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Discount Brokerage Weekly Roundup – October 4, 2021

And just like that, October is upon us. Changing leaves, falling temperatures, and costumes are now part of the normal routine; however, this year it seems like this month (and those coming after it) are going to be filled with new features and deals from Canadian online brokerages.

In this week’s Roundup, we catch up on the latest activity in the deals and promotions section, and highlight how commission-free trading is starting to shape the kinds of promotions we’re seeing emerge from online brokerages heading into RSP season. From there, we review the rocky start to QuestMobile, the new trading app experience launched by Questrade and the lessons to be learned from rolling out a new platform. With all of the commentary on the Questrade story, forum chatter was paused for this week (not to worry, there’s plenty to dig into) but will return again next week.

Tricks and Treats: DIY Investor Deals Update

October is often associated with treats and for Canadian self-directed investors, it seems like this month is shaping up to be especially treat-worthy.

The start of a new month is a great time to check in on deals and promotions being offered by Canadian online brokerages, and this month did not disappoint. With two big names, RBC Direct Investing and Qtrade Direct Investing, electing to extend commission-free trade offers and another bank-owned online brokerage, HSBC InvestDirect, launching a commission-free trade offer, there was a clearly a trend towards leaning into commission-free trading.

This year more than any other, promotions and incentive offers are going to play an important role in swaying online investor opinion – and loyalty.

Since the seismic shift in the Canadian online brokerage landscape from National Bank Direct Brokerage and Desjardins Online Brokerage offering commission-free trading (on equities and ETFs), there’s no doubt that other Canadian online brokerages are discussing how they might position themselves in a commission-free trading world.

While none of Canada’s online brokers are in a hurry to go commission-free, there is also a sense that this might be the last year in which commission rates can stay where they currently are. As such, commission-free trade promotions offer a middle ground for existing players to entice new clients while they configure themselves for a commission drop. In both the commission-free offers from Qtrade Direct Investing and RBC Direct Investing, the timeframe to use up a healthy number of commission-free trades (50 apiece) ranges from several months to two years, respectively. In terms of RBC Direct Investing, it is the longest that we’ve seen a commission-free trading offer stretch out to, a signal that the need to do so has clearly come.

A subtle but important maneuver we have also observed is the movement of expiry dates of the promotions themselves.

While extending offers is nothing new (Desjardins Online Brokerage famously kept extending their commission-free deal for a few years), the duration of recent deals seems to be a bit shorter than in years past. Wealthsimple Trade, for example, has been using shorter time frames than their competitors, and with the latest offer from RBC Direct Investing, the extension of the promotion expiry date was only for an additional month. Historically, promotional offers would last for several months; however, the tide has clearly shifted given everything that has happened this year.

Looking across the online brokerage landscape, it’s almost a given that big-bank online brokerages that don’t have a big deal will have to come to market with something enticing. Cash-back offers are hard to come by these days, which is why BMO InvestorLine currently stands alone in this category – especially when compared with its bank-owned brokerage peers. That said, long-duration commission-free trades seem to make the most sense for “occasional” investors who would enjoy the peace of mind that for the next year or two, there is a low likelihood of them needing to pay much (or anything) for equity or ETF trades. It would certainly sway investors away from opening a “test” account at zero-commission brokerage and instead open a new account or deposit new funds into an existing account.

The fact that we’ve already seen two big deal extensions and a new offer come to market at the beginning of October is a clear signal that online brokerages in Canada are gearing up for a busy RSP season battle.

Promotions offer a strategic option to online brokerages that aren’t ready to drop commission prices just yet. And, even at online brokerages that offer commission-free trading, such as Wealthsimple Trade, promotional offers still play an important role in capturing new client interest. Whichever route that brokerages take this fall, Canadian self-directed investors are in for a treat.

A (Cautionary) Tale of Two Screens: Questrade’s New Layout Generates Mixed Reviews

If there’s one big theme to 2021, it’s been new features and offerings from Canadian online brokerages. This past week, Questrade was the latest online brokerage to launch a new (and long-awaited) mobile trading experience.

Unfortunately, it didn’t quite go as intended.

The launch of a new website or app experience is something that wouldn’t ordinarily generate a lot of discussion or coverage. So, in that regard, this roll out was unusual in the degree to which many online investors did not like what they saw.

In fact, on the Questrade reddit thread, we collected (and read through) no fewer than 20 different threads complaining about the changes to trading experience. Twitter and other online investor forums also had a similar set of responses. For reference, here are some of the comments regarding QuestMobile on Questrade’s reddit:

  1. https://www.reddit.com/r/Questrade/comments/pwgqko/kiss_keep_it_simple_and_stupid_is_a_great/
  2. https://www.reddit.com/r/Questrade/comments/pwgxeb/i_think_this_is_the_silliest_change_ive_ever_seen/
  3. https://www.reddit.com/r/Questrade/comments/pwgyox/new_layout/
  4. https://www.reddit.com/r/Questrade/comments/pwhgt1/i_wanted_to_see_what_everyone_was_complaining/
  5. https://www.reddit.com/r/Questrade/comments/pwhide/why/
  6. https://www.reddit.com/r/Questrade/comments/pwifuw/how_do_i_view_open_orders_with_new_layout/
  7. https://www.reddit.com/r/Questrade/comments/pwiln8/wow_this_is_so_brutal_this_new_layout_im_already/
  8. https://www.reddit.com/r/Questrade/comments/pwj9qk/horrible_ui_update/
  9. https://www.reddit.com/r/Questrade/comments/pwjlg9/the_new_user_interface_is_awful/
  10. https://www.reddit.com/r/Questrade/comments/pwjney/feedback_on_questrades_new_changes/
  11. https://www.reddit.com/r/Questrade/comments/pwjqzw/new_ui_is_ridiculous_considering_leaving_after_4/
  12. https://www.reddit.com/r/Questrade/comments/pwjvr4/new_layout_heres_whats_wrong/
  13. https://www.reddit.com/r/Questrade/comments/pwkf2z/we_cant_see_the_bidask_spread_anymore/
  14. https://www.reddit.com/r/Questrade/comments/pwmg3r/go_back_to_old_ui/
  15. https://www.reddit.com/r/Questrade/comments/pwnymp/this_new_questrade_ui_is_god_awful/
  16. https://www.reddit.com/r/Questrade/comments/pwocab/new_ui_on_the_website/
  17. https://www.reddit.com/r/Questrade/comments/pytgrc/voicing_displeasure_with_new_ui/
  18. https://www.reddit.com/r/Questrade/comments/pwu4g8/the_biggest_problem_with_the_ui_update_imo/
  19. https://www.reddit.com/r/Questrade/comments/pwr4s6/new_mobile_app/

There is definitely a lot to unpack in reading through the investor comments and reactions to the new interface. Through some detective work, it is evident that online investors seemed to take issue with the fact that the desktop and mobile experiences were rendered in the exact same way, something that clearly didn’t sit well with desktop users.

While the new QuestMobile experience was designed around keeping things simple and easy to navigate, the biggest ask for users of the desktop experience was how to revert back to the way things were.

Unlike other rollouts of new platforms we’ve seen over the years, it wasn’t just the case that things were unfamiliar either, it was that information that users on desktop were used to seeing was no longer there. Information such as bid/ask spreads or watchlists were not part of the “new” default view. To find those features, users had to navigate to and install Questrade Edge, a separate platform that was what desktop users were used to seeing.

As feedback from the new rollout started to emerge, the responses from Questrade on reddit and social media seemed to reflect an understanding that something had not gone according to plan. Though it was clear they were aiming to simplify things, the reality is that many online investors were confused by the move.

The fact that Questrade now has two mobile apps, Questrade Edge and QuestMobile, is also a source of confusion (or choice) for users. What will need to emerge over the coming weeks is a clarification to existing clients as well as to prospective ones, as to the differences between the platforms.

The reality of the QuestMobile app, however, is that despite the issues and reactions mentioned in regards to the “desktop” experience, mobile users of the new app were generally positive on new layout and experience. On Google Play and on the Apple App Store, for example, ratings for the new app were relatively high (compared to the other Questrade mobile app), a sign that although not perfect, it was resonating with clients who tried it out.

It is also important to note that in addition to the “basic” overview of trading online, Questrade has also telegraphed that they are working on a new mobile app experience tailored for active traders as well.

As mentioned above, there is clearly a lot to unpack. For a few years now, Questrade has signaled to online investors that a new mobile trading experience was on its way. And, granted, while it took quite some time to arrive, it is clear that they have taken design cues from competitors like Wealthsimple Trade to try and simplify how trading information is presented in a mobile-first experience while also enabling a simplified navigation experience as well. The new QuestMobile is lighter than its Questrade Edge counterpart, for better or worse.

Although it is unclear when or if Questrade will adopt the commission-free trading model that peer firms in the online brokerage space have, it does seem like the QuestMobile trading experience hints at a path for lower cost online investing to happen. By effectively unbundling features from their current platform experience into a “lite” and “full featured” combination, it seems like Questrade could create two different pricing structures around those features. This is all speculative, of course. However, Wealthsimple Trade has shown that they are willing (and able) to charge users for a more premium experience, as has Robinhood in the US, so the precedent is established for zero-commission online brokerages to charge for specific features.

After 20 years in the online brokerage space, Questrade has learned a few things about handling missteps. One can go back to their decision to charge inactivity fees in 2012, for example, in which they had faced a similar firestorm from clients who were not happy with the move. Eventually, they phased them in anyway and then as market forces shifted, they phased them out.

Granted, there is now a renewed interest in trading online and there are even more channels to which investors can turn for information about online investing. So, the stakes for getting things wrong now are certainly higher than they were almost a decade ago. And yet, as was the case in 2012, Questrade is adapting to the times.

