Weekly Roundup – September 21, 2018

Fall is officially here but for investors, leaves are green and weed stocks are doing quite the opposite of falling. Ironically, the lead up to legalization of recreational marijuana is also having a ripple effect in the online brokerage space. Once again, the fervor of investing in a hot story is causing all kinds of excitement and mayhem for online investors. Of course, big stories start out as small ones, and in the case of online brokerages north and south of the border, there are some very interesting stories brewing that could create a very different kind of story around legalities of online trading activities.

In this dark and stormy night edition of the roundup, we take an appropriately themed X-Files approach to piecing together a number of interesting signals from the US marketplace that hint of some unusual forces at work in the online investing space. Closer to home, we’ll look at the controversial wave of lawsuits hitting online brokerages for real fees charged for phantom advice. Finally, we’ll round out the week with some rather unhappy tweets and interesting forum questions from DIY investors.

Hustle & Flow

Whether it’s NAFTA, President Trump or any number of other headlines coming out of the US, there’s no denying the influence that the US is having on Canadian news recently. For DIY investors, however, the US is an especially interesting space to watch when it comes to online brokerages and what the real cost is to commission-free trading.

Although this story is a tad convoluted, one of the important starting points that has emerged over the past two weeks has been related to order routing, specifically within the context of ‘fair play’ for retail investors.

While order routing and trade execution may seem esoteric to many investors content with just hitting buy and sell, the vast machinery of order execution that became the plot to Flash Boys is much more important than most retail investors know.

Depending on who you talk to, the presence of high frequency traders in the market could be a story about investors not getting the best price when executing a trade or about ensuring markets are liquid and bid/ask spreads are as narrow as possible. Over the past two weeks, however, we’ve noted several ‘blips’ in what has been a quiet story, which could be laying the groundwork for something more substantial to surface in the not too distant future. What does all that mean exactly?

Consider that last week, one of the most popular (especially with active traders) publicly traded online brokerages in the US, Interactive Brokers, decided to pull up stakes on where it was listed.

Interactive Brokers officially announced that, as of October 5^th, they will no longer be listed on Nasdaq but have instead chosen to be the first to list on the two-year-old stock exchange, IEX. If the name doesn’t ring a bell (pun intended) they are best known as the trading exchange that was founded in 2012 by Brad Katsuyama, and profiled in the 2014 book Flash Boys.

Ordinarily, a company choosing to change where it’s listing resides is not particularly noteworthy. In this case, however, Interactive Brokers choosing to list on IEX is potentially relevant for online brokerages for a number of reasons.

First, it puts Interactive Brokers in a tactical spotlight. As the first – and only (for now) – listing on the IEX, Interactive Brokers has given itself a tactical marketing advantage. Instead of being a small fish in a big pond on either the NYSE or NASDAQ, they are a big (and the only) fish in a small pond.

Secondarily, Interactive Brokers is aligning themselves with the notion of ‘fairness’, specifically, treating their customers fairly. From the fact they pay out high interest on cash balances over $100,000 to the fact that they have aggressively low commission rates, Interactive Brokers isn’t just about offering value, they’re also flashing that they believe in something – fair and orderly markets. Perhaps the biggest point of ‘fairness’ is that Interactive Brokers does not sell its customers’ order flow.

That last point is particularly relevant in maneuvering around competitors like Robinhood, and now, JP Morgan, who are offering retail investors zero commission stock trading. Recently Robinhood telegraphed to the markets that they are contemplating a run at going public. In doing so, the level of disclosure about how and where they make their money has been put under greater scrutiny, and, as it turns out, they have some explaining to do when it comes to client order flow.

The specific issue about Robinhood was recently laid out in detail in an interesting Seeking Alpha article that described how Robinhood has been selling client order flow to high-frequency trading firms and doing so at a much higher price than others who do so. All of a sudden the altruistic and democratizing notion of ‘free trading’ that Robinhood espouses comes back down to the physics of their business and the reality that they have to figure out how to make money (not from commissions).

