Tag: Interactive Brokers

Interactive Brokers

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Discount Brokerage Weekly Roundup – August 6, 2019

It’s definitely shorts weather outside as well as in the markets. And, what better way to celebrate a short week (at least for Canadian DIY investors) than with a brief update of what’s moving the needle for online brokerages here in Canada as well as in the US.

In this edition of the roundup, we take a quick look at the latest activity in the discount brokerage deals section that is bound to put a dent in some brokerages’ vacation plans. From there, we look at some important developments in the US online brokerage market that could help paint a picture of the future for Canadian online brokers and DIY investors. As always, we’ll be sure to toss in the latest investor chatter from Twitter and the investor forums.

Deals – Get ’em While They’re Hot

Heading into the long weekend at the beginning of August, we thought activity in the deals and promotions space would likely be on cruise control until closer to September, the month when activity typically picks back up. Instead, DIY investors were treated to a pleasant surprise, as there was one bank-owned brokerage that decided a dip into the deals pool for the month of August.

RBC Direct Investing just kicked off a month-long promotion that frequent watchers of the deals section will be familiar with. The offer is for 25 commission-free trades which are good to use for one full year, and requires a deposit of $5,000.

Like most things market-related, timing is key. It is interesting that the CIBC Investor’s Edge promotion was extended into early August from its original expiry date at the end of July. If Investor’s Edge decides not to extend their existing offer (or replace it), then RBC has the “lion’s share” of the spotlight for commission-free trading offers for the near term. Another brokerage that should be concerned with RBC DI’s latest maneuver is HSBC InvestDirect. Their promotion, which launched in July, offers 30 commission-free trades which are good for use for up to 60 days.

When an online brokerage the size of RBC Direct Investing jumps into the deals pool, they’re going to make a splash. Interestingly, the fact that the deal is set to expire at the end of August means this is a rare window for investors looking for a deal to actually get one from RBC Direct Investing, outside of the usual RSP rush in the late winter/early spring.

For DIY investors, a deal this early from a major online brokerage is a great signal of the level of competition between Canadian brokerages, which makes us believe there are more deals likely coming to market.

Quick Notes from the US Online Brokerages

Not all the news from across the border is acrimonious. In fact, for online brokerages, there are some bright spots in terms of performance updates, concept projects, and big business moves which show that the space is continuing to evolve around tricky macro conditions.

With the start of a new month, Interactive Brokers has published their latest set of performance metrics for July. As has been the case for a number of years now, metrics for the popular online brokerage continue to push higher with latest annual growth figures in client accounts clocking in at 17% and, on average, 276 (annualized) trades per client. Interactive Brokers is clearly managing to attract individuals with a tendency towards active trading. Even more interesting for the brand will be the next several weeks in which the VIX continues to flash volatility is at hand – something that can pull active traders into the mix to compete for big swings in price.

Another big growth story announced at the end of last month came from the largest online brokerage in the US – Charles Schwab – who (for the tidy sum of USD $1.8B) is acquiring about one million of USAA’s brokerage and managed accounts, and will become the exclusive wealth management service provider to USAA.

While these two firms differ substantially in size, they do help provide examples of what options confront the current Canadian online brokerage space in terms of pathways to growth. On the one hand, Schwab’s growth announcement illustrates that when a firm is in the wealth management space and wants to exit it, the bigger players are typically going to have an edge over the smaller firms. For Canadian online brokerages, there definitely seems to be a sentiment to deploy features to keep up with leading brands rather than to push the envelope on innovation. As a result, it is likely that upstarts, like Wealthsimple Trade, can hustle and out-compete existing providers, which in turn may prompt some existing players to exit the space the way USAA did in the US.

Another important takeaway is the power of building a best of breed trading experience and the impact on investors.

Interactive Brokers still has a lot of currency with active traders/investors and continues to grow as a result (see this recent forum post for example). The result of their investment in automation is clearly paying off, as they are able to offer much lower commission per trade pricing than many of their peers and still be a profitable enterprise. By comparison, the no-commission online brokerage, Robinhood, has managed to carve out their own niche with millennial investors, and has layered in paying for additional services as part of their way of balancing being accessible and sustainable. Incidentally, this past week, they also launched a new messaging feature that keeps their platform’s user base informed about important announcements in a way that looks and feels like it belongs within the Robinhood platform. Even more forward looking, TD Ameritrade flashed a sign of what’s to come with DIY investors potentially being able to place trades while driving.

For Canadian online brokerages, the fork in the road to growth is clear. Either win at creating an innovative product that customers rant and rave about, or start buying up other online brokerage providers who may be much slower to innovate. It’s already happening in the US and will almost inevitably happen here.

Discount Brokerage Tweets of the Week

From the Forums

Man or Machine?

No one can deny the relentless level of automation that has taken over the financial world. This has people torn between human advice and robo-advice for managing their investments. See what individuals in this reddit thread have to say about the new age of robo-advisors.

Parent Trap

With the average amount spent raising a single child to adulthood being over $200,000, parents have to budget carefully. The individual in this reddit thread is going the extra mile, trying to set up an RESP for their newborn. Find out what advice fellow readers offered to help avoid the pitfalls of planning.

Into the Close

That’s a wrap on another week’s action in the online brokerage space. Now that August is here, we’re keeping our ear to the ground for what’s likely going to be a very busy fall in the online brokerage space. Perhaps figuratively and literally, the actual ground seems to be a little more palatable to listen to than what’s happening on social media anyway.

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Discount Brokerage Weekly Roundup – July 29, 2019

It’s not just temperatures that are rising anymore. Markets, tempers, and purses for eSports tournaments have all made headlines for reaching new highs. For online brokerages, even though trading might be growing, revenues may not be.

In this edition of the roundup, we continue our foray into US online brokerage earnings, with some big headline developments and a more ominous cloud forming on the horizon for the industry. From there, we’ve bundled in a couple of small but interesting stories from developments we spotted at Canadian discount brokerages. As always, we’ve got a healthy serving of chatter from investors in the forums and on Twitter to close things out.

Earnings Wake Up Call for Online Brokerages

Earnings season for the US online brokerages is now officially in the books for another quarter. Despite how competitive the online brokerage industry is in the US, one of the most interesting resources to gain insight into what’s happening behind the curtain is to tune into earnings calls for those publicly traded online brokerage firms. These calls typically feature senior executives – such as the CEO and CFO – sharing their highlights of the quarter as well as answering questions from analysts who are seeking to understand how best to price in the news being disclosed in the accompanying earnings reports.

The latest round of earnings calls provided a number of interesting insights about developments at specific brokerages, as well as about the industry as a whole that anyone who watches the space will certainly want to pay attention to.

Starting first with the biggest news announced by TD Ameritrade, their CEO Tim Hockey will be stepping down. While announcements of this nature are not uncommon, it did seem to catch the analysts off guard – perhaps a compliment to Hockey and the achievement of Ameritrade under his leadership. After all, “if it ain’t broke, don’t fix it,” or so the saying goes.

Ameritrade has experienced significant growth over the 3.5 years that Hockey has been at the helm, and he has seen them through a major acquisition and a number of digital transformation initiatives. So, naturally, the questions coming from most of the analysts on the call were mostly of the “what gives?” variety. They were trying to tease out whether or not the decision for Hockey to step down was driven by a difference in vision for the brand than what the Board had in mind. Fortunately, Hockey did a good job of helping to assuage speculation by clearly stating reasons that weren’t behind his stepping down, however, the shift in leadership at the top will undoubtedly cast some uncertainty onto the future of the franchise.

TD Ameritrade isn’t the only US online brokerage to telegraph a leadership change in 2019. Earlier this year, Interactive Brokers announced a change of leadership that will take place in the third quarter of this year as founder and CEO Thomas Peterffy steps aside on his 75th birthday, and current president of Interactive Brokers, Milan Galik, takes over.

For comparison, however, Peterffy has been at the reins of Interactive Brokers for 42 years, while Hockey has been at the head of TD Ameritrade for 3.5 years. The kind of continuity and long-term strategic execution that comes with such a long tenure is evident in many founder-led enterprises.

The replacement for Hockey is going to be chosen by an executive search firm while by comparison, Interactive Brokers is hiring from within. In fact, the successor to Peterffy has been with the organization for 28 years and has been groomed for the position for the past four years.

Leadership turnover is something that will make waves with analysts, and both they and the competition will undoubtedly take great interest in who will wear the captain’s jersey next at Ameritrade. There is a strong precedent of achieving big things quickly at Ameritrade, so whoever is cast to lead them through their next cycle will have some especially challenging waters to navigate, given what else was uncovered in reviewing the recent earnings calls.

Headline news aside, there was one potentially ominous theme about the online brokerage space as a whole that emerged from the various reports, namely that revenues from trading were decreasing even in spite of higher trading activity.