The new QuestMobile app was developed for a simpler use case for investing online and it is precisely because it has fewer features than what existing clients were used to that they voiced their discontent. But, those existing clients represent a different use case than potential new clients, in particular those who are not “active traders.” Individuals who are contemplating switching from other online brokerages, including Wealthsimple Trade, who are looking for a simple-to-use interface will find exactly that on the new QuestMobile platform. And, it seems with a bit of work on the communications front, making it easier to find and take advantage of the Questrade Edge interface can help with supporting more complex investing/trading needs – at least until the “active trader” version of QuestMobile gets released.

If there are any lessons for other online brokerages to glean from this roll out, it’s clear that giving existing users a clear way to opt out of a new platform is key to managing the transition between old and new interfaces. BMO InvestorLine did an especially good job of this in the roll out of their new online trading experience. Although the switch to a “new” platform experience took quite some time, users had the ability to toggle between the “old” and “new” and it is clearly stated in multiple places that users were able to do that.

Another important lesson to draw from the QuestMobile experience is the difference between mobile and desktop interfaces. Going “mobile first” doesn’t mean that mobile UI/UX translates well into desktop. They clearly do not map onto one another 1:1, which is something many of the responses pointed out.

Finally, it turns out that one of Questrade’s greatest strengths, the ability to reach self-directed investors on social media and in forums, is not without its risks. Building those strong communities online has helped propel Questrade’s growth. But as the reddit threads, investor forums and Twitter comments have shown, in 2021, online investors also on those channels are also much more willing to be vocal about what they don’t like. If there seems to be consensus across forums and social media that something needs to change with the QuestMobile experience, Questrade would be wise to pay attention.

From the Forums

With all of the forum chatter from this week, it seemed appropriate to cap coverage of investor commentary. Forum chatter will return again next week.

Into the Close

That’s a wrap on another week. It was an important week on many fronts – Canada marked the first National Day of Truth and Reconciliation and at Sparx Publishing Group, we also launched our first edition of Make The World Better Magazine. We know there is a lot of news that can be sad and disheartening; however, there is also a lot of great work being done by individuals and organizations who are out there trying to make a positive difference in the world, which is exactly what we wanted to feature.

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Discount Brokerage Weekly Roundup – September 7, 2021

If you find it hard to believe that it’s already September, you’re not alone. With so much taking place this year, especially in the online brokerage industry, the months have flown by, and we now find ourselves on the cusp of what is usually the “busy season.” Another reason that time flies: it’s because we’re having fun.

After a marathon edition of the Weekly Roundup last week, we now return to a more digestible edition of online brokerage industry coverage. First, we launch into the deals and promotions updates to start the month and look at the increased importance that promotions are poised to play in a commission-free world. Next, we recap some other important developments, including the 10-year anniversary (that’s X in Roman numerals!) of the launch of SparxTrading.com. Finally, we close out with commentary from the online investor forums.

Deals and Promotions Update

There are lots of different reasons people look forward to the start of a new month, but here at Sparx Trading, it’s a convenient time to review Canadian online brokerage deals and promotions.

In case you missed it, the big news this past month – perhaps this decade – is that National Bank Direct Brokerage eliminated commission fees for trading stocks and ETFs in August. This is still a very recent development, so while we have yet to witness any immediate reactions in pricing or promotional changes from Canada’s online brokers, we believe it will be a matter of time until we see other online brokers start to lower their pricing as well.

Given the lack of immediate reduction in pricing of commissions, online brokerage promotions and incentives are poised to take on an even more important role for Canadian online brokerages to secure existing accounts and even attract new ones.

Despite the immediate relevance that zero-commission trading provides to National Bank Direct Brokerage, one of the big challenges it faces is the “friction” that online investors who would rather not move. Another challenge is the fact that as an online brokerage, National Bank Direct Brokerage is relatively unknown compared to bigger bank-owned brokers or those that have been aggressively advertising, such as Questrade or Wealthsimple Trade.

Thus, Canadian online brokerages who aren’t yet ready to drop their commission prices to zero have a brief window of opportunity to show up big during the next few months. As such, we forecast that September through November will represent a very volatile period for Canadian online brokerages.

In this month’s deals and promotions, there’s a lot to report on already. Starting with the special Sparx Trading exclusive promotion from Questrade. The now famous Sparx88 promo code for Questrade accounts is having its sunset at the end of September, after having a run of just over four years.

It has delivered exceptional value for online investors opening an account with Questrade as one of the best commission-free offers at that online brokerage and played an important role in the promotions space after Questrade largely pulled back from offering multiple promotional offers.  

There some important changes taking place behind the scenes at Questrade, so we were informed it would no longer be possible to run this offer. For anyone who signs up using the promo code before the expiry date of September 30, they have until the end of December of this year to use up their commission credit.

On the expiry front, there were a pair of deals that officially concluded at the end of August – one from Scotia iTRADE as well as one from BMO InvestorLine. In keeping with historical trends, however, BMO InvestorLine replaced their outgoing cash back offer with a new cash back incentive. Interestingly, BMO InvestorLine’s newest promotion runs until the beginning of November, which is about the point of time in which we expect to see a surge in launches of online brokerage promotions.

Also worth noting, the minimum deposit requirement for the InvestorLine offer has been raised from $15,000 to $25,000. Currently, BMO InvestorLine is the only Canadian bank-owned online brokerage advertising a cash back promotion. Intriguingly, the only other Canadian online brokerage offering a cash back is Wealthsimple Trade, whose “free stock” sign up bonus offers self-directed investors some cash when opening a new account. Questrade and Scotia iTRADE have cash bonuses available through referral codes.

Another interesting development that we first spotted being advertised online in August was a commission-free trading offer from RBC Direct Investing.

Unlike some of its previous commission-free trading offers, RBC Direct Investing’s promotion was both larger and longer in duration. This new offer, which runs until the end of September, is for 50 commission-free trades that are good for two years. Previously, RBC Direct Investing’s free trade offer was typically 25 trades for one year, so this new promotion effectively doubles that.

The move to increase the size and duration of the commission-free trade offer is likely to be something other Canadian online brokerages consider when planning similar commission promotions. As mentioned above, by providing a longer time horizon for investors to use commission-free trades, there is less immediate pressure to switch brokerages and less pressure to lower commission levels outright, especially for passive investors or those who are not yet ready to make the leap to a lesser-known brokerage.

While the beginning of the month started with a shockwave of news, the end of the month provides a natural jumping off point for several online brokerages. Qtrade Direct Investing and RBC Direct Investing both have campaigns that are scheduled to expire at the end of the month, so it will be interesting to see what, if any, offers show up to replace them.

The ramp up to the start of RSP season is also just around the corner, which, based on everything that has transpired these past few weeks, suggests prime time for some big incentives to start showing up. Larger online brokerages may just roll the dice and come to market with similar offers as they had last year, but smaller or less popular online brokers are at a pivotal moment where they will have to be launching exceptional new features or introduce offers that are going either buy time or clients (or both).

With the move by National Bank Direct Brokerage catching many industry observers (including us!) by surprise, these next few weeks and months will bring a host of pleasant surprises for Canadian self-directed investors. And we haven’t even mentioned the new online brokerages slated to enter the online trading scene soon. It seems entirely fitting that “fall” is the season in which we’ll now start to see commission costs for online investors meaningfully drop. Stay tuned.

Online Brokerage Quick Takes

After the marathon read that was last week’s Roundup, we wanted to give readers a bit of a break with some quick highlights of other news stories around the online brokerage space that didn’t get as much press or coverage.

Wealthsimple Trade Increases Fractional Shares & Instant Deposits

The launch of fractional shares at Wealthsimple Trade earlier this year was a very big deal. Despite the rollout only featuring a handful of Canadian and US stocks, a few weeks ago, a lot more were added to the list of stocks eligible for fractional trading. At the time of publication, that list has now grown almost ten-fold to 150 stocks. The vast majority (115) of those stocks are US-listed securities, which, given their popularity, availability, and profitability to Wealthsimple Trade, makes sense.

However, the list of Canadian stocks (35) has some additional names which are very familiar to Canadian investors. Interestingly, on the list of US securities, there are also a number of ETFs.

This much wider selection is going to be of much greater appeal to investors, however, unsurprisingly, the demand for more Canadian securities is likely a priority for self-directed investors (rather than traders) in Canada.

Complementing the launch of more securities eligible for fractional shares is the increase in the amounts that can be funded instantly to Wealthsimple Trade from $1,000 to $5,000. The monthly subscription to enhance features on Wealthsimple Trade is currently $3 which also provides real time snap quotes from Canadian exchanges as well as Nasdaq.

Fast deposits of larger sums of money are an area that non-bank-owned online brokerages have struggled with in the past, so it is no surprise to see “account funding” be a feature that Questrade, as well as Wealthsimple Trade, are working to improve.

The summer has been a busy one for Wealthsimple Trade with no signs of a slowdown in terms of new feature releases. It appears that they are pushing very hard to have some very big features in place for RSP season, and with news coming out almost weekly on Wealthsimple Trade, it is hard to imagine other online brokerages being able to rest easy knowing that current pain points of Wealthsimple Trade customers are going to be that way for too much longer.

SparxTrading.com Turns 10!

Also eclipsed by the big news from National Bank Direct Brokerage: SparxTrading.com’s official birthday!! It’s hard to fathom that we officially went live 10 years ago in September with a mission to help untangle the journey of self-directed investing and that we’ve been around for this long.

It has been quite the journey to where we are today. From a conversation among friends expressing frustration at the state of online investing to becoming one of the most important voices in the Canadian online brokerage industry, I certainly didn’t picture this world 10 years ago.