While peers of Interactive Brokers in the US benefit handsomely from the revenue generated from selling order flow, there is something that doesn’t feel entirely right about online brokerages directing trading volumes to exchanges based on payment for order flow. The lingering question is whether or not a routed order is getting the “best price” and anyone who’s read Flash Boys will know, the answer is probably not.

There was another important development this month coming out of the US online brokerage space in which a class action status for a lawsuit against TD Ameritrade was granted claiming that selling the order flow impaired the ability of getting clients to get the best trade execution. While the scope of the class action covers clients of TD Ameritrade between September 2011 and September 2014, it nonetheless establishes a precedent that selling order flow can be characterized as harming clients. The major implication of this lawsuit, should it be successful, is that selling of order flow could cease altogether in which case the “zero commission” trading model would have to find some other way to replace the revenue. For TD Ameritrade that might not be difficult to do, but for zero-commission firms like Robinhood, it could be a real setback to growth.

Taken together, Interactive Brokers listing publicly on the nascent stock exchange IEX seems like some well-calculated chess. Their presence on IEX will be difficult to ignore for the foreseeable future (so bonus marketing points) and they will also have the title of the first listing on this new exchange, whose mandate is to build a fair market for all. Furthermore, with possible regulatory consequences for selling order flow to HFTs creating headwinds for their competitors, Interactive Brokers is well positioned to not be negatively impacted by either the fines or the bad publicity that would accompany such a lawsuit.

Finally, it also sets up an interesting scenario for zero-commission stock trading from firms such as Robinhood who would be walking a dangerous tight-rope by selling order flow. Interactive Brokers does have low costs and so now the pressure to drop commission costs appears to have abated.

The sustainability of online trading and how low prices can go for commissions is still a moving target. In order for online brokerages to be around for any appreciable amount of time, they have to find a way to be profitable. Interactive Brokers has gotten creative and demonstrated that you can’t stand still for very long in the online brokerage space. It’s now up to their peers to respond decisively and in a way that can keep their book of business healthy. And as for the new zero-commission players, they may have to take the very uncool step of ‘unbundling’ and charging for other services or features related to having an online brokerage account.

Full Court Press

If there’s one place where you’ll find most of Canada’s online brokerages mentioned in one breath, it’s usually in a comparison website. This week, however, there was one more place in which a significant number of online brokerages were referenced, a class-action lawsuit.

Canada’s online brokerages were in the crosshairs of regulators, investors and the media in a firestorm story that continues to gather steam and focuses on online brokerages charging trailing commissions on certain mutual funds even though these commissions are technically compensation for advisors – something that can’t really happen at an order-execution-only online brokerage.

Although this is not a new story, this week it found new life with wide coverage in the Canadian media, including and especially CBC News’ consumer advocacy show, Go Public as the scope of legal action by Ontario law firm Siskinds LLP and Bates Barristers PC widened to include CIBC and their family of mutual funds.

This brings the total number of big banks hit with a class action lawsuit to three: TD, Scotiabank and CIBC. But, the scope doesn’t seem to stop there.

According to the Insurance & Investment Journal, the lawyers leading the action “would like to speak with individuals who held or hold Renaissance mutual funds (which are part of the CIBC mutual fund family) or Series A mutual funds of other mutual fund families through a discount broker.” This is perhaps a signal that other online brokerages could find themselves included in this legal action.

The stakes in this legal battle are already incredibly high – with regulators already weighing in, media picking up the story and consumers who are genuinely incensed. The financial cost is also material – with each of the three class action lawsuits thus far valued at $200M a piece.