Here’s what the various brokerages had to say:

  • Schwab: “Trading revenue declined 3% [y/y] to $174M due to a decrease in average revenue per trade, which more than offset higher activity.” (CFO Peter Crawford)
  • Interactive Brokers: Lower commission revenue which decreased $7M, or 4%, from the year-ago quarter. (source)
  • TD Ameritrade: Commission revenue, excluding order routing, was down sequentially on modestly lower client trading volumes and a slight decline in commission rates. (source) Average client trades per day increased 5.2% y/y, however, commissions and transaction fee revenue fell 2.7% y/y. (source)
  • E*TRADE: “Commission revenue of 121 million was down 1 million compared to last quarter, driven by 11,000 lower DARTs and a $0.03 lower CPT.” (source)

As can be seen in the table below, other than Interactive Brokers, the average commission per trade at the major US online brokerages is hovering at about $7 whereas at Interactive Brokers, it’s almost half that amount, just shy of $3.70. Since these prices are in USD, that puts most of the major online brokerages at about $9.20 per trade CAD and Interactive Brokers at $4.85.

Another interesting nuance to the earnings is in the operating efficiency of each organization. Interactive Brokers boasts an incredible pretax margin of 64% which handily beats out any of their competitors (who are at a not-too-shabby >40% level). This is crucial because Interactive Brokers charges less per trade and yet they are capable of keeping much more of the revenues they generate as profits than their competitors do. Nonetheless, despite their low rates, they too are not immune to falling revenue from commissions.

While it is difficult to map what’s going on in the US online brokerage space directly onto the Canadian market, it’s worth noting that commissions per trade at Canadian online brokerages still have lots of room to fall – especially at the major bank-owned online brokerages who, for the most part, continue to charge almost $10 per trade. Further, it’s clear that unless Canadian online brokerages commit to becoming exceptionally efficient from a technology and automation standpoint, they will have to explore other mechanisms to boost revenues (like digital advice services or premium features) otherwise, their profitability is going to suffer.

Without the pressure of being publicly traded, Canadian online brokerages are free to operate outside of the same kind of quarterly scrutiny that their US brokerage peers have to navigate. This means that the pressure to innovate is going to be largely driven either at the consumer end or internally.

For bank-owned brokerages, there may be some pressure to innovate and capture market share owing to their publicly traded parents, however at most of these brokerages, that pace of change is clearly not the same rate that exists in the US.

One other piece of news that will also help put the latest US online brokerage earnings into perspective is that Robinhood, the US online brokerage that doesn’t charge any commission fees per trade, announced this past week that they have raised US $323M in Series E financing, which puts their valuation at US $7.6B.

When compared against the market cap values for the publicly traded US online brokerages shown above, Robinhood’s latest valuation shows that they are clearly being priced as a material competitor to the incumbent publicly traded brokerages. It is also worth noting that Robhinhood has telegraphed their intention to go public at some point.

There’s lots more to say about the US online brokerage story relative to the Canadian online brokerages based on these latest earnings (if you’re interested in hearing about it, let us know here), but if there’s one key takeaway to reflect on in terms of product “innovation” in the US online brokerage space which has yet to fully take shape here in the Canadian space, it’s the offer of high (any?) interest on cash balances in online brokerage accounts.

Interactive Brokers has certainly paved the way for this in the US, with E*TRADE also following suit. Although they fumbled the initial roll out, even Robinhood is gearing up to win new business by offering up high interest savings for uninvested cash balances. As both a mechanism to attract new clients and entice existing ones to stick around, the evidence from the US online brokerages points to the strength of this feature in hanging on to existing clients.

Screenshot of earnings transcript from E*TRADE Q3 19 earnings call

With the final half of calendar 2019 now underway, the online brokerages in the US (and likely here in Canada) have already started developing their plans for 2020. For Canadian online brokerages, we fully expect some bigger and bolder feature releases to come to market to counter what is a clear trend towards lower commissions. In fact, as the next stories in the roundup show, it’s already starting to happen.

Regardless of where markets head into the back half of the year, things are going to get very interesting for Canadian DIY investors as online brokerages here set about the task of staying relevant in this new operating reality.

CIBC Investor’s Edge Rolls Out Mobile Trading Charts

This past week, we spotted a new feature announcement on the CIBC Investor’s Edge website: the launch of charting capabilities on their mobile trading app “CIBC Mobile Wealth.”

Officially launched in the middle of July, this latest update will undoubtedly be a welcome addition to how online investors track and seek out investing opportunities.

According to the information released on their website, the new charting feature is available for individual securities as well as for indices, foreign exchange, and commodities. In addition, users are able to change time frames, use a limited number of technical indicators, as well as choose from four different chart styles.

While we haven’t yet seen a lot of chatter about this new feature online, scanning some of the pain points that users of the app have mentioned in their respective download reviews, charting does surface as one of the limitations of the CIBC mobile experience. Fortunately for investors and Investor’s Edge, it appears this new feature will enable them to chart a new course in online mobile trading experience.

Questrade Chats with Investors

This past week, we noted that Canadian online brokerage Questrade rolled out an interesting new blog series entitled “The Investor Next Door.” According to the blog post, the Investor Next Door series talks to “everyday Canadians about their investment journeys” in a Q&A format post.

The first post interviews “Brendan Y” about the type of investor they are, their investment goals and style, as well as what their experiences are like in the markets and lessons learned.

After having a bit of a quiet spell on the Questrade blog, it looks like things are potentially coming back to life. There was a notable reboot of activity in February and March and so seeing signs of life, it appears that the team at Questrade is continuing to experiment with something a little different.

Why that is of interest is because Canadian online brokerages are still finding their footing with regards to producing “interesting” content for their clients and other online investors to consume.  In many respects, Canadian online wealth providers have been struggling to catch up to Wealthsimple, who has certainly reshaped the landscape of financial content in Canada by featuring “celebrities” and their stories of money.

It is particularly interesting, therefore, that Questrade is launching their new series about “everyday Canadians” as a direct counterpoint to the celebrity stories. Whether the new content angle ultimately succeeds will largely depend on how compelling the stories of other investors’ performance/lessons are to readers.

With a crowded field for content, it’s going to be a challenge for this written series to stand out.

Questrade has done well with their marketing/advertising campaigns (“asking tough questions”) so it will be interesting to see where this content piece fits in, if at all, to their bigger picture strategy. Regular consumers of financial content online will be asking why they should spend even four minutes reading about Brendan Y or “everyday Canadians” – let’s hope that’s not a tough question for Questrade themselves to answer.

Discount Brokerage Tweets of the Week

From the Forums

Investing in US Stocks with CAD

It seems like the recent boom in the US stock market has non-residents interested. This Canadian investor wants to invest their hard-earned Canadian dollars in the US stock market. Take a look at this Reddit thread to see what advice other individuals gave.

Stocks vs. Property

What’s the better bet to invest in? Whether or not stocks seem more risky than real estate these days is up for debate. See what people had to say about investing in property vs. stocks on this Canadian Money Forum thread.

Into the Close

That’s another trip around the online brokerage space wrapped up. The upcoming week will be full of shrug (and maybe even cringe) worthy moments online. Ironically, despite a rate cut forecast for this week, there’s going to be lots of interest in the US. Keep the popcorn handy for this one.

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Discount Brokerage Weekly Roundup – July 22, 2019

Seems like this summer, there will be more that one Maverick making waves on traders’ screens. The trailer for Top Gun 2 officially dropped this past week and even though we weren’t planning on a sequel, we just felt the need – the need for (a good) read.

In this maverick edition of the Roundup, we provide updates on the new shiny new TFSA account that’s ready to launch one hotshot Canadian online brokerage into the spotlight with a new generation of investors. And, if that wasn’t enough to take your breath away, there’s a look at the performance numbers of one US online brokerage who managed to get on analysts’ radar to figure out where they’re heading next.

Wealthsimple Trade TFSA Now Live for All

Well, that escalated quickly. The launch of Wealthsimple Trade’s TFSA account officially went live this past week, and with it, the timeline for the Canadian online brokerage industry to come up with something equally or more compelling than commission-free trades has also moved up.

In last week’s Roundup, we mentioned that there were rumblings around the DIY investor forums of the TFSA roll out, as well as press coverage of Wealthsimple Trade that happened to coincide with the soft launch of the popular registered account feature. At that time, however, the official word was that the launch would be coming at some point in the next month.

Fast forward a week, and the gloves are now off in a fight between brokerages to win over Canadian DIY investors as newcomer online brokerage, Wealthsimple Trade, opened up access to their TFSA trading account to the masses.

With the official roll out, there is now more information available about Wealthsimple Trade’s TFSA and, importantly, the benefits and current limitations of the account type. The clear benefit to all things Wealthsimple Trade is that trading accounts are commission-free, which now includes the TFSA.

For financially conscientious millennials trying to cut frills and costs, not having to pay trading commissions is not just a deal, it’s ideal. Of course, like most things in life, if it sounds too good to be true, then it probably is, and despite commission-free trading, there are some important caveats to the Wealthsimple Trade TFSA account. One of the big limitations right now is that Wealthsimple Trade’s TFSA does not support transfers into the account. Only deposits from an externally linked bank account will work as a funding source for the TFSA.

This means, for the time being, other Canadian online brokerages still have some time to figure out a game plan to appeal to investors already eyeballing the exits for a Wealthsimple Trade account. And as social media and forum chatter already are showing, the sentiment to move is real.

Of course, it’s not just what’s on the official page that offers some insight into the Wealthsimple Trade TFSA – the Wealthsimple Trade Twitter account is also filled with its share of useful nuggets. For example, while it was already stated that RSP accounts were on the list of features actively being worked on, the telegraphing of USD TFSA accounts was something we did not yet hear about in terms of development, especially considering Wealthsimple Trade makes part of its money from conversion fees.