In so many ways, the world for online investors a decade ago was dramatically different than the one now. There was no inkling that commission-free trading was “a thing” and we were just coming out of the Great Financial Crisis, so sentiment on markets was understandably skeptical. Nevertheless, it was clear at that point that the world of online investing was prohibitively inaccessible to so many, and it was time to change that.

I would like to think that in some small way, we’ve helped improve the experience of online investors over the past decade, whether it’s been through making it easier to research online brokerages in Canada, improve access to deals and promotions, or advocating directly to leaders across the industry as to what online investors are interested in.

As anyone who knows the Canadian online brokerage landscape will tell you, change often happens slowly, so patience has been a defining trait since day one.

The first “official” post on the original Sparx Trading site is still available – it was a reference to an investment blog called Juggling Dynamite, which is still going strong today. And, in a twist of fate that can only be one of those signs the universe tends to toss our way every now and then, a recent post on that blog happens to be a harbinger of where the parent to Sparx Trading, Sparx Publishing Group, is heading towards to help make the world better.

The Sparx team has now grown to 18, many more if you include new family members, pets, and one heck of a spider plant.

We’re so excited to see what the next 10 years has in store, and with the latest shift in the online brokerage industry in Canada, there seems to be as much of a need today for clarity for self-directed investors as there was when we first started. True to the mission of Sparx Publishing Group, we’re content to make the world better one post at a time.

Like most of the online brokerage industry, we too are actively working on new features and can’t wait to have them launch soon enough.

Thanks to everyone who has helped us get to this point, especially you curious and supportive readers who enjoy the world of online investing as much as we do!

From the Forums

Kind of a Big Deal?

At the start of the month, it seems fitting to be talking about making a move from one online brokerage to another. In this post, one online investor wanted to know what the consequences were of transferring assets into a TFSA from a non-registered account. Check out what fellow online investors had to say about making the shift.

Sliced vs Diced

Smaller portions are all the rage right now when it comes to buying stocks online. With some very popular stocks like Amazon out of reach for many new investors, online brokerages and investment firms have gotten creative, in particular using fractional shares and ETFs to lower the bar to get a literal piece of the action. Find out what one reddit thread had to say about fractional shares versus ETFs on the NEO exchange.

Into the Close

That’s a wrap on the long weekend edition of the Roundup. There’s a lot in play – including the return of NFL football – so there’s something extra for fantasy football portfolio managers to stay on top of. We’re thrilled to be stepping into our 10th year with so much change taking place. September is often associated with the “back to school” theme, however, as we’ve come to appreciate (this year more than ever), every day brings something new to learn.

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Discount Brokerage Deals & Promotions – September 2021

September is officially upon us, and with fall just around the corner, change seems to be the appropriate theme to capture what’s taking place in the online brokerage industry in Canada.

Of course, the big news this month is that National Bank Direct Brokerage launched commission-free trading at the end of August, signaling the start of a new chapter for the industry in which bank-owned brokerages are prepared to compete with the nimble upstarts in terms of pricing.

On the deals and promotions front, this is a particularly busy month, now likely made even busier by National Bank Direct Brokerage’s latest pricing move. All of this is great news for Canadian self-directed investors, who will likely benefit from more compelling promotions and pricing in the coming weeks and months.

The launch of the new commission-free trading structure at National Bank Direct Brokerage wasn’t the only story that is relevant to the deals section this month, however. For example, we saw cash back offers still lead the way at BMO InvestorLine; Qtrade Direct Investing still has their cash back offering, and we (finally) spotted the official terms of an RBC Direct Investing deal that appears to be advertised on search engines.

Another big piece of news in the deals section: the best Questrade promo offer code on the market, Sparx88, is being retired at the end of September.

The end of August also bid farewell to offers from Scotia iTRADE for their education bootcamp, and the 100 commission-free trade offer from National Bank Direct Brokerage is, for all intents and purposes, taking an early retirement.

Given everything that’s in motion this month, we’ll be keeping an eye out for more offers and if you spot any you think would be of value to other online investors, let us know.

Expired Deals

There are a couple offers that have officially expired at the end of August. The commission-free trade offer from Scotia iTRADE linked to their investor education initiative concluded, as well as BMO InvestorLine’s summer cash back offer (a new one has replaced it).

Extended Deals

No extended deals to report at this time.

New Deals

The most exciting new deal to report on this month is from RBC Direct Investing. We had first spotted this in August, however, locating it online was a challenge since it appears to be tied to different Google searches – something that is a fascinating tactical choice. This new deal represents an important shift for RBC Direct Investing, as the number of free trades being offered (50) is higher than any recent commission-free offer they’ve put forward, and the time horizon to use the trades is two years. Like several other offers, this deal is scheduled to expire at the end of August. Check out the online brokerage deals index for more details.

BMO InvestorLine launched a slightly modified cash back offer upping the minimum deposit requirement from $15,000 to $25,000. The cash back amounts range from $50 to $2,000 so it is one of the few offers currently available to provide larger cash back rewards for large deposit amounts. This offer expires at the beginning of November, which is likely the window of time in which we expect to see more online brokerages launch RSP-linked campaigns.

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Discount Brokerage Weekly Roundup – August 30, 2021

Truth be told, it was supposed to be a vacation edition of the Weekly Roundup. However, National Bank Direct Brokerage’s big news this week managed to make a lot of folks in the online brokerage industry in Canada put any plans for taking time off on hold (including mine).

It’s fitting that this special edition of the Roundup focuses on just one big story: the move to zero commission trading by National Bank Direct Brokerage. We’ll return with more stories next week (there were actually other things that happened too!) as well as more investor forum chatter.

Caveat: We were going to keep this initial coverage of the price movement short (well at least as short as we could). After poring over 1,000 user comments, as well as different news reports, articles, and forum posts, there’s lots to say here, but in the interest of keeping things manageable, we’ll focus on some of the initial developments and implications. Not to worry though, there’s lots more to unpack, so stay tuned.

National Bank Direct Brokerage Eliminates Trading Commissions

In case you missed it on the news, social media, and in the investor forums, National Bank Direct Brokerage made history this past week by dropping standard commissions for equity and ETF trading to zero. That’s right, the first big bank-owned online brokerage in Canada chose the “nuclear” option on pricing by eliminating trading commissions.

While it is still early days, saying this is a game changer would be an understatement.

Change, however, is unlikely to come as swift as it did in the US during their zero-commission wave in 2019, but the latest move by National Bank Direct Brokerage is sure to put pressure on all Canadian online brokers to seriously consider taking drastic measures to respond.

A History of Making Pricing Moves

Commission price drops have been a part of the trends at National Bank Direct Brokerage over the past several years, and even earlier this year. And yet, in looking at the roll-out of the new commission reality, one gets the sense that this decision was both a long time coming and pushed forward quickly to come to market this year.

For a bit of a history lesson, the zero-commission trading conversation at National Bank Direct Brokerage has been happening for longer than most online investors would think. In a bit of a personal anecdote, I recollect having a meeting with a senior executive at National Bank Direct Brokerage (NBDB) back in the spring of 2017 in which commission-free trading at Robinhood came up. At that time, it wasn’t seen as something that would gain traction with the industry, however, later that summer, NBDB launched zero-commission ETF trading on all Canadian and US ETFs. Prior to that, there were only short stints at NBDB where commission-free trading of ETFs were offered as a promotion, probably as a means to analyze the impact and popularity of this feature.

In October 2019, they dropped the pricing from $9.95 to $6.95 for National Bank clients, offered young investors (aged 18 to 30) commission rates at $4.95, and gave active investors an even lower rate of $0.95 per trade for 100+ trades per quarter. Earlier this year, in March, we also reported on a commission fee drop from National Bank Direct Brokerage in which the regular commission fee was lowered to $6.95 per trade for everyone. Incidentally, October 2019 was also the point in time when US online brokerages also embraced zero-commission online trading more broadly.

If there is a pattern emerging, it is that National Bank Direct Brokerage has been quietly gathering data on the zero-commission thesis over the past few years. It is a bold move to be “the first” one to make the move to zero, however, they clearly had a lot of information on which to place this bet.

While the timing is a bit of a mystery, the reality is that it was going to be a matter of when, rather than if, online brokerages moved to zero-commission in Canada. And, as a brand that wanted to expand its footprint across Canada, as well as its position in the hierarchy of online brokerages in Canada, going to zero commissions provided much more upside to NBDB relative to the downside.

Being the first one to do it, gave NBDB the spotlight and enabled them to set the pace of change. Case in point, everyone in the online investing community weighed in on the move.

Having covered this space for almost a decade, there are few moments in the Canadian online brokerage industry that have garnered as much interest from news outlets, social media, and investor forums alike. In fact, the news also made it to several bank earnings calls which happened to fall in the same week as the announcement. It’s safe to say that has never happened before here in Canada.

Not Everything is Free

Despite eliminating the commission charges for stocks and ETFs, National Bank Direct Brokerage did not entirely eliminate commission fees on trading options or inactivity fees.

In terms of options commission, the fixed commission cost component to the options trading commission trade has been eliminated, however, there is still a minimum charge of $6.95 per options trade and pricing per contract remains at $1.25.

That said, it is worth reviewing the revenue segmentation for Robinhood’s earnings which we covered last week, where it clearly shows that when it comes to commission-free trading, the product mix tends to favour options trading over purely stock trading. Options trading is also a lot more profitable for online brokerages than stock trading is, so there is some economic utility to keeping charges for that product intact. Although NBDB does not have all the bells and whistles or order types available on options trading that other brokerages support, the reality is that for simple strategies the functionality is there.

There are also still account maintenance fees. The annual fee of $100 for balances that are less than $20,000 still applies, as does the conditions in place to have them waived. Users can have the inactivity fee waived if they make five stock, ETF, or options trades in a year (between June 1 and May 31 of each calendar year). One source of confusion online initially was when the term “commissionable” was left in one of the conditions (it has since been updated).