Not everyone is on side with piling on the online brokerages or their big bank parents, however. Rob Carrick, a personal finance columnist at the Globe and Mail and one of the most influential voices for DIY investors in Canadian media, took the position (back in April when the first lawsuit was proposed) that when it comes to investing online, it’s buyer beware. His perspective appears to be that if you are signing up for a DIY investor account, you should at least know or understand the basic differences between mutual funds. That said, with more than $25B of the reported $30B (i.e. 83%) in assets at online brokerages in mutual funds that bundle an advice fee within them, it’s safe to say that many of the consumers purchasing mutual funds through their online brokerage don’t know what they’re paying for.

While the actual courts will determine the direction of this legal case, the court of public opinion is already in session. The CBC article alone received 500 comments at the time of publishing the Roundup, which is a phenomenal number of comments on a personal finance issue. Suffice it to say, this story is only going to get bigger before it gets better.

Spotted on Social Media

Shifting gears to something lighter, celebrations continued at BMO InvestorLine this past week as [employees at all levels] marked the milestone of 30 years as a Canadian online brokerage. The BMO InvestorLine crew were spotted on social media at an event at the Rec Room in downtown Toronto.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – 09-21-2018 – Curated tweets by SparxTrading

From the Forums

Safety in Numbers

Trading on a newly opened TFSA account can naturally raise concerns about whether or not you’re doing it right. Read what advice others gave one reddit user here with regards to net value, and timing trades.

Way to Grow

This thread in Reddit’s Personal Finance Canada generated an interesting conversation about VGRO, its benchmark and the ways in which a DIY investor can choose to invest.

Into the Close

That’s a wrap for yet another unbe-leaf-able trading week. It’s been a literal whirlwind day for many folks in Ontario and Quebec and we hope all our readers are staying safe and dry this weekend. Enjoy what you can of the break, next week may be even wilder.

Posted on September 14, 2018 by user — Leave a comment

Discount Brokerage Weekly Roundup – September 14, 2018

There’s no doubt that when big weather events happen, people pay attention. With announcements of feature releases and new offers at Canadian and US online brokerages happening at a greater frequency and intensity, it appears as if a significant storm of activity is brewing into the tail end of 2018.

In this edition of the roundup we take a look at some very big moves being telegraphed by one of Canada’s largest online brokerages and what that means for all the players on the online brokerage field heading into 2019. Next, we review the latest Canadian online brokerage rankings from a popular rating agency and unpack a surprising turn of events in the industry this past year. As always, we’ll close out the roundup with a healthy dose of tweets and forum posts from Canadian DIY investors.

Let’s get digital: TD Direct Investing continues to invest in digitization of wealth management

This past week, one of Canada’s largest online brokerages, TD Direct Investing, announced that they are planning to launch some bold digital initiatives in 2019. In doing so, TD’s online brokerage arm has doled out a healthy dose of market moving news that is bound to get the attention of DIY investors and competitors across the online trading spectrum. In a space where most of the moves are incremental, TD Direct Investing’s latest announcement feels more like a step change in the industry rather than just another small step forward.

In a week peppered with interesting stories and developments about discount brokerages, there are a number of reasons why TD Direct Investing’s announcement, which was published on September 12^th, was exceptionally interesting and relevant to the online brokerage space in Canada.

The first and undeniably the most important was what the news release said.

The content of the release laid out a vision for the digital wealth management experience that TD Direct Investing clients can expect to see unfold in 2019. Included in that digital experience is the mention of digital wealth planning tools in the early part of the year as well as TD’s own robo-advisor platform that will also include TD’s own ETFs which is set to launch in the latter portion of next year.

While we don’t want to gloss over the enormity of what it means to the online brokerage space in Canada to have robo-advice hit this kind of scale, there are so many angles to this move that for this roundup, we’ll focus on some of the important details that are also worth mentioning. As this story continues to unfold, we’ll be exploring more of what the details of the services will include, especially what a “complete, end-to-end digital investing experience” refers to.

Aside from the release of new features, another very important angle to the news release this week is that TD Direct Investing is announcing what their intentions are for some very ambitious projects. The story here is that like most other online brokerages, TD Direct Investing has historically played their cards very close to their vest. That they would not only announce multiple technology features but also put even a general timeline on those features going live signals their confidence in those programs hitting the launch windows and it signals that TD might be taking a different approach on sharing what’s in the TDDI workshop.