While we wouldn’t have assumed Wealthsimple Trade to be standing still with their feature development, the mention of USD accounts being “in development” means that one of the major resistance points for joining Wealthsimple Trade is likely going to be removed in the not-too-distant future.

Another cause for concern for online brokerage providers is that DIY investors are clearly excited about the official launch of Wealthsimple Trade’s TFSA. This past week, there has been a significant amount of investor chatter taking place in the investor forums and on Twitter now that this feature is live. Suffice to say, there is nothing that other online brokerages in Canada have done yet this year that has captured the attention of the “digital crowd” the way that Wealthsimple Trade has.

In what is starting to feel like a volleyball game out of a Top Gun movie, it seems that team Maverick has made their move, in denim jeans no less, and now it’s up to Canadian online brokerages to serve something back over the net.

Interactive Brokers Makes a Gutsy Call

With summer in full swing, it seems like everyone is paying a bit more attention to the forecasts. No doubt the volatile weather has something to do with it. Similarly, with the latest earnings season results trickling out of the US online brokerage market, there’s a mixed bag of results highlighting some areas of potential volatility and opportunity in the DIY trading market as a whole.

While earnings reports are typically about “the numbers,” there are also lots of interesting nuggets that management shares about the current and future state of the company that adds considerable colour and context to the numerical performance.

In the case of the latest earnings call from US online brokerage Interactive Brokers, it wasn’t just the numbers from the earnings report that analysts were talking about, but rather, a bold new initiative launched earlier this month that had folks trying to digest exactly what Interactive Brokers is thinking.

Starting first with the numbers. Despite a year over year decrease in revenues of 7.2% and a rise in expenses of 8%, Interactive Brokers still managed to eke out another reasonably strong year. The electronic brokerage segment of the business managed to gain 7% year over year, which on the surface sounds like a win, however when peering under the hood, there are some important flags of weaker trading dynamics that are of particular interest to industry observers.

The primary area of concern is that Interactive Brokers reported a 4% decrease in commission revenue from the year ago quarter – a result explained by lower commissions per trade being executed by their clients. That is even more concerning in the face of the 4% increase in the total number of trades (year over year) and a 19% increase in the number of customer accounts.

The takeaway is that customers aren’t trading the way they used to. Were it not for the interest income, this would have been an even bumpier quarter for the online broker. What this points to (and is something other brokers have had to come to terms with) is that the online brokerage model cannot rely on just trading commissions alone to keep the business afloat. Assets and margin are key revenue drivers that will help buffer earnings at least until trading behaviour shifts. Which leads into the second really interesting thing about the Interactive Brokers earnings call this quarter.

Despite earnings missing expectations, the big topic of conversation by the analysts during the Q&A session with Thomas Peterffy, founder and outgoing CEO of Interactive Brokers, was the recently announced launch of their promotional sports betting platform. Most telling was that 8 out 15 questions from analysts were about the sports betting promotion.

Perhaps the most awkward moments came when Peterffy called out analysts who were questioning the platform as to whether or not they had signed up already (those asking the questions hadn’t yet). One research analyst Macrae Sykes from G. Research, LLC hadn’t yet tested the platform before asking about it to which Peterffy stated “You’re such a disappointment. I was so hoping that you would do that.”

Despite none of the analysts who asked about the platform having actually signed up for or tested the sports betting feature, Peterffy managed to share some very interesting insight into the strategy to tap into the sports betting market for potential new Interactive Brokers clients.

First, as we reported in last week’s Roundup, this initiative is clearly aimed to attract new online trading customers onto the Interactive Brokers platform. Peterffy confirmed this in the earnings call when he stated “driving new brokerage accounts is the primary purpose. I don’t want to speculate about what we may or may not do with this sometime down the road. So right now, our focus is to perfect the platform and drive new brokerage accounts.”

Second, analysts queried why Peterffy felt it would work as a strategy to onboard clients, and ultimately it came down to his experience in dealing with traders on the exchange floor. According to Peterffy, if traders talk about sports betting, it stands to reason that sports bettors might want to kick the tires on investing online.

Buried in that response, however, was probably the most interesting sound bite of the call.

As seen below, Peterffy expects that there could be in the order of millions of accounts that get created at Interactive Brokers as a result of this initiative. And, although he does not provide a timeline for those accounts to be created, it is nevertheless an incredibly lofty goal considering that they currently have just shy of 650 thousand client accounts.

It’s hard to dismiss Peterffy’s track record of success in building Interactive Brokers into the global powerhouse brokerage that it is, and yet there was clearly a lot of uncertainty on the part of analysts asking about the strategy to pursue sports bettors. Their challenge is how to value or model and predict the various scenarios that this kind of move could provide to the business as a whole. Of course, if they had a tough time getting the earnings estimate right this past quarter, they will have an even tougher time trying to track what impact the sports betting platform will have on new client acquisition.

Let’s hope they have better luck actually predicting outcomes of games using the platform, as they will undoubtedly be called to the mat about it on their next earnings call. You can almost bet on it.

Discount Brokerage Tweets of the Week

From the Forums

Free Trade Agreement

It’s finally here. Wealthsimple Trade has now made TFSAs publicly available and in doing so, captured the attention of many investors who now have the option of opening up no-commission registered accounts. Click here to see why this new addition has the Reddit community buzzing.

Weight and See

There’s never one right answer when it comes to creating a long-term portfolio strategy. With a 25+ year investment horizon, there’s always time to take on risk, but does that warrant a 100% asset allocation in equities? Find out what others have to say in this RedFlagDeals thread.

Into the Close

While summer weather is a great time to get outdoors, this week investors will be glued to earnings reports. Of course the hot air this summer might not just be from the weather. Politics and even a dangerous situation bubbling over in the Strait of Hormuz mean that we could all be on the highway to the danger zone. Here’s hoping cooler heads prevail and that you’re able to cruise through this turbulence right.

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Discount Brokerage Weekly Roundup – July 15, 2019

When it comes to summer, some people like soft serve and others like their serves to be anything but soft. Ironically, the world of professional sports is just one of the places we’ve found online brokerages wandering into, and certainly not the only place where they’re trying to get into the winner’s circle.

In this edition of the Roundup, we look at one online brokerage’s clever gambit that bettors may want to try their luck at stock trading. From there, we review yet another Canadian discount brokerage that managed to find its way into the media spotlight this month, conveniently ahead of a major feature launch. As always, we’ve served up some sizzling sound bites from DIY investors on Twitter and in the investor forums.

Bettor Safe Than Sorry

Of the many metrics that makes Interactive Brokers stand out relative to its peer firms in the U.S. online brokerage space, one in particular emerges: account growth. Despite the bumps in the market over the past decade, Interactive Brokers has managed to consistently grow its number of net new clients month after month, quarter after quarter, and year after year. It’s a streak that could put a Jeopardy champ like Ken Jennings or James Holzhauer to shame. Like all good things, however, the streak may not last forever, something founder of Interactive Brokers, Thomas Peterffy, telegraphed in the most recent earnings call.

In a strange twist of irony, however, the latest move by Interactive Brokers seems to be inspired somewhat by the same source of success as Holzhauer. As it turns out, Holzhauer is a professional gambler and applied the principles of betting to fundamentally change how Jeopardy has been traditionally played since, well, forever.

Earlier this month, Interactive Brokers announced a rather novel approach to attracting the kind of client that would fit their traditional mold, the speculative investor, by launching a new promotion linked to sports betting. Yes, that’s not a misprint.

As part of a new campaign labelled “bet, learn, win” Interactive Brokers is putting up to $1,000 in commission credits on the line for individuals who sign up for, and place bets on, Interactive Brokers’ new virtual sports betting platform. Again, not a misprint.

The cap on the number of individuals eligible to participate: 2.2 million. Which means that Interactive Brokers is embarking on a massive lead capture program that could help uncover a material number of prospective clients for the online brokerage side of the firm.

Peterffy and Interactive Brokers have spent a lot of time and resources expanding out their financial services ecosystem. Even so, at the heart of their story, they understand active traders, and if there’s one thing that many professional active traders like to do in addition to speculating on markets, it is to bet. On anything. So, it is a calculated venture that individuals who maybe have not yet traded in markets would give it a go after mastering a profitable winning strategy on Interactive Brokers’ sports betting platform. Also, what’s the downside for clients of other online brokerages who might want to give the new virtual platform a go?

Whatever winners win, they get to apply to an Interactive Brokers account in the form of commission credits, up to a maximum of $1,000. The conditions on this promotion are equally interesting. First, while open to just about anyone anywhere (save for a few locations around the world), individuals who are clients of Interactive Brokers prior to June 30th aren’t eligible to apply those winnings for commission credits. This is clearly, then, a play to attract new clients into the Interactive Brokers ecosystem. Next, if you wipe out your virtual sports betting account, you can’t create a new one. So, unlike a lot of other trading simulators, there is no “insert more coins to continue” feature here.

Attracting new clients through the use of stock market simulators is nothing new – in fact just this past week, National Bank Direct Brokerage’s “Biggest Winner” competition in conjunction with Horizons ETFs just wrapped up.

What stands out as remarkable in this case is that Interactive Brokers is: 1. Offering up a promotional offer for commission credits and 2. Directly associating investing/trading with gambling/betting.