Getting used to the realities of zero commission trading also means changes to the old way of doing things. One casualty is promotional offers. The 100 commission-free trade deal is no longer relevant (it was set to expire at the end of September anyway), and while it can’t be ruled out altogether, there is a low probability that cash back offers at NBDB are showing up anytime soon given the surge in interest from self-directed investors curious and relieved at this new option.

What Does This Mean for Self-Directed Investors?

Speaking of self-directed investors, the launch of a full commission-free trading experience with no limits or special conditions on US stocks or specific trading requirements is huge. The chatter online exploded as the news broke early last week, offering a rare glimpse at the various attitudes of many different types of investors all at once.

It is of little surprise to see how much interest there was online, especially in forums on reddit and RedFlagDeals.com that a bank-owned brokerage is offering zero-commission trading. What was surprising, even seasoned veterans, like Glenn LaCoste of Surviscor, was that a bank-owned brokerage that led with this change rather than a smaller competitor.

In fact, it is almost hard to put into words just how explosive the reaction was from retail investors to the news. While it is difficult to summarize all of the fascinating points raised by self-directed investors online, it is incredible to see that even with zero commissions, there are other features that Canadian investors value, something that could turn out to be an Achilles’ heel for broader adoption of commission-free trading at other online brokerages.

Nonetheless, in the weeks ahead, NBDB will likely be tested with a crush of new account opens. From transfers to new accounts outright, the wave of interest is more like a tsunami that will only continue to gather strength as news ripples through investor forums. It is especially attractive to younger investors (under 30) who are not subject to the minimum account balance requirements, and, thus, have almost no downside of opening an account to try out NBDB.

For very active investors and traders, the economics of this make far too much sense to pass up as well.

Granted, options traders and those using margin will still put Interactive Brokers high on their list, however, no other online brokerage in Canada is offering the competitive offer that National Bank Direct Brokerage currently is. Again, this is a major coup for NBDB across almost all segments of investors, including those fed up with paying lots of commissions for what they consider to be an “average” digital experience.

The two most fascinating angles (it is hard to narrow this down to only two), however, have been online investor reactions and the real-time test of how important mobile apps are to investors.

With well over one thousand investor comments and counting, the conversation around NBDB’s price drop contains many themes. High up on that list is the reaction that many online investors had were they contacted their existing online brokerage to ask whether those brokerages had any plans whatsoever to offer similar pricing.

That so many online investors did this was interesting for two reasons.

First, it revealed the different answers from online brokerages around this issue, ranging from “we’re thinking about it” to “nope” (paraphrasing a bit here). In some instances, online brokerages that offer lower commission prices were willing to lower the commission rates generally reserved for active traders to non-active users. In other words, online investors at certain online brokerages are apparently able to request a discount and get one.

The second reason it was so fascinating is because it revealed a nuance about the Canadian online investor which is that here (perhaps unlike in the US), investors are willing to ask questions first then make a move, rather than move quickly based on price alone. Underpinning the “ask first” approach is likely the hassle of having to move accounts, which online investors are apparently willing to endure depending on what they hear back. It was really interesting to see online investors publicly offer up “ultimatum” dates to their online broker to get zero commission trading announced by a certain date otherwise they would move altogether.

Another big point of interest is whether or not a mobile app matters more than low cost to the online investing experience. National Bank Direct Brokerage has web-based trading interface that works on mobile but does not have a dedicated mobile trading app, something that younger investors have – up until this point – been insistent is the marker of a great online investing experience.

It also important to note that the most active (and vocal and influential) online investors use their desktops or laptops when trading online. Users need or want multiple monitors when trading, especially for charting and scanning lots of news. Phones don’t do that nearly as well, so the traders that influence opinions for investors online are going to be driven by the web or desktop experience rather than the mobile one.

As the old adage says, money talks. And while NBDB is not in the same league as Wealthsimple Trade for mobile trading app user experience, the reality is that the mobile experience for NBDB (especially for the price) is “good enough.”

Again, for the sake of brevity, there is a lot to the investor reaction we aren’t reporting here, but suffice to say that all bank-owned online brokerages have likely seen a flood of questions from their clients asking about matching, as well as online brokerages in general receiving account transfer requests from clients looking to move their business to National Bank Direct Brokerage. Online investors are no longer caught between having to choose either low prices or bank-owned brokerage convenience; they can now have both.

What Does This Mean for the Canadian Online Brokerage Industry?

We’ve said it a few times, but it is worth underscoring that the commission price drop by NBDB is a game changer. Who it impacts and how immediately, however, is something we’ll be watching with intense interest.

The first online broker that lots of users have mentioned as being impacted by this decision from National Bank Direct Brokerage is Wealthsimple Trade.

Wealthsimple Trade

Though Wealthsimple Trade has tried to build its brand as the zero-commission online brokerage, the reality for their model is that trading in the US comes with some punishing forex transaction fees. This latest move by NBDB has earned accolades for being able to offer the full list of securities on the major US exchanges as well as the Canadian ones rather than have them subject to restrictions set by the broker. Already, however, sentiment among self-directed investors has put NBDB ahead of Wealthsimple Trade in a number of cost-sensitive categories.

Big Bank-owned Online Brokerages

If there’s any group that could defy gravity on commission pricing just a bit longer in Canada, it is the big five bank-owned online brokerages.

Arguably, the two biggest players, TD Direct Investing and RBC Direct Investing are in the best position to not have to go zero commissions right away given their strong set of features and platforms. Responses from frontline reps, as well as from senior TD and RBC executives on earnings calls, seem to support this view.

Remarks from Teri Currie, TD’s Group Head of Canadian Personal Banking, reveal a rough estimate of what the cost might be if TD went the route of full commission-free trading, as well as what the current sentiment is on them moving price.

It is worth pointing out that the last time that the Canadian online brokerage industry saw a major repricing was in 2014, however, Scotia iTRADE managed to hold onto its 19.99+ and higher commission structure until 2019, which is a long five years for many investors.

After just launching commission-free ETFs, BMO InvestorLine might also take a wait and see approach to the commission drop rather than be the next to dive into the pool, or it might, like National Bank Direct Brokerage did, elect to start dropping prices gradually or with a really compelling promotion to buy some time heading into RSP season.

Of the big five bank-owned brokerages, CIBC Investor’s Edge, already a low-cost option, could arguably have to concede to a lower price point per trade first because it does not have the same depth of features or platforms that are currently being offered by its competitors.

Questrade

Speaking of low-cost leaders, Questrade has emerged as a popular option for value-conscious online investors, so the latest move by National Bank Direct Brokerage to eliminate trading commissions is definitely a blow to the title for Questrade.

There are scenarios in which Questrade might be able to delay dropping commission pricing, however, in all likelihood, despite having a compelling brand, Questrade has sought to be a low-cost option and doing nothing doesn’t seem like an option nor does trying to reposition itself as a technology or platform leader. It has invested substantial resources in marketing themselves as a low-cost provider – if not THE lowest cost provider – so for fee-conscious online investors, they will likely be looking to Questrade to move quickly otherwise it will be investors who will do the moving.

Everyone Else

With the exception of Interactive Brokers, all other online brokerages in Canada will have to seriously reevaluate their pricing heading into the fall and 2022. There aren’t that many other online brokerages in this category, but the strength of brand, convenience, or features just isn’t there the same way it is for other online brokers.

What’s Next?

Where things go from here is somewhat safe to say; when, however, is a different story. The story is still unfolding but anyone who’s made it this far can attest to, there’s lots to unpack here.

The likely scenario we see playing out for now is that online investors will be adding National Bank Direct Brokerage to their short list of online brokerages to consider. There is quite the uphill battle NBDB faces in terms of building awareness of its platform, so it would be safe to assume there’s some big marketing pushes coming in the next few months. Even with the huge surge in online investor interest, National Bank Direct Brokerage is just not well known enough to have online investors immediately jump ship from their existing providers.

The early adopters of NBDB will serve as important points of influence to the curious, however, the good news for NBDB is that there is likely a high enough surge in new account openings that some portion of those individuals will be writing about their experiences.

As for the rest of the online brokerage industry, given where we are in the calendar year, the existing marketing plans that have been devised heading into the end of the year are going to have to be rewritten. While several online brokerages have probably got a “playbook” on how to respond to a zero-commission offering, the next few weeks and months will reveal how extensive that playbook is.

Although it has come as a surprise that National Bank Direct Brokerage was the first big bank-owned online broker to reduce equity and ETF trading commissions to zero, the reality is they’re well-rehearsed in making pricing moves while continuing to improve their service offering. By going first, they have certainly earned the attention they are now getting, however, they are also fighting the pull off some powerful forces among consumer behaviour to stay with their existing online brokerage firm.

Despite the forecast for other brokerages to adopt zero-commission pricing, one thing is clear: the longer other brokerages wait to go to zero, the more impatient online investors will get. Unlike the world before last week, Canadians have now woken up to a new option for trading online and no longer have to wait to take advantage of it.

Into the Close

Thanks for tuning in all the way! There’s still more to this story so be sure to tune into what is likely going to be a wild ride through the end of the year and into next. For now, try and recharge as quickly as you can; it seems the forecast is for activity at Canadian online brokerages to surge, thanks to the move by NBDB.

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Discount Brokerage Weekly Roundup – August 23, 2021

With only a few weeks left of summer, it seems that online brokerages are already gearing up to hit ground running for fall. If there’s one theme emerging, it’s that online brokers on both sides of the border are going compete even harder than they ever have before.

In this week’s Roundup, we dig deep into the first earnings report from Robinhood and analyze the interesting things that were said (and not said) on the earnings call. From there, it’s yet another new feature fiesta, as BMO InvestorLine drops some new enhancements ahead of the fall rush. As always, we highlight some intriguing investor chatter, including some pretty big rumours of new pricing, as well as tackling tough subjects.