As technology companies are well aware of, a little bit of prelaunch buzz is what gets people curious and excited to see what actually rolls out. Historically, however, services or features in development at Canada’s discount brokerages tended not to get much of a spotlight, let alone a news release and a coordinated social media publication. So, it is clear that something has shifted with regards to ‘sharing’ information relating to development of new features.

On that note, it was particularly interesting to see a senior executive at BMO Wealth Management ‘like’ a post made by the President of TD Direct Investing (Paul Clark) about the launch of these new services on LinkedIn.

Perhaps this move by TD Direct Investing is signaling a shift in identity from being a “financial services” firm towards more of a technology firm, thus fitting more naturally into a ‘fintech’ way of operating.

A third important implication of this news release is the fact that the technology stack TD Direct Investing is choosing to integrate into their own technology stack appears to be future-proofing to some degree.

The technology provider TD Direct Investing announced they’d be working with, Hydrogen Technology Corporation, a platform that enables APIs to be developed as well as blockchain connectivity/support and uses AI/machine learning to garner insights on client behaviour. That very potent combination of technologies means TD Direct Investing can learn more about their clients’ financial services needs and, with the breadth of services under the TD umbrella, find a way to connect the right product to the right people at the right time – at least that appears to be the plan.

For clients, it means a feature-rich platform with analytics and a user experience suited for younger investors who are particular about the look, feel and function of technology platforms.

Of course, then there’s the option in the future to readily connect to blockchain-powered financial instruments, something that might come to market sooner than anyone can really predict. As such, TD Direct Investing appears to have an edge in equipping themselves with a technology layer geared towards ensuring they can connect to the technologies of tomorrow with the WebBroker interface.

Aside from the abovementioned key points, there are still numerous implications and interesting angles to this announcement.

Without question, TD Direct Investing’s latest move is a big deal and will command the attention of the rest of the Canadian online brokerage market. And, it seems like TD Direct Investing’s competitors will have their work cut out for them.

According to an article published in the Globe and Mail this week, TD has invested $125 million into its WebBroker trading platform in preparation for new trading features and capabilities. By comparison, the acquisition of the entirety of BBS Securities (including subsidiary Virtual Brokers) last year by CI Financial (coincidentally another client of Hydrogen Technology Corp) cost about $38 million. Simply put, smaller online brokerages or those without deep technology budgets or talented tech teams are up against a formidable competitor in TD Direct Investing.

Prudently, TD Direct Investing has mentioned that these changes will take place in phases and, since approximate timetables have been given, there is enough slack and wiggle room to accommodate the surprise delays that inevitably accompany any technology project. Even so, there is little doubt that this move by TD Direct Investing, regardless of what the final products looks or functions like, will have competitors scrambling to mobilize and DIY investors (clients especially) eager to take TD Direct Investing’s new digital platforms for a test drive.

BMO InvestorLine Ranked #1 by J.D. Power for 2018

With 2018 heading into its final stretch, the annual discount brokerage “rankings season” starts to kick things up a notch. This past week, J.D. Power released the results of their latest rankings of Canadian discount brokers (based on investor satisfaction) with BMO InvestorLine coming out on top of the field in terms of investor satisfaction.

While the Investor Satisfaction study provides a snapshot in the current year of how the field of online brokerages compare to one another, we’ve been tracking results from this survey data since 2013 and as such, this year’s results present a very interesting picture both in terms of 2018 as well as how 2018 compares to previous years.

Included in this year’s rankings are 8 of Canada’s most popular online brokerages:

Curiously, neither Qtrade Investor nor HSBC InvestDirect made it into the published rankings for this year, something that has not happened since 2014. Also not present were Virtual Brokers or Interactive Brokers, neither of whom have made it into the published results.