In terms of the former, seeing a firm like Interactive Brokers turn to commission credit incentive offers/promotions to attract new clients is a signal that the firm is going to now have to spend more in order to attract new clients to the firm.

Perhaps most interesting, however, is the unequivocal association of investing with gambling. If there has been any kind of taboo in the “marketing” world of investing, it’s to steer clear of any association of investing or trading with gambling. And, in this promotion, it is precisely the activity of gambling that serves as the gateway to trading. The implied message: if you’re really good at gambling, you’re probably good at trading too.

Canadians over the age of 21 who are not already Interactive Brokers clients are eligible to sign up and participate. We even spotted a 604 area code (Vancouver) on the help line numbers, to boot.

No stranger to taking calculated risks, it seems that Interactive Brokers has definitely stacked the odds for success (in the form of attracting new customers) in their favour. As Jeopardy champion Holzhauer would no doubt endorse, approaching the game from a different angle and being willing to make some big bets is one way to get to the winner’s circle.

Wealthsimple Trade in the Spotlight Ahead of TFSA Launch

Two points a trend does not make, but it’s certainly enough to get our curiosity piqued. As we reported on last week, BMO InvestorLine was in the spotlight in the Financial Post, a major financial publication, showcasing the upcoming launch of their new website. Also in the news that week was another online brokerage that is on the minds of many investors (and online brokerages) because of their rock-bottom online trading commissions.

Wealthsimple Trade, the newest online brokerage to step onto the Canadian DIY investing field, was featured in an article (for subscribers only) in the Globe and Mail by Canadian discount brokerage industry expert Rob Carrick.

Unlike the Financial Post coverage piece on BMO InvestorLine, Carrick’s article provided an overview of the newcomer brand, highlighting how it stacks up compared to other Canadian discount brokerages, and what features Wealthsimple Trade currently offers. Also interesting about Carrick’s feature is the reference to the latest J.D. Power & Associates Investor Satisfaction survey comments about vulnerability of the traditional online brokerages to losing millennial clients – especially because of mobile app experience, an area in which Wealthsimple excels relative to many existing brokerages.

One of the interesting things about Wealthsimple Trade is that as of the writing of the Globe and Mail article and this post in the Roundup, registered accounts (like RRSPs and TFSAs) are not fully available. That said, there was chatter on Reddit, as well as an interesting note on the Wealthsimple Trade help page, that indicates that TFSAs are already being rolled out to select clients and that TFSAs will be on track to be fully available at some point in August. RRSPs are still TBD.

For all the features that currently don’t exist at Wealthsimple Trade, the lack of registered accounts is something that has likely held many DIY investors from taking a serious look at the new online broker. That, and a lack of awareness/trust that usually accompanies the new kid on the block.

Nonetheless, they are on the scoreboard, so to speak, with 25,000 client accounts and have a tactical advantage with their user experience on mobile. Millennial investors may not care so much about “historical reputation” as they would about “engaging experiences.”

So, whether it is a coincidence or just great timing, talking about Wealthsimple Trade just ahead of a big feature roll-out is fortuitous. The fact that discussion about this feature showed up on Reddit, a digital channel where Canadian millennials interested in personal finance invariably end up, is a positive signal this feature will be a hit with the target demographic. Of course, with the Globe and Mail also on top of this new player, it seems like older investors will soon catch on to what the cool kids are up to as well.

Discount Brokerage Tweets of the Week

From the Forums

Is Like, 30 Too Old?

These thirty-somethings are contemplating whether or not it’s too late to start an RRSP. Like most individuals, they want to know as much as possible before making such a crucial decision. Click here to see what others have to say.

Ruh- Ruh- Recession?

The yield curve has been inverted for over 30 days now, and this has many people contemplating what precautionary steps to take (if any). For more bearish thoughts, check out this Reddit thread filled with bruised bruins.

Into the Close

That’s a wrap on another week’s worth of action. In spite of the vitriol and political turmoil in the U.S., stock markets powered higher, proving that a steady (invisible) hand continues to steer the ship. Of course, with summer heating up, it’s hard to tell if it’s just the heat or if investors on the sidelines are starting to feel the heat of a little FOMO set in. Regardless, if you’re looking for a bit of shade this summer, apparently that’s going to be easy to find. Stay hydrated & have a profitable week!

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Discount Brokerage Weekly Roundup – July 1, 2019

Happy Canada Day! It’s great to be back in the saddle again and happily there’s great news to report since the last update a couple of weeks ago. With U.S. markets touching new highs, summer is off to a strong start. Interestingly, so too are a couple of Canadian online brokerages, to the point where other online brokers may not be getting time off to just kick back and relax because they’re going to be playing catch up.

In this edition of the roundup, we wade back into a much shallower deals pool for July and profile the latest turnover in offers for DIY investors. From there, we take a look at a popular online brokerage ranking that was recently released and highlight a dark horse contender that is showing signs of becoming a mainstream brokerage of choice for more Canadian investors. In keeping with roundup tradition, we cap things off with a dollop of chatter from the investor forums as well as from DIY investors on Twitter.

Deals & Promotions on Cruise Control

With the new month comes the usual check-in on the deals and promotions front. This month, it seems like Canadian discount brokerages are gearing down and preparing for what will likely be a very competitive fall and winter. For DIY investors, it means that the deals and promotions in July are more of a lazy river rather than wild water adventure of savings.

There were no big deals to announce at the outset of the month (although technically it was Canada Day so often times promotional news gets delayed because of holidays), however, it is noteworthy to see who is left on the field with promotions during July.

Unlike RRSP season where practically all Canadian discount brokerages were offering some kind of incentive offer, this month there are just two major bank-owned brokerages with cash back or commission-free trade offers: CIBC Investor’s Edge and BMO InvestorLine. In the case of Investor’s Edge, their commission-free trade offer is set to expire at the end of July, whereas for BMO InvestorLine, their promotion extends through to the very beginning of September. Aside from these two firms, the other two noteworthy firms with offers of commission-free trades are Desjardins Online Brokerage and Questrade.

In terms of cash back offerings, what is particularly interesting is something we had mentioned in a previous roundup regarding BMO InvestorLine, namely that their latest tiered cash back promotion has a much higher minimum deposit requirement than previous offers or peer offers. A minimum deposit threshold of $250,000 prices quite a few investors out of that offer, but does signal that BMO InvestorLine is interested and willing to create incentives for individuals with sizable portfolios to give BMO InvestorLine a try. What is also interesting about the upper level of this offer, namely the $2M+ deposit range, is that there aren’t any competitor offers at this level and it is likely the first time that there is a cash back offer for a deposit of this size. Previously the high-water mark was deposits of $1M+ so anyone bringing over more than that would simply have to make do with the bonus offered at the top end of the tiered range.

For those intent on opening an account with less than $250,000 there are still a couple of strong offers from either Questrade or CIBC Investor’s Edge that offer up free trades or cash back.

That said, even though we are not anticipating a watershed of deals to hit the market this summer, it is hard to imagine the field of Canadian online brokerages allowing only four main players to remain unchallenged until September. The resurgence of interest in Bitcoin, a healthy IPO market, and signs of a “melt up” in the stock markets mean that investors may find another reason to step off the sidelines and into the markets this summer. Further, based on the performance of several online brokerages in the latest MoneySense rankings (see next story), there is now  greater impetus for follow up promotion activity.

For now, however, we’re on the lazy river ride – so best to kick back and relax for as long as possible until the competition picks up again.

Best Canadian Online Brokerages for 2019 Announced

With the return of summer, it’s also time again for the annual MoneySense magazine Canadian online brokerage rankings for 2019. As with previous years, financial services research firm Surviscor provided the analysis for these rankings, and provided seven different categories in which different online brokerages were considered to be “the best online brokerage” for something.

This year, the best online brokerage overall according to these rankings was Questrade, which was a close second in last year’s rankings. While the numerical scores weren’t released this year, it was interesting to note how close the two firms were last year. Interestingly, it wasn’t necessarily who came out on top this year, but rather who entered and exited the top five.

MoneySense Best Online Brokerage Rankings: 2018 vs 2019
Rank 2018 2019
1 Qtrade Investor Questrade
2 Questrade Qtrade
3 Scotia iTRADE TD Direct Investing
4 BMO InvestorLine Interactive Brokers
5 BMO InvestorLine

 

The table above shows the best online brokerages for 2018 compared to the best online brokerages for 2019 and while the selection is largely the same (albeit in a different order), this year saw Scotia iTRADE exit the top group and Interactive Brokers enter. In fact, for the 2019 rankings, Interactive Brokers managed to come in at fourth place, ahead of BMO InvestorLine.

There are two important takeaways from the shift observed in this year’s rankings. First, despite Scotia iTRADE lowering their standard commission rates to the widely adopted ~$9.99 level, they nonetheless were displaced from the rankings by a lower-cost competitor. Second, and perhaps most importantly, Interactive Brokers has now started to become a part of the mainstream investor rankings.

After years of having to sit on the sidelines because it was perceived to be an online brokerage for sophisticated or active investors only, Interactive Brokers Canada is starting to be considered a “mainstream” choice. Although not a whole lot about the Interactive Brokers interface has become any simpler per se, the addition of registered accounts like a TFSA and RSP have made them a viable option for many Canadian DIY investors willing to roll up their sleeves and learn how to navigate the Trader Workstation.