Robinhood’s First Earnings Report Sets a High Bar

Summer is a great time for catching up on leisurely reads. That said, the latest thriller isn’t something most folks would put high on their reading list, and yet it is filled with (almost) more legal drama than a Free Britney post.

This past week, Robinhood issued their first quarterly earnings release as a publicly traded company (ticker: HOOD), and while their brand is typically associated with keeping things simple, it turns out that their financial reporting is anything but.

At a whopping 274 pages long, the full filing of their quarterly result is great reading for those with the time and stamina to parse through legalese and financial metrics. Of course, coming on the heels of their IPO, this first earnings report is also filled with a lot of reference to the go-public moment, so it is likely that their next report will be shorter.

With so much ground to cover, it is impossible to dive into all of the interesting details inside of the Robinhood earnings report in this Roundup. But what is abundantly clear from the report and the investor earnings call is that Robinhood intends to live its best life as a public company. Somewhat differently, however, it is unclear if that experiment will truly pay off. Before going down that rabbit hole, a quick look at the performance numbers is in order.

Robinhood Cashes in on Crypto

By many measures, the year over year performance at Robinhood is stunning.

Total revenues increased 131% to USD $565 million, the number of net cumulative funded accounts (NCFA) increased 130% from 9.5 million to 22.5 million, and assets under custody (AUC) shot up 205% to USD $102 billion from USD $33 billion. Those numbers pale in comparison, however, to the transaction-based revenue increase from cryptocurrencies, which increased 46-fold from USD $5 million in the second quarter of 2020 to USD $233 million in Q2 of 2021.

In other words, on a top line basis, thanks to crypto trading, dogecoin, and meme stocks they crushed it.

Of course, nobody, including the founders of Robinhood, expects these kinds of numbers to be repeated anytime soon. The convergence of meme stock– fuelled trading frenzies and Elon Musk– fuelled crypto bumps are part of a new reality for investors and markets to contend with, but the timing and nature of these market influences is tough to build a business around.

As can be seen from the chart above, what was incredibly fascinating about first set of public financial results from Robinhood was the degree to which their fortunes were made by fast-money or YOLO trading customers. Options, a highly leveraged approach to stock trading, as well as cryptocurrencies, made up 88% of Robinhood’s transaction-based revenues. Revenues from equity trading, which actually decreased 26% year-over-year, came in at $52 million.

In addition, in the earnings call, Jason Warnick, Chief Financial Officer at Robinhood, revealed that over 60% of Robinhood customers traded cryptocurrency during the quarter.

These figures paint a portrait of Robinhood and a huge portion of their client base as interested in trading in highly speculative financial instruments rather than image of the “democratized” access to trading stocks that the online brokerage was founded upon.

Surge in New Accounts Likely a Sign of Peak HOOD

Another metric in the earnings release that was off the charts was new account growth in the quarter. According to Warnick, almost 4.5 million net funded accounts came into Robinhood during the quarter, a staggering number by any measure. Charles Schwab, the largest online brokerage on the planet (for now) added 1.45 million new accounts and Interactive Brokers barely registers by comparison at 91.5 thousand over the same period.

There is definitely credit where were credit is due for Robinhood being able to massively scale its client base over such a short period of time.

In fact, it is likely that the Robinhood surge in client activity is the envy of online brokerages everywhere, especially because acquiring these new clients was absurdly cheap thanks to a combination of industry-leading digital UX, huge investor demand, and clever marketing with their stock referral bonus.

As mentioned above, however, the forces that converged to pull investors in is likely not going to reoccur anytime soon, nor can the executives at Robinhood plan their business growth strategy around WallStreetBets and Elon Musk’s views on Dogecoin.

Traditional metrics for valuing online brokerages typically look at trading activity as well as the level of assets that clients of online brokerages have, which is why analysts view Robinhood with some skepticism when it comes to the value and loyalty of their client base.

In fact, one of the analysts on the earnings call, Steven Chubak of Wolfe Research, pointed out the “graduation risk” problem of Robinhood clients. Clients that are leaving Robinhood take with them an account size that is 4x the average than the typical Robinhood account. What was particularly interesting in the exchange was that Warnick stated:

“In terms of the part of your question about graduation risk, what I would tell you is that we fully intend to grow with our customers. You see that in our product road map, as we talked about wanting new investors become long-term investors, that’s really going to inspire the products that we’ve allowed and the account features that we roll out so that we don’t see that. And then what I would tell you is when we look at churn, we’re not seeing any kind of customer demographic concentrations as a big concern.”

The big unknown seems to be whether the rush of options and crypto traders will be interested in “long term” investing and will choose to do so with Robinhood, especially considering the lack of account types and features offered by their peers in this space. Robinhood will have to work both hard and smart to be able to earn business from Millennial and Gen Z investors who want to invest (not just speculatively trade).

Courting Disaster

Although this wasn’t highlighted in the investor presentation or press release, the sheer number and magnitude of lawsuits overhanging Robinhood present significant headwinds to investors and potentially to consumers. In Robinhood’s quarterly filing, there are so many lawsuits it is hard to imagine these activities not just being costly to Robinhood to contend with but also a major distraction to management to have to attend to.

Many of those lawsuits have risen from stories that have made major headlines, including trading restrictions on meme stocks, trading outages (in 2020), gamification, account takeovers, and more. The recent settlement with FINRA (approximately USD $70 million), which also happened to be the largest-ever financial penalty ordered by FINRA, is just one of several unknowns that could severely hamper Robinhood.

Also, if there’s one thing that might make any investor (or potential investor) pause, it’s the 74-page section on risk factors associated with Robinhood.

The reality of investing online is that very few self-directed investors see the level of technical and regulatory complexity associated with being an online brokerage, and this complexity only increases when dealing with tightly interconnected technology and cryptocurrencies.

Summary

Separating the rhetoric from the numbers is going to be an ongoing reality with Robinhood. On the one hand, they are clearly trying to position themselves as the champions of personal financial well-being by pursuing a vision of becoming the “most trusted and most culturally relevant money app worldwide.” On the other hand, being able to grow going forward at the speed and scale they have to date will be costly. Regulatory issues go beyond just a slap on the wrist financially, they also erode confidence of investors and clients. The reputation of being a “rule breaker” does not bode well in the world of finance, even if the ultimate vision is supposedly a noble one.

The most recent quarterly numbers, indeed the numbers over the past year too, indicate that Robinhood has reached an inflection point in their business.

Thanks to much hard work to get them ready to grow, they were handed a generational opportunity to grow their business when COVID-19 struck. It seems, however, that for the moment, markets have returned to calmer tendencies. Robinhood managed to thrive in chaos, however, now that it is a public company answerable to so many more stakeholders, it must successfully avoid creating chaos for itself.

New Feature-palooza: BMO InvestorLine Rolls Out More New Features

Another summer week and another string of new feature releases from Canadian online brokerages.

This past week, popular bank-owned online broker BMO InvestorLine published an announcement of some recent feature enhancements to the InvestorLine and Advice Direct platforms. Late last year, BMO InvestorLine debuted the rollout of InvestorLine 2.0 which represented a significant overhaul of their web-based online investing platform.

In the latest iteration of their platform, there have been some noteworthy feature enhancements, such as faster order entry (hooray!) and visibility on distributions (such as dividends) paid by certain securities.

To their credit, BMO InvestorLine has maintained a cleaner user experience in their new 2.0 platform so that understanding information and analytics about companies “feels” easier and more intuitive. As subjective as those measures are, the new site is objectively less cluttered with fewer menus to navigate around and more prominence given to the core features used by most online investors. That said, it is still clearly a work in progress with certain features only available on the previous version of the site.

Another interesting feature mentioned in the same press release is a partnership with Canadian personal finance expert Preet Banerjee to launch an investor education series. Earlier this month, the first 18 episode video series launched and another intermediate level course (32 videos long) is slated to come mid-September.

Finally, although it wasn’t mentioned directly in their press release, BMO InvestorLine is working hard in the background to improve response times to customer service and enhance the online experience for investors trying to connect with representatives on the phone. In the press release, there was a mention of being able to connect with InvestorLine representatives by video, however, the more compelling note is actually displayed on the login page for the online brokerage.

As seen in the image below, the announcement of the average wait time is still a unique feature that other online brokerages, especially big bank-owned brokerages, aren’t doing. This small but important number offers some level of transparency on what it’s like to connect with InvestorLine reps via telephone. What caught our eye, however, was the mention of call back features and the accelerated ramp up in hiring of client service agents.

With just under a month left in the summer (gasp!), the pace of activity among Canadian online brokerages is already starting to show signs of accelerating. While that might not seem unusual considering September is when individuals are back from vacation, the fact is that this entire summer has been a roller-coaster ride of activity.

Unlike some other Canadian online brokerages who have announced new feature drops almost weekly, BMO InvestorLine has rolled out several big improvements at once, and when combined with their announcement earlier this summer of commission-free ETFs, it seems like there is something big planned for the upcoming RSP season at BMO InvestorLine. That said, it’s hard to envision BMO InvestorLine’s big-bank peers standing still.

Though things have been quiet at other firms, if BMO InvestorLine is any indicator of things to come, it seems like we’re in for some more big news this fall.

From the Forums

Death in the Family

It’s never an easy subject to bring up but talking about death and what happens to an online brokerage account is something all online investors should be aware of. In this instructive post from the Financial Wisdom Forum, one user’s experience dealing with a deceased spouse’s brokerage account offers some valuable lessons to seasoned investors.

What’s in a Name?