The big story for the 2018 online brokerage rankings from J.D. Power is the relative underperformance of Canada’s online brokerages compared to previous years. In fact, this year’s average score of 723 is the lowest since we’ve measured, beating out 2013’s score of 724 and clearly snaps an uptrend that was in place since 2015.

To unpack why that might be the case, there are also some additional observations worth noting.

First, two firms that have consistently battled for podium finishes over the past five years, National Bank Direct Brokerage and Desjardins Online Brokerage, finished uncharacteristically lower than “usual”. Granted, Desjardins Online did tie for second place this year, however, when looking at both of these firms’ average scores since 2013, Desjardins Online Brokerage and National Bank Direct Brokerage are virtually tied at 752 and 753 points respectively. Most years one or both of these firms have handily beat their competitors and their average scores far outpace just about everyone else except BMO InvestorLine, whose 6-year average score ranks third overall at 746.

Digging a little deeper into the numbers, the standard deviation of those scores, a measure of how variable those scores have been over that time period, reveals that BMO InvestorLine is actually one of the most consistent firms in terms of investor satisfaction scores with a standard deviation of 13 points. TD Direct Investing, who was ranked second last in 2018, was also tied with BMO InvestorLine in terms of volatility of investor satisfaction scores over that same timeframe. The firm with the highest variation in satisfaction scores over the same period was Qtrade Investor (28 points) because of their strong uptick in 2017 followed by Desjardins Online Brokerage (24 points).

As such, even though BMO InvestorLine’s investor satisfaction scores decreased compared to last year, they were, on a relative basis, higher than their peers in 2018. Finishing behind BMO InvestorLine this year were CIBC Investor’s Edge and Desjardins Online Brokerage. And, at the other end of the list, Scotia iTRADE finished last in terms of investor satisfaction with a score of 717.

Another interesting trend with regards to the performance of online brokerages in terms of investor satisfaction is that the range between the highest and lowest scores continues to narrow. In 2013 and 2014, for example, the range between the top and bottom scores was 64 points however in 2018 that range has compressed to just 22 points.

As was referenced in the roundup a couple of weeks ago for the Kiplinger rankings of US online brokerages, for Canadian online brokerages it appears that on the whole, the differences between online brokerages is diminishing – in this case when it comes to investors being satisfied with the full set of attributes measured.

For Canada’s online brokerages, the message is pretty clear: there needs to be strong differentiators in place to prevent them from becoming viewed as a ‘commoditized’ service. In other words, there needs to be greater emphasis on what makes being a client of one online brokerage feel more ‘special’ (read: valuable) than another.

To BMO InvestorLine’s credit, their consistency has paid off. With relatively strong investor satisfaction scores in the past, in a year when the competition stumbled, and investor satisfaction waned, their current mix of services still holds currency with their clients. At least for 2018, slow and steady has won the race.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – 09-14-2018 – Curated tweets by SparxTrading

From the Forums

Function Over Form

With so many online brokerages out there these days, it can be tricky to keep up with who offers which feature and who doesn’t. In the end, getting a user from A to B reliably appears to be the driving force. This forum thread from reddit’s Personal Finance Canada section highlighted the mobile experiences between CIBC Investor’s Edge and TD Direct Investing. See what interesting feedback others had to offer.

A Head Start

From robo-advisors, to couch potatoes to plain old mutual funds, choices for ‘passive’ investing are easier than ever, which, ironically might make choosing more challenging. One young investor looking to grow their TFSA asked about these options in this post in reddit’s Personal Finance Canada forum. The questions were met with a wealth of knowledge and advice on navigating student loan repayments, interest fees as well as useful information on robo-advisors and ETF fees. Worth a read.

Into the Close

That’s a wrap on another wild week inside and outside of the markets. Optimistically, there’s lots to look forward to heading into the weekend, including news that there will be the first ever Space tourist and, of course, that NFL football is back. Wherever your adventures boldly take you, we hope you have a great weekend.