One very interesting observation from this year’s online brokerage rankings is that when it came to designating the best online brokerage for customer service, while Questrade scored first, there was a three-way tie for second between Qtrade Investor, RBC Direct Investing and Interactive Brokers.

Based on historical performance and assessment of customer service, it is nothing short of stunning to see Qtrade Investor in a tie with Interactive Brokers, as the two firms could not have more opposite reputations in terms of client service. In terms of Qtrade Investor, there is a well documented trail of accolades of its commitment to service, and almost the same is true for the absence of “hand holding” service from Interactive Brokers. So, to see both of these firms tie for second best in terms of service will definitely raise eyebrows across the industry.

With the inclusion of Interactive Brokers in the Globe and Mail online brokerage rankings, and now cracking the top five in the MoneySense magazine rankings, it’s becoming clear that the online brokerage field in Canada will have to contend with Interactive Brokers’ feature set and pricing more so than at any time in the past.

For DIY investors looking for assistance in making a decision on which online brokerage is best, these rankings are of mixed value.

On the one hand, there is a short list of five firms that have been considered to be “the best overall,” implying that all things being equal, these firms are not necessarily a bad choice. Conversely, with seven categories of best online brokerage, it highlights how certain brokerages do certain things better than others.

Looking at firms who appeared in multiple categories, to Questrade’s credit, they were either the top or in the top two spots in five of the seven categories. Qtrade Investor also appeared in a top two finish in four categories. Curiously, Interactive Brokers earned a top two finish in three categories compared to TD Direct Investing which earned a top two finish in two categories. Nonetheless, TD Direct Investing outranked Interactive Brokers. This last point is especially relevant when considering the progress Interactive Brokers has made in becoming more of a “mainstream” contender, because it suggests that Interactive Brokers may be very close to a top three (or higher) finish overall unless something very innovative is launched by a competing online brokerage.

For the rest of the online brokerage field that did not achieve a top ranking in one of the seven categories, it appears that there is going to be a challenge to overcome the value propositions already on the table. Change in the online brokerage space is largely evolutionary rather than revolutionary, and even with a zero-commission player on the field in Wealthsimple Trade, there are still other brokerages being considered to be better for fees.

The big picture emerging for DIY investors is that services, features, and value will have to improve at firms not ranked in the top five. Those firms will have to move decisively to win over customers who are starting to hear more and more positive rankings and ratings from firms who previously were “outsiders” like Questrade and Interactive Brokers. We’re very much looking forward to seeing which online brokerages start to step up their game in response to a shifting power structure in the Canadian online brokerage market.

Discount Brokerage Tweets of the Week

From the Forums

Golden Years

A poster on RedFlagDeals seeks advice on ways to help their parents save for retirement in a few years’ time. Click here to see what strategies fellow forum users recommended.

Striking a Rebalance

A newcomer to the DIY investing world has questions about the best way to rebalance a portfolio. See what advice other investors provided in this Reddit thread.

Into the Close

That’s a wrap on the Canada Day edition of the roundup. This will be an interesting week for traders given the holiday for Canadians to kick things off, and the holiday for U.S. Independence Day later on the week. One thing is for sure, there will undoubtedly be fireworks – whether it’s because of what’s going to happen now that the tariff standoff is starting to thaw or because of where Kawhi Leonard decides to go next. Have a great week!

 

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Discount Brokerage Weekly Roundup – June 10, 2019

Never mind the trade tariffs being on or off, or the Formula 1, there are more than a few Canadians on edge for the Raptors to take the NBA championships. The optimist can taste the victory and the pessimist says don’t count the dino eggs before they hatch. One thing is for sure, it’s not only courtside seats that have climbed in value, as online brokerages here in Canada are also courting some premium clientele.

In this edition of the roundup, there’s more than a few sports metaphors layered into a first story that provides an update on the latest promotional offer to cross the deals wire – and what it might mean for the other online brokerages through the summer. Next, we recap some fascinating highlights from a conference in New York which featured a glimpse into the playbook of online brokerages south of the border. As usual, we’ll serve up a healthy dose of DIY investor chatter from Twitter as well as the investor forums.

New BMO InvestorLine Promo Bets Bigger is Better

If you thought courtside Raptors tickets were going to cost a pretty penny, the newest promotion from BMO InvestorLine has managed to make those tickets seem like a bit of a bargain.

Earlier this month, BMO InvestorLine launched a bigger, bolder cash back promotion for the summer that offers between $500 and $2,000 for deposits that range from $250,000 all the way to $2M+. If those numbers seem a little high, it’s because they definitely are. First, on the cash back side, the $2,000 cash back is certainly a new high for cash incentives to bring in new business. Earlier this year, we witnessed Qtrade Investor pony up $1,500 cash back for a deposit of $1M but now that we’re at the $2,000 threshold for a deposit bonus, one gets the feeling that there’s certainly further to go from here.

On the business end of that deal, the requirement for a $2M deposit puts BMO InvestorLine into rarefied air, as there haven’t been any deals in recent memory that have reached a deposit tier at that level. Historically there has only been a very select group of online brokers that had an advertised promotion that included a deposit tier of $1M, and doing so has usually been met with a certain degree of skepticism from DIY investor forums as to the ROI for bringing over that scale of business.

As such, it will be interesting to watch how other online brokerages respond to this, especially as we saw RBC Direct Investing’s cash back promotion officially expire last week. That leaves BMO InvestorLine as the sole bank-owned online broker with a cash back promotion going and the only brokerage currently with an offer catering to higher net worth clients.

To beleaguer a tired sports metaphor, the ball really is now sitting in the court of the other online brokerages as far as promotional offers are concerned. BMO InvestorLine’s latest offer provides great marketing sound bites to get people curious, so it will be up to peer firms to step up their deals game or risk getting sidelined for the summer. With BMO going after the higher net worth individuals specifically, this could be a summer of blockbuster deals, so long as you can afford the price of admission.

Brokerages in the Big Apple

Last week, many of the big names in the US online brokerage space converged in New York city for the annual Sandler O’Neill & Partners Global Exchange & Brokerage Conference. The theme of this year’s conference was “growth” and featured several in-depth interviews with senior leaders in the industry.

Of particular interest were interviews with Karl Roessner, CEO of E*TRADE Financial, Thomas Peterffy, founder and outgoing CEO of Interactive Brokers, and Joseph Moglia, Chairman of TD Ameritrade. Each of these interviews offered a unique perspective on the particular state of each organization and how these leaders saw opportunities for growth as well as the specific challenges confronting their industry as a whole.

One of the points that came up in both the conversation with Peterffy (Interactive Brokers) and Moglia (Ameritrade) was reference to Robinhood and how to compete against a provider of “zero commissions.” In the case of Interactive Brokers, Peterffy provided a pointed answer to the real cost of zero commission trading, and noted that retail investors who don’t ask why their commissions don’t cost anything up front are capable of being sold a lot more than just free commissions (and not in a good way). Ultimately, according to Peterffy, with commission-free trading (and even in many cases in US conventional trading), retail investors’ orders end up being sold to high frequency traders who in turn compensate online brokerages. In contrast, Interactive Brokers does not sell order flow to HFTs and so Peterffy’s position on the “Robinhood” model is that ultimately he is confident enough in the trajectory and value that Interactive Brokers can offer to active traders that he is not too concerned about Robinhood.

Also on the topic of Interactive Brokers, Peterffy also revealed that the super-top-secret-game-changer for Interactive Brokers is due out next month. While this is purely speculative, the “hints” that were dropped related to efforts to restore IB’s lagging growth rate. To clarify, Interactive Brokers has been a growth juggernaut in the US online brokerage market but Peterffy related at this conference that growth in accounts is now down to tracking 16% compared to the well over 20% to 30% year/year growth. So, this so-called new feature is intended to help bring customer growth to over 20%.

In terms of what E*TRADE saw as a path to growth, there is definitely a focus on higher touch wealth service experiences that would compliment the existing self-directed investor market. What was most interesting about the conversation with Roessner was the reiteration that the notion of an online broker simply sticking to order execution is not grounded in the realities of the market. What that means is that online brokerages have had to get more into other realms of the financial management space than was the case when they first opened shop. In the case of E*TRADE, it has meant a move into providing some traditional banking services, including offering a high interest savings product for investing clients who want to park cash within E*TRADE rather than at a different firm. Further to that direction, Roessner also mentioned that E*TRADE would be rolling out a line of credit product that uses the value of the client’s portfolio as collateral. Another important point highlighted by Roessner is that banking and finance is about cultivating strong relationships, something that, ironically, Peterffy disagreed with (he preferred to focus on automation and price). Nonetheless, relationship building is a core component with clients that E*TRADE is actively trying to pursue.

Finally, when it came to TD Ameritrade, this was a fascinating discussion to track the historical evolution of Ameritrade and to get a higher level view on the business and the industry. Moglia provided a particularly interesting point about Ameritrade’s trajectory to focus on a few key factors, one of them being assets under management (Ameritrade now has over $1 trillion in AUM) and staying true to client-focused principles. Having grown Ameritrade through several key acquisitions, this conversation provided a unique vantage point on how this firm has managed to bulk up and bolt on new companies so that it can handle a wide spectrum of business conditions while remaining competitive (such as zero commission trades). Probably the most fascinating is that Moglia, who was once CEO of Ameritrade, recounted that zero commission trades have been a concern since 2001 and provided a much calmer read on the “common sense” of cutting commission costs to zero.