In the decade or so that we’ve been covering the world of online investing, it’s been fascinating to witness the evolution of what the industry brands itself to be. From discount brokerage to online brokerage to direct investing, this post was interesting because it shows that online investors are starting to pick up on the industry term “self-directed” in how they view themselves. Also, there’s a bonus rumour revealed in the post, which if true, is a heck of a bombshell.

Into the Close

If you’ve made it this far, you deserve a round of applause! With just a few weeks left to enjoy the summer, we highly recommend taking any kind of break to soak up the sunshine or just take a breather. Of course, if rollercoasters are your thing and you don’t have a chance to actually ride them, sit tight (and keep your hands in the car), the online brokerage news is going to have some very wild times ahead!  

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Discount Brokerage Weekly Roundup – August 2, 2021

While Canada being on fire at the Olympics is a definite plus, Canada is literally on fire (at least in this neck of the woods in BC) this long weekend. Despite the hazy skies, ambitions at Canadian (and American) online brokers are pushing faster and higher.

In this long (and smoky) weekend edition of the Roundup, we jump into the latest updates from the deals and promotions section, highlighting a new offer from a popular online brokerage. Next, we do a quick sweep of some interesting developments, including new stocks available for trading at Wealthsimple and the brave new world for Robinhood now that they’ve IPO’d. Finally, there is some fascinating fodder in the forums to cap your summer reading list off.

Deals Activity Update – August

It’s the start of a new month, and as such, time to check in on the latest deals and promotions from Canadian online brokerages. This summer (and year) has been filled with surprises, and this month, there’s a positive surprise in the form of a new offer from Qtrade Direct Investing to kick things off in August.

Before diving into the details of the promotions active this month, it’s important to highlight that August is the start of the final quarter of the fiscal year at many Canadian online brokerages. Why that matters is because this final stretch of the year offers brokerages a chance to bring their full year numbers up. While trading volume isn’t something that brokerages can directly impact, attracting assets and new accounts are. And, one of the fastest ways to do that is with promotional activity.

Looking first at the newest offer in play, Qtrade Direct Investing has an interesting promo aimed at the FOMO crowd: 50 commission-free trades. One of the reasons this promotion is interesting is because it lives up to its FOMO name, with the deal only lasting until the end of September. Another FOMO angle is that only the first 100 people to sign up for this account are eligible to receive it.

While limited time offers are not unusual, short term (one to two month) offers are fairly rare and combining these offers with a limited quantity feature is virtually unheard of at other brokerages. This is not the first time Qtrade Direct Investing has tried the limited quantity approach, but the titling of this offer as a “FOMO” promotion is targeting this deal to millennial investors who would have likely also seen this labelled applied to GameStop and AMC trading earlier this year. The fact that the deposit requirement is a minimum of $10,000 also significantly lowers the hurdle for younger investors to be able to take advantage of it.

Promotions generally take time and effort on the part of online brokerages to configure and manage, so there have to be additional benefits to the exercise that go beyond just the new accounts. One of those additional advantages would likely be understanding what kind of demand for online brokerage accounts currently exist.

Earlier this year there was an unmistakable tsunami of interest in opening new accounts; however, as the year has progressed, there has been a definite pullback in the number of new accounts opened. The launch of a new promotion at a typically quiet time in the calendar year might be a way to gauge whether DIY investors – especially younger ones – are still keen on trading.

Two other online brokerages on the deals radar this month are BMO InvestorLine and Scotia iTRADE.  Both of these bank-owned brokerages have promotions that are currently scheduled to conclude at the end of August. In the case of BMO InvestorLine, there is a strong likelihood that a new offer will appear to replace the outgoing promotion; however, for Scotia iTRADE, it is not entirely clear whether there will be another special offer coming.

The good news for DIY investors is that the quiet period for promotional activity is almost over. In all likelihood, the combination of the end of the fiscal year and a surge in new feature releases means that online brokerages are going to be more inclined to either test some creative offers or launch some campaigns that will last into the mid-fall when the ramp up to RRSP season kicks off.

Online Brokerage Quick Updates

Wealthsimple Trade Enables Hundreds of Canadian Securities Exchange Listed Stocks

When it comes to online brokerages in Canada, Wealthsimple Trade represents an interesting case. On the one hand, there is a clear value proposition with zero-fee trading commissions for Canadian-listed securities, on the other, there is a limited availability of those shares for trading because stocks have to meet certain price and volume criteria.

This past week, Wealthsimple Trade took a significant step forward in increasing access to a big chunk of a Canadian-listed stocks by enabling access to just over 200 stocks listed on the Canadian Securities Exchange (CSE). The CSE is home to Canada’s largest contingent of publicly-traded cannabis companies and also has stocks in blockchain and esports, all areas in which the core audience of Wealthsimple Trade are interested in trading.

For the CSE and Wealthsimple, this is clearly a win-win. Wealthsimple Trade has achieved a unique position in the online trading landscape in Canada, having reaching a critical mass of importance that enables it to challenge larger and older online brokerages despite not having all of the features of those other brokerages. By closing that gap between themselves and the existing competition, Wealthsimple Trade is well-positioned to benefit from any big movements in the cannabis space that could reignite investor interest in the industry (e.g. any movement on legalization in the US). On the CSE side, more access to retail investors also means more possible trading to take place on their market, ultimately translating into greater potential revenue.

Memes in the HOOD

If there’s one name in the US online brokerage market that’s been in the news practically all year, it’s been Robinhood. Earlier in the year, it was a rollercoaster ride of emotion from hero to villain, as Robinhood found itself in the middle of a public firestorm from DIY investors who wanted to ride on the “meme stock” train only to find themselves shut out of trading those stocks by Robinhood.

The fallout from the meme stock controversy has still not subsided, and despite what would ordinarily been considered a blowout year of performance, there is a clear overhang on the Robinhood story that clearly had an impact on what should have been an exceptionally big deal of Robinhood going public via IPO.

The Robinhood IPO and the journey to this incredible milestone will almost certainly be the focus of business case studies, more so as a question of what went wrong. The fact that the stock was priced at the lower end of its range and that it still fell on opening day (and for a few sessions afterwards) point to clear pessimism on the part of the investing public. Until the market can accurately discount the risks for activities such as payment for order flow (and where regulators may elect to clamp down) as well as some of the liabilities, there will be a constant uncertainty to what Robinhood should be worth. The bigger challenge, however, is how Robinhood will fare as a public company in order to grow its revenue to make it an attractive investment over the long term. They have a massive account base (22 million at last count) so there is room to monetize that, and it’s not just any account holder, it’s the prized millennial segment that so many online brokerages and wealth managers are only now ramping up to try and win over. Robinhood has a six-year head start on this group. The question, ultimately, is how Robinhood intends to grow its earnings.

One interesting feature about Robinhood is that because of its line of business, it can be a better proxy for ordinary online investors than Interactive Brokers can. In the case of Interactive Brokers, their target is more active investors, including day traders, so there is some limitation as to what can be interpreted when Interactive Brokers releases its trading figures. Another interesting feature we can expect as well is that in order to grow earnings in what might be a declining level of interest in markets (compared to 2020 and early 2021), Robinhood will have to innovate and that could open up a slew of new features and components that Canadian online brokerages can look to for inspiration as they too wrestle with how to attract and win market share with millennial investors.

There is much more on the new chapter in the Robinhood story, so be prepared for this name to become cemented into the psyche of retail investors and wealth management everywhere.

From the Forums

Fractional Shade

Some stories you find in the spotlight, others you find in the shade. And in the case of this forum post on reddit, there was clearly a lot of shade being thrown by Interactive Brokers Canada at the whole Canadian fractional share trading story.

The shots fired by Interactive Brokers Canada management at Wealthsimple Trade and the latest innovative launch of Canadian Depository Receipts at Neo Exchange are unlike anything we’ve seen from the normally spotlight-shy brokerage. Ironically, despite having access to fractional shares for years, Interactive Brokers Canada has not heavily marketed this feature and as a result, Wealthsimple Trade and now the new CDR feature have stolen the innovation thunder away from Interactive Brokers. See what sparks were flying among online investors here.

Help with Homework

DIY investing requires doing some degree of homework, especially when picking an online brokerage to start trading with. In this post from RedFlagDeals.com, it is fascinating to see the degree to which some online investors would prefer to seek out answers to questions from fellow DIY investors rather than addressing questions directly to online brokerages or digging around on a website for answers. While at first glance it may seem like trying to take the easy route out, long customer service wait times and website navigation are some of the unseen reasons why sometimes even simple questions get raised in forums instead of addressed by online brokers themselves.

Into the Close

That’s a wrap on this short-week edition of the Roundup. Here’s hoping you’re managing to stay safe and squeezing in relaxation before what is shaping up to be a very busy September.

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Discount Brokerage Deals & Promotions – August 2021

August is here and even though we’re still in the midst of summer, for many online brokerages in Canada, they’re kicking off the final stretch of their fiscal year. When it comes to deals and promotions, this is the final stretch to get any important performance boosts in or any budgets submitted for next fiscal year.

The good news for investors is that there is already a new offer to kick off in August courtesy of Qtrade Direct Investing. Also, this month will be important for two bank-owned brokerages: BMO InvestorLine and Scotia iTRADE. In the case of the former, there is a seasonal shift in deals, with their current cash back promotions set to conclude at the end of this month. For Scotia iTRADE, the investor-education-oriented offer for attending their bootcamp expires at month’s end.

With September just around the corner, there’s no question online brokerages are collectively strategizing on what they should be doing for this fall. For online brokers keen to get a jump on the extremely busy few months ahead, be on the lookout for more headline-worthy offers.

Expired Offers

No offers expired to begin the month

Extended Offers

No extended offers to begin the month

New Offers

Qtrade Direct Investing launched a new commission-free trade deal aimed at millennial investors. To qualify, new clients need to deposit at least $10,000 and be one of the first 100 individuals to open an account. This promo runs from the beginning of August just until the end of September. See the online brokerage deal comparison tool for more details.