What these interviews highlighted was that, at least in the US, online brokerages are not standing still and are being pushed by other competitors as well as by shifting consumer expectations to evolve quickly. The playbook for Canadian online brokerages is pretty much being spelled out – offer DIY investors high interest savings and more services that a typical bank-owned broker would offer, focus on gathering assets to weather the competitive storm, and be prepared to invest substantially and strategically in technology. Expansion for each firm was a hot topic, and over the course of the summer it will be fascinating to see potentially game-changing new features come to market.

Discount Brokerage Tweets of the Week

 

From the Forums

Life on the Outside

A DIY investor living outside of Canada has questions about the tax implications of investing with Canadian currency. See what fellow forum users had to say in this RedFlagDeals thread.

Tricks of the Trade

One longtime DIY investor wants to know if the advice they’re getting from advisors is sound, and other Redditors chime in with insights of their own. Read more here.

Into the Close

That’s a wrap(tors) for this edition of the roundup. The roundup will be going on a hiatus for a few weeks as there will be a new, game-changing arrival to the Sparx (aka my) family. We’ll keep tracking stories and developments, monitoring social conversations & trends in the meantime. Here’s hoping there’s lots to spark joy about in the coming weeks!

 

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Discount Brokerage Weekly Roundup – May 27, 2019

From Game of Thrones, to now a game of throws. Ironically, with the Toronto Raptors making it all the way to the NBA finals, getting onto the iron throne might actually be a tad easier than finding good tickets to the Raptors games. Of course, basketball fans aren’t the only ones with a reason to cheer this week, as DIY investors are also in for some good news of their own.

In this edition of the roundup, we review the latest deal to cross our radar and (teaser alert) it’s from a bank-owned brokerage who managed to make it back onto the deals board after a very short hiatus. Speaking of breaks, our second story spotlights one fintech firm that has charted a course to break the bank (model) and got a sizable endorsement to further that aim. Finally, we’ve also included a healthy dose of Twitter chatter and investor queries from the forums.

No More Tiers: CIBC Investor’s Edge Launches Commission-Free Trade Offer

After a few weeks of relative quiet, it looks like the deals section is ready to spring back to life with the entry of CIBC Investor’s Edge’s latest promotional offer.  And, what better way to make waves in the deals pool than with the equivalent of a cannonball commission-free trade offer that has no tiers or advertised minimum deposit to qualify. Oh, and did we forget to mention that this is for 100 commission-free trades?

After reading the official terms and conditions for this offer, we were admittedly amazed that an offer of this magnitude has now come to market and that the usual strings that get attached to offers of this size didn’t show up in those “T&Cs.”  Also surprising was the brevity of the terms and conditions. It’s unusual to see terms and conditions of a promotion that are this light. However, very little gets past compliance teams, so here’s hoping that it sticks as is.

In terms of important information about the offer, the promo runs until July 31st and offers clients 100 commission-free trades that are good to use within 90 days of an account opening. This commission waiver offer applies to both equity and options trades, however, to clarify it does not apply to the per contract fee that is associated with options trading.

When it comes to commission-free trading offers, what is nice for investors considering this deal is that this is not a “rebate” of commission fees, but rather a waiver when the trades are made, so there is no waiting for a rebate. What this also means is that there isn’t a minimum time required to keep the account open or a requirement to keep the account in good standing to qualify for this offer.

With the end of May now just around the corner, the addition of the CIBC Investor’s Edge deal will help to smooth out the expiration of the HSBC InvestDirect cash back promotion at the end of the month. Shortly after that, there’s also a BMO InvestorLine promotion that’s set to expire. So, like the stock market lately, the deals and promotions section will likely see some volatility.

Big picture though, with CIBC Investor’s Edge coming back into mix with a fairly sizeable and aggressive commission-free trade promotion, they’re going to make a big splash in the deals pool. With RBC Direct Investing’s offer also in play, our quick math shows three of the big five Canadian bank-owned brokerages with active offers. This should send a little peer pressure across the space, and we expect that at least one or two Canadian online brokerages will step forward with their own offers to increase their visibility during the summer months.

Strategically, there is very little downside to keeping an offer for DIY investors during the summer months. At best, investors will discover an offer that sways them into an online brokerage and at worst, the online broker gets to maintain visibility with DIY investors who happen to be looking around for an online broker during the summer months. Either way, this summer is looking to be a bit sunnier for DIY investors interested in getting into the markets for a hot IPO season.

Allianz Banking on Wealthsimple

This past week there was some Canadian fintech news that is having a ripple effect around the financial world. No, we’re not talking about the cryptocurrency, but rather a literal wave of interest/concern that is sure to force digital teams and strategies at many of Canada’s online investing firms back to the drawing board. It happened when global insurance giant Allianz decided to invest $100 million into Wealthsimple, a move that enables them to garner exposure (and unique access to) the increasing digitization of financial services.

Recently, it was reported that Power Corp now holds an 89% stake in Wealthsimple having invested over $230 million dollars into the robo-advisor, which may have something to do with Wealthsimple achieving a dominant stake (~78%) in this space. Though that is impressive, to put things into perspective, Wealthsimple is reported to have $4.5 billion dollars in assets under management and 130,000 customers, which shakes out to $30,000 per customer. So, while Wealthsimple has carved out a small foothold in the Canadian wealth management space, there are many much bigger rivals in the sandbox.

Nonetheless, this latest move by Allianz begs the question: why now? It seems like their decision to invest is a clear endorsement that the wave of digitization in financial services is poised to drastically alter the way in which those services are sought out and ultimately accessed.

Like any good investment, thinking about what the world will look like in five years and working backwards to today, it might be readily apparent that the world is moving towards “digital wealth.” In particular, finding a scalable, technology-driven solution to connect with millennials is incredibly valuable – something both Power Corp and Allianz are banking on. The service providers of tomorrow need to figure out how to work with (and delight) the consumers on the cusp of being very wealthy but who have little desire or inclination to navigate the financial markets in an expensive manner. The list of service providers who do that well is remarkably short.

The level of capital being invested in and partnerships being forged with Wealthsimple mean they are looking well beyond just “investing” and are taking aim at more traditional financial services too – including banking. In fact, CEO of Wealthsimple Michael Katchen was quoted saying as much in a recent article on CNBC.

Something similar appears to be taking place in the US as well with Robinhood Financial – the online brokerage firm best known for their commission-free trading. Although the savings feature faltered out of the gate in December, they have made no secret of their intent to go after the traditional “savings” account (and perhaps more banking services). Thanks to its own funding round, at latest reporting, Robinhood is being valued at over $7 billion (USD). Interactive Brokers also has now built out an ecosystem of financial services beyond their online trading business which is aimed to keeping clients (and specifically their assets) within the Interactive Brokers tent. IB has also telegraphed “something big” in the works for this year so there’s still another shoe to drop in their business evolution. Here in Canada, Questrade also made an interesting acquisition outside of the “wealth management” space by purchasing a mortgage lender.

Putting those pieces together, the picture is starting to emerge that “traditional” banks are being targeted for disruption on many fronts.

Despite being well-capitalized, funded, and wielding enormous influence, the large Canadian financial service providers must get their entire enterprises future-proofed if they are to withstand this onslaught. Wealthsimple has been able to grow to where it is because it has been a challenger-brand; it is not entrenched by tradition, maybe not even familiar, which makes its growth in the financial services space to this point all the more impressive. As Wealthsimple is starting to emerge as a Canadian fintech success story on the global stage, the principle guiding their growth might be best summed up by another Canadian great, Wayne Gretzky (ironically also a brand ambassador for TD), when he advised skating to where the puck is going.

Discount Brokerage Tweets of the Week

From the Forums

A Bid of an Ask

One DIY investor wants to know what other forum users ask themselves when choosing investments. See what the big questions are in this Canadian Money Forum thread.

Bearly Optimistic

A DIY investor with a pessimistic outlook seeks advice on where to invest. Read on for insights and counterpoints from fellow forum posters in this Reddit thread.

Into the Close

With markets in the US closed on Monday for Memorial Day, it’s likely to be a quieter trading volume day, which is probably OK because when the end of the week rolls around, it will be a lot louder for Raptors fans (and anyone in Toronto). Hopefully there’s just as much to cheer about further up on Bay Street as there is at the bottom of it.

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Discount Brokerage Weekly Roundup – May 20, 2019

Whether it was the Raptors or Game of Thrones fans, it was good news (mostly) for the North all around on this long weekend. While the popular HBO series has now officially wrapped, it looks like a different video series is starting to command the attention of Canadian investors and the envy of some online brokerages.

In this edition of the roundup, we review a new investor education series produced by a new name in the online investing space that is sure to make waves with millennial investors as well as those online brokerages also hoping to connect with that audience. From there, we review an interesting blip on the growth radar for one popular US online brokerage that could be a sign of clouds brewing on the horizon for the traditional players in the space. As always, we’ve got a great recap of investor chatter with conversations from Twitter and the investor forums.

Battle for Investor Education

Adulting, like investing, can be like, hard. Fortunately, there’s YouTube. And now Wealthsimple. So goes the premise of the latest investor education series to come to market from the best known name in the robo-advice space in Canada.

Although a new investor education initiative from Wealthsimple launched in mid April, it is worth putting the spotlight on this video series because, as mentioned in last week’s roundup, it appears that the battle for the millennial investor’s attention (and wallet) is starting to heat up. And, it appears that one of the key battlefronts will be in the investor education piece.

Like most things that set Wealthsimple apart from most of the established pool of wealth/financial service providers in Canada, this latest video series is a reflection of investor education done “Wealthsimple style.”

Teaching the basics of investing in an easy to follow, engaging format is not easy, but Wealthsimple’s investor education series manages to do just that. That means their content is well designed to resonate with a younger – or beginner – audience by using plain language, humour and keeping things (mostly) brief.

In addition to the content, the delivery is also on point. Host Nicholas Braun (himself a 31-year old) is cast to relate well to the millennial audience, with the right balance of humour and information that makes sitting through a video on investing actually interesting. Rather than dwell on too many facts or theory, the videos lean heavily towards a “how-to” style that is likely familiar to most younger audiences who turn to YouTube to help solve many a life problem.

The series itself is split up into 10 episodes, with 8 out 10 of those episodes taking less than 4 minutes, one taking just under five minutes, and the longest coming in at 8 minutes.

What was especially interesting about this video series is that it very much reflected the Wealthsimple view of the world: that passive investing strategies are a sound way to build wealth.

While it probably is no surprise that they did so, what was interesting about how they went about positioning investing was that it is something to do after attending to other more immediate financial priorities – like focusing on paying down high interest credit card debt and creating an emergency fund, before jumping into investing.

In that way, the message about getting started down the road to investing didn’t come off as pushy or selling something you won’t be ready for, but rather an important milestone to reach after getting one’s financial house in order.

Of course, it wasn’t all entirely selfless, impartial content on how to navigate the stock market. Wealthsimple clearly has skin in the game in turning viewers towards a passive investing solution and does make it a point in latter videos to mention how viewers can achieve investing goals/outcomes by using Wealthsimple’s products, including their Wealthsimple Trade product for those moments when investors want to try their hand at investing directly in a specific company stock.

As with their robo-advice product, this investor education series reimagines what it is like to learn about investing. Instead of the standard powerpoint presentation webinars or low-budget cartoon explainer videos, Wealthsimple has once again set the bar high for other financial service firms to try and match the mix of information and entertainment that these videos deliver, and do so in a way that looks and feels authentic to the audience and the brand.

What is especially important to point out about this investor education series is that almost none of the information delivered is new information about the world of investing, but it is a far cry from the approach that historically (and even currently) characterizes the way other online investing providers approach investor education content.

It will be interesting to see whether this move by Wealthsimple kicks off a trend of younger voices telling others about the “how-to’s” of investing – it might already be happening as we mentioned last week. Of course, there is still an entire cohort of investors who might respond better to an older actor/personality for the same kind of content. In any event, the race is on for just about every Canadian online brokerage to once again put investor education back on their radar if they hope to balance out the narrative on DIY investing. At this point, commercials, cartoons, and long articles aren’t going to cut it any longer.

Canary in the Online Platform

While scanning through the online brokerage news this past week, yet another interesting data point crossed our radar from US online brokerage E*Trade Financial: a remarkable stall in the number of new retail investor accounts.

Last week, we had noted that along with the recent lift in cryptocurrencies, there was news of E*Trade Financial (as well as TD Ameritrade) exploring the ability of clients to trade Bitcoin and Ethereum on their platform in the near future. That was the good news.

The not so great news to cross the wires this week was an important number related to the growth of E*Trade’s retail (aka online brokerage) business in the US last month. As part of a recent update on their performance figures, E*Trade reported a sharp decline in the number of net new retail clients compared to the previous month (-95%) as well as relative to the past year (-84%). The total net new clients to join E*Trade in April worked out to just 1,219 – which on a total retail client base of just under 5.1 million accounts is basically a rounding error (0.02%).

After what appeared to be an incredibly busy March, the volume of new retail online accounts effectively dropped off a cliff and could be a harbinger of headwinds for the US online brokerage space in the face of mounting low or no commission competition and jitters around an inverted yield curve.

Another interesting data point which might support that thesis: the news in April by TD Ameritrade’s CEO that they dramatically reduced their marketing spend because “fish weren’t biting” in the first quarter.

It is against that backdrop that the metrics at Interactive Brokers, specifically around account growth, stand out as interesting. Interactive Brokers’ client base continued to grow at a steady clip, adding 8,200 clients over April. Of course, it should be noted that Interactive Brokers did not report the figures for growth specifically in the US, which would allow for a more accurate comparison with E*Trade’s figures. Also to clarify, E*Trade changed the way in which they counted and reported their client growth metrics, combining banking and online brokerage accounts under the “retail” category – so not all the retail clients listed actually reflect online brokerage customers.

These headwinds come at an interesting time, as the Robinhood IPO on the horizon could see challenges to growing a user base that might be waiting on the sidelines because of macro concerns about being exposed to markets at this time. Conversely, it could be that Robinhood is the cause and benefactor of E*Trade’s drop off in popularity.

It is going to be particularly interesting to see where E*Trade’s client growth numbers trend over the next month or two because of the hot IPO market, and whether that would have been enough to propel new investors into the DIY investing game. If it turns out that even with one of the biggest rosters of IPOs in recent memory can’t coax investors into the market, then it won’t only be US online brokerages that have a problem to contend with – that is something that could very well spill over to Canadian investors. Like the inverted yield curve, it might be a signal of a pullback to come.

While cryptocurrency trading could help to reinvigorate the new client growth figures for E*Trade in the near term, there is definitely something that impacted the pace and enthusiasm of retail investors participating in the markets in April – at least through E*Trade. It might be competition from disruptors like Robinhood and even JP Morgan offering commission-free trading, or it could very well be investors being spooked by uncertainty (or worse) in the markets. Stay tuned.

Discount Brokerage Tweets of the Week

From the Forums

Child’s Play

One forum poster wants to know more about the best way to get their children into DIY investing. See what advice they received on this Canadian Money Forum thread.

Homing in on Strategy

A DIY investor has questions on whether to purchase real estate or invest in ETFs. See what fellow Redditors had to say here.

Into the Close

That does it for another edition of the roundup. Canadian markets have the day off on Monday, but it’s safe to say most traders of crypto and other stories will be looking for trading setups and tuning into what’s happening over the fence in the US markets. The only thing that seems certain in the weeks ahead now is a lot more uncertainty. So, the irony is that while one series of games has ended, another one continues to drag-on.

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Discount Brokerage Weekly Roundup – May 13, 2019

While talk may be cheap, not talking is turning out to be very expensive for two major market moving voices. Ironically, it is the power of conversation that online brokerages are hoping to tap into and yes, for those that aren’t part of the new conversation on money and wealth management, their silence might just turn out to be very costly indeed.

In this week’s roundup, we take a look at a recent investor education event that provides an interesting indicator of measuring engagement in financial content, and how one Canadian online brokerage is well out in front in the content game. Next, we cast the radar wider than normal to see the big picture forming for online brokerages in Canada and the U.S. and what that might mean for DIY investors on both sides of the border. As usual, we’ve got our staples of investor tweets and forum chatter to close things out.

TD Direct Investing Levels Up Investor Education

When it comes to analyzing the stock market, there are all kinds of indicators that investors use to track performance and progress. From MACD’s to Bollinger bands, indicators tend to provide some measure of investor sentiment.

Interestingly, when it comes to measuring the sentiment around investor content, there’s an uncommon indicator that reveals something about the nature of the investors consuming it: hair.

Having sat through countless investor education events and investing seminars (many of those from the back of the room) there has been a constant indicator of who actually attends. Historically, the view of the hair colour (if the hair was there at all) was typically on the lighter end of fifty shades of grey.

It is against this backdrop, however, that the recent investor education event sponsored by TD Direct Investing, entitled “Levelling Up Your Money” stands out as somewhat unique.

From the picture shown above (sourced from Twitter) it is immediately clear that, in addition to being well attended, the “hair” indicator reflects a very different demographic in the room compared a picture below taken at the biggest investor conference in Toronto, the MoneyShow.

Gradually, it appears that a shift in the demographics of both audience and presenters is taking place. There seems to be a new wave of voices and consumers providing and seeking out investment information and education resources.

This past week’s panel featured a solid range of millennial personal finance voices, including Jessica Moorouse, Erin Lowry, and Barry Choi. The focus of this session was on investing, financial planning, and the reality faced by millennials deciding how and where to get started with investing.

What is noteworthy about this particular event is that TD Direct Investing was the title sponsor on an event that brought together a selection of younger personal finance voices that have a direct connection to a “millennial” audience. The result – younger people coming to attend an event in real life to learn about money and wealth.  For TD Direct Investing, it was a unique opportunity to be in the room with and get access to the target pool of their next wave of clients.

Taking it a step further, TD Wealth also featured one of the speakers at the event, Jessica Moorhouse, on a recent edition of their original program Money Talks to discuss millennials and investing.

One reason that this event and the subsequent feature on the Money Talks segment matters is because when it comes to attention and winning “mindshare” with DIY investors, content and influence are two important ingredients.

In terms of producing financial education content, TD Direct Investing is arguably the leading online brokerage in Canada for creating and deploying structured financial education related to investing (especially DIY investing).