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Discount Brokerage Weekly Roundup – July 26, 2021

The Olympics are a very public stage on which athletes have to be prepared to do their best. In more ways than one, this year’s games serve up some lessons to online brokerages on how to stay cool in the public eye, as well as under the pressure of intense competition.

In this edition of the Roundup, find out which US online brokerage appears to be taking the lead when it comes to innovative approaches for the new terrain of online investing and what it could signal for Canadian online brokerages looking to get creative with client experience. Next, we recap the highs and lows for Canadian online brokerages this week and close out with healthy dose of debate and chatter from DIY investor forums.

Interactive Brokers Positions Itself for a New Normal

There’s no doubt the upcoming Robinhood IPO is going to capture a lot of attention from curious onlookers, analysts, and investors this upcoming week.

As a publicly traded company, there will be a lot of scrutiny on the operations and performance of Robinhood, and a lot more information to dive into on the kinds of efforts Robinhood is going to undertake to drive reasonable rates of return to investors.

While reporting performance might be new to Robinhood, one online brokerage that has become well-practiced to life in the public markets is Interactive Brokers. This past week, Interactive Brokers held their regularly scheduled earnings call, and while there were some blisteringly high headline numbers on client growth to report on, there were several interesting things that surfaced that appear to have flown under the radar that we see as reflecting a very agile move to navigate the new normal of online investing.

Record-breaking Client Growth

There’s no question about what the headline is with respect to the latest earnings release.

Client growth compared to a year ago was up 61% to over 1.4 million client accounts. And while it may pale in terms of number of accounts when compared to Robinhood (which is estimated to have 22.5 million funded accounts), what stands out about Interactive Brokers is that the average account balance is $250,000. By comparison, the reported median balance of Robinhood account holders was $240. 

Even though Interactive Brokers has a competitor offering to the Robinhood cost model (i.e. IBKR Lite), the primary revenue driver for the online broker is still trading commissions, not payment for order flow.

There were two other interesting things that popped up in the earnings call which didn’t get much attention and one that should have gotten more attention but was not covered in the analyst Q&A.

Inactivity Fees Lower Friction to Restart

Earlier this month, Interactive Brokers made an interesting move by removing inactivity fees. On the surface, the move seemed to suggest that Interactive Brokers might be positioning itself to make an overture to some of the clients that would typically not qualify to have the inactivity fees waived – namely, individuals with less than $100,000 in assets or those who didn’t generate at least $10 per month in commissionable trades. For an online brokerage that deliberately sets its sights on active traders, this seemed a little unusual.

Fortunately, this past week, the founder (and still active spokesperson) for Interactive Brokers, Thomas Peterffy, provided additional context for dropping the inactivity fees. Peterffy stated:

“we would like to hold on to the people who have had accounts with us to run them to continue to have accounts with us even if they become inactive for a while. And so, the account is open even if they just leave a few dollars. And then, when they are ready to invest again, they will do it with us.”

Thus, the decision to waive inactivity fees was actually a move to hold onto active trader customers who would want a pause from trading. Instead of closing an account while it is not being used and potentially going to another source to reopen it when wanting to restart trading, by waiving the inactivity fees, Interactive Brokers is hoping that those lucrative, highly active traders will find it easier just to restart an existing account rather than try to open a new one.

This use case is a great example of looking at client behaviour and finding an opportunity to reduce the friction for a client who is behaviourally inclined to actively trade to be able to restart again.

As all online brokerages are aware, active traders are particularly hard to come by, so the motive behind the move for Interactive Brokers to remove inactivity fees makes a lot more sense when positioned in terms of retention as opposed to new client recruitment.

Investor Education Innovation

Another interesting development that was mentioned in the latest Interactive Brokers earnings call was an investor education initiative developed for the online learning platform Coursera. Interactive Brokers has developed and launched a specialization, entitled a “Practical Guide to Trading Specialization,” which is actually comprised of four courses covering the following topics:

  • Fundamentals of Equities
  • Forex – Trading Around the World
  • U.S. Bond Investing Basics
  • Derivatives – Options & Futures

As of the date of publication of this edition of the Roundup, the Interactive Brokers course had a 4.3 rating (out of 5) from 45 participants and enrollment of just over 2,450 students.

In addition to being free, there is a significant bonus feature of getting a “shareable certificate” which can be displayed on LinkedIn. The very interesting catch is that in order to receive the certificate, attendees must complete a hands-on project. And one of the tools that students can use in order to complete the hands-on project is the Trader Workstation (made available via free demo account), which is the Interactive Brokers trading platform.

Investor education was mentioned in the quarterly results, indicating that this feature continues to serve a strategic purpose to better educate investors on how markets work – especially those investors who are newer to investing. Interestingly, this theme is also echoed among several Canadian online brokerages who are investing additional efforts to provide educational resources to online investors, many of whom are just getting started on their online investing journeys.

For Interactive Brokers, the Coursera investor education offering is a very polished mechanism to generate awareness and interest in the Interactive Brokers platform.

Beyond just awareness, however, the fact that users are being nudged to download the Trader Workstation is a savvy move by Interactive Brokers to directly market to, if not, onboard new customers. Granted, a course as demanding as this won’t see a crushing flood of individuals flock to it; however, Interactive Brokers understands that their strategy on new customers is about quality rather than quantity. The added bonus that individuals who complete this course can share it on their LinkedIn profile will advertise the course as social proof and underpins just how innovative this latest move is from a marketing perspective.

As online brokerages here in Canada and in the US wrestle with trying to provide educational content that DIY investors will actually consume, this Coursera offering by Interactive Brokers provides an interesting example that other online brokerages are likely going to be inclined to consider replicating.

Crickets on Crypto

Of course, one of the big developments that we were listening for more information on, which surprisingly, did not get discussed on the conference call, was the launch of cryptocurrency trading on Interactive Brokers.

Earlier this year, we reported the launch of crypto trading by Interactive Brokers; however, there hasn’t been much in the way of details provided since then. Perhaps not entirely by accident, Thomas Peterffy – a notable critic of cryptocurrency – also went on record as saying that he himself now owns some cryptocurrency.

The shift, it seems, sounds like capitulation.  

Peterffy has clearly seen that there is at least some possibility of cryptocurrency becoming a valuable asset class regardless of his personal belief on the thing. Most traders understand that it’s best not to fight the tape, and for the foreseeable future, cryptocurrencies continue to be a part of where money is flowing to.

What was said about the cryptocurrency trading at Interactive Brokers was minimal – the only update we received is that there is more news to come at the end of the month.

Once again, the remarks made over the earnings call and during the Q&A component of the call provide a unique window into the mindset and possible strategic direction of Interactive Brokers going forward. While the kinds of disclosures and discussions are usually well-vetted and rehearsed, the reality is that the occasional hint or nugget gets dropped.

By their own admission, despite the strong numbers posted for the quarter, Interactive Brokers (like other online brokerages) is seeing that there is a slowdown in the pace of online investors rushing to open an online brokerage account and trade it with the same fervor that they had last year or during the first calendar quarter of 2021.

To navigate the next normal, it’s becoming clearer that new features and offerings are going to be required. In this case, it seems that for Interactive Brokers, features such as cryptocurrency trading, as well as client experience features, like reducing inactivity fees, educational resources, and ramping up of customer service are going to be important drivers to hold onto existing clients rather than purely seeking out new ones.

Canadian Online Brokerage Updates

While there’s been lots happening with US online brokerages this past week, Canadian online brokerages have also been busy juggling their own ups and downs.

On the upside, National Bank Direct Brokerage announced the conclusion of the Biggest Winner competition. The ETF picking contest, organized by Horizons ETFs and sponsored by National Bank Direct Brokerage, is now in its 10th year with National Bank Direct Brokerage, having sponsored the competition for the past nine years.

This year, there were 2,620 registrants which, according to contest organizers, was the highest registration since the first edition of the competition. The winner of the competition managed to generate a six-week return of 25.67% and took home the top prize of $7,500. Second place won $2,500 and there were six weekly prizes of $500.

For National Bank Direct Brokerage, this contest is a unique way to boost awareness of the online brokerage and position itself alongside an important selling point: the fact that they offer commission-free trading of ETFs. Of course, the challenge for all Canadian online brokerages coming out of the pandemic is to find creative ways to connect with investors, especially at a low cost.

With a prize payout of $13,000 and just over 2,600 registrants, the numbers from an advertising point of view work out to just under $5 per registrant, which is an exceptionally good deal if some of those registrants end up taking a closer look at either Horizons ETFs and/or National Bank Direct Brokerage.

Even though National Bank Direct Brokerage has been a long-time sponsor of this event, the past year seems especially relevant in terms of the attention that this bank-owned online brokerage has been getting from online investors. And (see forum post below), the additional marketing activities that NBDB is undertaking will almost certainly help in generating more interest and curiosity.

On a literal down note, this past week also saw a number of online brokerages in Canada impacted by a technical outage from Akamai that took down brokerage trading during market hours. More than just online brokerages were impacted, with major banks in Canada, as well as major tech and business names, experiencing service interruptions.

In predictable (and understandable) fashion, Twitter and reddit were awash in acrimonious posts from unhappy online investors, many of whom learned the hard way just how fragile the online trading environment can sometimes be. And even when online brokerages aren’t themselves the culprit, the fact that customers can’t get what they want, when they want it, is enough to leave a digital trail of negative sentiment.

Interestingly (and fortunately), the immediate reaction from investors who were frustrated by the outage were tempered by other online investors and users who posted that the outages were impacting other sites and companies, and this was not an event that was broker-specific.