They have also historically been very adept at providing “in-person” events and this latest iteration shows what happens when popular online personalities get a platform in the “real world” to provide a session to curious and enthusiastic followers.

Tactically speaking, this puts other Canadian online brokerages in a challenging position to supplement their offering with something as compelling from an educational content standpoint. For consumers looking to learn more about investing, and who base their choice of which online brokerage to go with, TD Direct Investing’s educational content makes them a hard contender to beat.

A second important observation of this event is that the coveted millennial audience is out there and they are curious about learning about investing.

With a big-bank-owned brokerage taking the lead in reaching out to this demographic, it could kickstart activity from other Canadian online brokerages to do the same.

We have already observed a shift in the frequency and style of several other online brokerages’ content efforts to make them more accessible to a contemporary (read: younger) audience. TD Direct Investing’s latest move means that those online brokerages interested in reaching that same demographic are going to have to, ironically, level up their game to go beyond just execution price to gain traction with a younger investor.

A Convenient Truth

Despite the differences broadcast in the news between Canada and U.S., one thing that online brokerages on both sides of the border face as a challenge is looking for ways to grow their business. This past week, there were interesting stories on both sides of the border that collectively point to a strategy of diversification on the part of online brokerages to keep their businesses economically viable.

Case in point, even though the heady times of early 2018 are in the rear view mirror for cryptocurrency traders, late last month a Bloomberg story reported that one of the well known online brokerages in the U.S., E*Trade Financial, is going to enter into the cryptocurrency trading space by enabling direct trading of Bitcoin and Ether. Direct competitor to E*Trade, TD Ameritrade, has also been reportedly quietly testing Bitcoin trading (not just the futures trading which is already available on their platform). With Robinhood already well out in front of the “crypto” trend at online brokerages with their launch last year of cryptocurrency trading, the normalization of crypto trading at online brokerages may be soon at hand. For Canadian online brokerages, this is one trend that could help to ignite a connection with millennial investors and those investors who seem more comfortable with the digital currency trade.

Perhaps the most compelling example of the evolution of the “online brokerage” into a holistic financial management platform is with Interactive Brokers. They have gone from the platform of choice for active traders to an “integrated” model that lets clients earn, borrow, spend and invest.

Meanwhile, in the Canadian online brokerage space, the recent example of independent online broker Questrade adding a residential and commercial mortgage lender, Community Trust, to their stable of services signals a major step change for this financial services provider who started out focusing on DIY investing.

With new competitive forces continuously pushing commission fees ever lower, there are examples in the U.S. and Canadian markets that reflect how online brokerages are responding: diversification. What that means for DIY investors appears to be that as wealth and money become increasingly digitized, the line between traditional banking service providers and traditional investing services is going to get very blurry.

As the mammoth valuations on Uber and Lyft highlight, convenience culture is alive and thriving.  If any online brokerage north or south of the border can walk the tightrope of being compliant with regulations while also providing an experience to access financial services that screams convenience and reliability, it won’t just be on our radar, it will be on a lot of others’ too.

Discount Brokerage Tweets of the Week

From the Forums

Start Your Engines

With the launch of Uber’s brand-new IPO, one DIY investor has questions about the best time to invest in this company. See what other forum users had to say in this RedFlagDeals thread.

Getting Invested

One DIY investor has contribution questions after being offered a chance to invest in their company at a discount. See what advice fellow Redditors provided here.

Into the Close

That’s a wrap on another edition of the roundup. While there’s controversy on the origin of the phrase/curse “may you live in interesting times,” there’s probably more agreement on the fact that we’re living through those very interesting times. After a nail biting weekend courtesy of the Raptors, Game of Thrones, and trade talks, there’s a pretty high bar for the next week to surpass in terms of “interesting.” Here’s hoping there’s something boring to talk about next week!

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Discount Brokerage Weekly Roundup – May 6, 2019

It’s hard to believe that May is already upon us and there’s talk everywhere about untimely ends. Whether it’s from King’s Landing, or the basketball court, or deals and promotions, there’s clearly some drama ahead in May that will make for gripping entertainment.

In this edition of the Roundup we’ll review the latest interesting twist in the deals and promotions space from a rather large player, as well as profile a novel way to derive income for buy & holders. As always we’ll toss in some forum posts and Twitter conversations for good measure.

Deals and Promotions Update

If you’re looking for a safe place to hide from Game of Thrones spoilers, this may not be the best spot to seek refuge. So, what does this legendary television show have in common with Canadian online brokerage deals and promotions this month? Plot twists.

Heading into May, things were looking somewhat grim in the deals and promotions space. After an incredibly hectic start to the year, there were many promotions set to unceremoniously end in April. One of the more noteworthy offers that wound down last week after itself having been extended through the income tax filing deadline was CIBC Investor’s Edge cash-back promotion.

But, like any good market, competitors giving one another a free pass wasn’t going to last very long.

The first bit of good news for DIY investors came from an unlikely source, as the usually reserved HSBC InvestDirect decided to extend their cash back promotion by another month. While it wasn’t a major extension, it nonetheless bulked up the cash back offerings for DIY investors. This meant that BMO InvestorLine and Questrade were not alone in offering a cash-back promotion.

The second bit of good news for DIY investors that crossed our radar last week was that they wouldn’t be waiting for a new offer for very long at all. RBC Direct Investing rolled out a new cash back promotion for the better part of May which serves up between $100 and $1,000 in cash back bonuses to investors who deposit between $25,000 and $500,000 or more.

Despite the modest size of the cash-back amounts, the latest move by RBC Direct Investing is kind of a big deal as they themselves are also kind of a big deal. The size and profile of RBC Direct Investing means when they bring an offer or new feature to market, other online brokerages will have to pay attention, if not figure out a way to respond in kind.

While it is likely by design, this deal was not in the public spotlight the way that previous mass market promotions were. In fact, this promotion came to light because it was emailed to investors who in turn, posted the information about it on investing forums. For a modest-sized offer to create any chatter online is largely the result of who is offering it – in this case a major provider. The lesson for other online brokerages is clearly that if they want to generate buzz about themselves then it is going to take a serious investment in incentives (such as deals) and advertising.

The second important observation about this offer is its duration. According to the terms and conditions, this offer was technically live as of April 25th however the deadline to take advantage of it is May 24th.

This is an unusually short duration for a promotion from an online brokerage – especially a larger one – so it indicates that there is more to this deal than meets the eye. Digging deeper into the terms and conditions, what is interesting to take note of is that to qualify for this offer, accounts must be opened by May 24th but deposits or transfers don’t have to be received by RBC Direct Investing until July 26th. Finally, another observation related to timing is that the requirement that clients who take advantage of this offer need to keep these assets with RBC until December to qualify for the payout.

Where the rest of the online brokerage space goes from here will be interesting. As we had referenced in last week’s Roundup, there’s clearly a fundamental case to be made for online brokerages to get in front of the IPO wave currently washing over markets. With stories like Beyond Meat debuting and doubling to serve as a counterpoint to the disappointing Lyft IPO, it means that investors on the sidelines of these “unicorns” might be coming back to the market to invest, and the deals or promotions on offer will certainly factor into which online brokerage gets chosen.

Of course, the fact that RBC has timed their promotional offer to last about one month only, means that other brokerages might be less inclined to launch their own promotion and hope they can ride out the storm. Regardless, there’re clearly more twists and turns left in the deals and promotions story in May, and that’s a great net result for DIY investors.

Interactive Brokers Enables Stock Yield Enhancement in Canada

The old saying goes that it takes two to make a market. When it comes to the stock market, however, it is important to remember that every trade requires a buyer and a seller. Of course, there’s one other necessary ingredient: shares. While buyers typically don’t run into problems finding shares to purchase, the same cannot be said for shares for short selling.

Last week, Interactive Brokers expanded its unique Stock Yield Enhancement program to now include eligible Canadian securities. The Stock Yield Enhancement program effectively lets Interactive Brokers clients who happen to be owners of a security lend that security out into a pool overseen by Interactive Brokers. More often than not, these shares/securities will be lent out again for short sellers to take advantage of.

The announcement last week is an interesting example of how a previous dark-horse online brokerage is creating something investors will benefit from, particularly in Canada. This move changes the value proposition so that Canadian investors can monetize the stocks sitting in their portfolios.

It is also worth noting that Interactive Brokers Canada rolling out new features for Canadians is taking place at the same time that other brokerages are trying figure out how to reduce costs. This juxtaposition is both a reflection of and warning to other online brokerages that in addition to lowering prices, Interactive Brokers continues to innovate with technology tools and pass those savings to clients.

Discount Brokerage Tweets of the Week

From the Forums

Above Average Joe

A DIY investor wants to know if it’s possible to generate a significant amount of passive income per day through investing. See what other forum users had to say in this Canadian Money Forum thread.

To Pay or Not to Pay

A student has questions about whether to invest or pay off their student loan. Find out what advice fellow Redditors offered here.

Into the Close

That’s a wrap on the latest action at Canadian online brokerages. From new features to new deals, it appears that anyone planning to take it easy this summer at an online brokerage may want to rethink that one. Of course, with all that is going on in real life and on television, it’s going to be tough not to need a vacation from all the angst being shared on Twitter. Regardless, have a profitable week!