Nonetheless, the lesson for online brokerages is to be prepared for some (or many) users to take a shoot-first, ask questions later approach to service interruptions. The easier it is for online brokerages to communicate service status and cause of interruptions, the easier it will be for the “fact-checkers” to be able to broadcast reliable information to those users simply blowing off steam.

From the Forums

Word on the Street

When it comes to questions about online brokerages, there are the usual suspects that DIY investors are curious about. Lately, however, we’ve spotted more questions being asked about National Bank Direct Brokerage, such as this post from reddit, in which one user is looking for opinions from fellow DIY investors on this increasingly popular online broker.

Banter Ads

When it comes to advertising, there is simply no pleasing everyone. Of course, if the goal is to generate an emotional response to get people thinking (and talking), then mission accomplished. This fascinating reddit commentary emerged from the recent advertising battle taking place between popular online brokerages Questrade and Wealthsimple Trade.

Into the Close

That’s a wrap on this week’s online brokerage activity. There’s no question that the Robinhood IPO and associated fanfare are going to be in the spotlight. Like everyone else, we’re curious to see where the dust (and price) will settle on the first day, but this is certainly a week for the history books. And, speaking of history in the making, the Olympics are now well underway. Congratulations to team Canada for already making a splash at the games.

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Discount Brokerage Weekly Roundup – July 19, 2021

There are rare occasions in the Weekly Roundup when the outside world serves up a perfect metaphor for what’s going on in the world of online brokerages. And this week, it’s all about big names, big billionaires, and big launches.

In this edition of the Roundup, we take to the launchpad to witness the liftoff of new feature at a popular bank-owned online brokerage. From there, we pull up the radar screen for some interesting activity on the advertising front, as well as a potential billion-dollar payday to the founders of a US-based online brokerage (if they can manage to scale their business even farther than it already has gone). As is standard fare, we also serve up intriguing DIY investor commentary on fractional shares and trading platform glitches.

BMO InvestorLine Launches adviceDirect Preview

About two weeks ago, the BMO YouTube channel (BMOCommunity) started to share a number of videos about one specific product line: adviceDirect.

Fast forward to an announcement this past week of the launch of a new service from BMO InvestorLine: adviceDirect Preview. This new service enables users to take a test drive of the adviceDirect experience (albeit with limited functionality) and tinker with the “free account” features.

This announcement isn’t so much a new service as much as it is a new twist on an existing service. adviceDirect launched (waaay back) in September 2012 as a solution to support self-directed investors with decision making around their trading and portfolio management. Since its initial launch, adviceDirect has undergone a number of changes, including lowering the minimum required to open an adviceDirect account from $100K to $50K, and the capping of annual fees to be paid for this service at $3,750.

The new “preview” feature for adviceDirect is aimed at providing new users with some of the resources available to full adviceDirect clients. Signing up for an adviceDirect Preview account is free and provides users with access to personalized watchlists, trading ideas via five preset stock screeners, learning and educational materials, and access to the recently launched Healthcheck portfolio analyzer.  

One of the natural questions that has accompanied adviceDirect is who this service is for exactly?

On the one hand, self-directed investors are generally averse to paying for advice, and on the other hand, those who might be willing to pay for advice and wealth management services prefer to have the day-to-day oversight and management taken care of by a professional.

That adviceDirect has managed to endure despite these questions is an indicator that there is a segment of online investors who prefer to have access to a trusted, credentialed professional who can weigh in on trading and portfolio management decisions.

Interestingly, unlike the world in 2012, in 2021 there are now rich and active communities of online investors in places like reddit that can help investors “crowdsource” answers to investment decisions. That said, getting personalized attention from a professional in a reasonably convenient manner is a compelling proposition to those who don’t believe that random strangers on the internet will be a reliable resource for financial advice.

On balance, adviceDirect Preview is an interesting proposition for DIY investors who are advice-curious.

While only a select number of features are available in the adviceDirect Preview platform, those features could be used to help evaluate whether or not an investment plan is “on track” – something the adviceDirect platform is essentially built around.

Given the relatively high watermark to qualify for an adviceDirect account, younger investors or those just getting started might not qualify for the full experience for some time. That said, by offering a free version of the adviceDirect experience, it is a creative way for BMO InvestorLine to identify and cater to potentially valuable new clients.

From an industry perspective, being able to offer a “try before you buy” is a great strategy to create a relationship with curious DIY investors. For adviceDirect in particular, this move will hopefully help open up opportunities for skeptical investors to see whether there is value to be had in the advice-lite version of wealth management solutions.

Among the important benefits for BMO InvestorLine is that the adviceDirect platform is unique among online brokerages in Canada. Getting the model to work and to be cost effective is not something that can happen overnight, so if other online brokerages are going to start emulating or delivering something similar, there is going to be a long runway before adviceDirect finds a direct competitor.

And, while adviceDirect might not be a stranger to uphill battles, this year in particular stands out as a challenging one to launch new features in.

This spring/summer in particular has seen a surge in feature releases from Canadian online brokerages big and small. As we’ve covered in numerous Roundups this year, the flurry of new features coming to market suggests that the marketing and communications teams have their work cut out for them. Already, the activity on YouTube to release content related to adviceDirect suggests that a significant push is coming to promote this platform. The creation of a “preview” version of adviceDirect offers up both a boost of awareness of the platform, as well as a possible group of prospective future clients, so for BMO InvestorLine, it seems like a winning combination.

If history offers any lesson on adviceDirect, it is that it will continue to be more niche compared to the core DIY investing experience. With many more new investors now participating in the stock market, however, a material number of these investors might be inclined to seek out additional tools – and advice – about what to do after the fast money trades have come and gone. And, if there’s one clear example in favour of taking things slow and steady, adviceDirect is it.

On the Radar: Quick Online Brokerage Stories

Ad Battle

Even though there is a really interesting YouTube video about sharks and blood in the water, it still feels apropos to point out that in a fiercely competitive space, it seems like Canadian online brokerages sense something is up. Or more appropriately, down.

After scanning casually through reddit, one very interesting ad campaign from Questrade surfaced that appears to take direct aim at some of the pain points users have expressed with Wealthsimple Trade.

Ironically, for anyone who has spent any time on YouTube lately, Wealthsimple Trade ads are everywhere, indicating that there’s a bit of a digital media blitz taking place among Canadian online brokerages.

As mentioned above, there have been a whole slew of new features launched this year by online brokerages, and clearly, there’s got to be new marketing campaigns associated with these brands.

With much more advertising expected this year than in past years, we anticipate even more fierce competition for attention and some creative campaigns to surface before the end of 2021. Stay tuned!

Sherwood Like a Billion

Would a billion-dollar payday make you work harder or more creatively? We’ll soon find out whether or not putting another billion dollars on the line will prove to be the catalyst that gets Robinhood’s share price to hit certain targets by 2025.

In a recent article on the upcoming Robinhood IPO spotted on Reuters, there’s apparently a huge payday ($1.4 billion USD) for cofounders Vladimir Tenev and Baiju Bhatt if they can get the stock price of Robinhood up to $101.50 per share, even more money if the share price hits higher price levels.

What would need to be true for Robinhood, an already popular online brokerage, to hit the kind of per share price levels noted in their filing, would be to attract even more clients who are active investors and for Robinhood to find more ways to monetize their growing client base. With the cash generated from the IPO, there will certainly be a number of options to consider; however, it looks like increasing their global footprint and their service offering to clients will likely be a big part of the plan.

From the Forums

A Glitch to Scratch

After a year with a popular online brokerage, one DIY investor simply had enough of the technical hiccups. Find out from this post, which features ended up becoming points of frustration for one reddit user, as well as what other DIY investors had to say in response.

It’s Been a Slice

Now that fractional shares are here, there are clearly some kinks to get out of the way. In this post from reddit, a confused reader turns Wealthsimple Trade’s latest feature into an intriguing discussion about how, exactly, fractional shares work.

Into the Close

That’s a wrap on another out-of-this world edition of the Roundup. While billionaires going to space is definitely going to make it to the highlight reel for the year, there are also going to be lots of upcoming records to be broken at the Olympics. Attendance won’t be one of them (unless it’s for the fewest attendees). Here’s wishing everyone an award-winning week and the Canadian athletes all the best!

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Discount Brokerage Weekly Roundup – July 5, 2021

It seems fitting that a short week is also a week for shorts (and not the bearish kind). With Canada Day and Independence Day interrupting the normal flow of trading activity for most DIY investors, it’s actually a great time to sit back, relax, and enjoy a good summer read. Fortunately, the online brokerages here in Canada and the US are teeing up a fair bit of interesting reading heading into July.

This edition of the Roundup features a recap of the latest deals and promotions activity at the outset of July, and what deals activity this month is telegraphing for the remainder of this year. Next, we take a quick look at a huge development in the US online brokerage market: the Robinhood IPO. As always, we keep things spicy with some fascinating DIY investor banter from the investing forums.

Online Brokerage Deals Get Creative

Summer is normally a time when things get a little sleepy in and around the online brokerage space – especially when it comes to deals and promotions. This year, however, things are definitely not “normal” among Canadian online brokerages.

The start of a new month is a convenient time to check in on the state of deals and promotions among Canada’s online brokerages, and this month’s pulse check has turned up some interesting findings for DIY investors and industry watchers to consider.

While there were no new (big) deal launches to announce to start the month, one of the biggest headlines to report on is the extension of National Bank Direct Brokerage’s 100 commission-free trade deal. This offer, which launched in March of this year and was set to expire at the end of June, has been extended until the end of September. On a relative basis, it is by far the biggest commission-free trade deal available to DIY investors in Canada. And with a year to use those commission-free trades, it is also a challenge for rival online brokerage offers to measure up to.

Contextually, this past year has also been an important one for National Bank Direct Brokerage in terms of mainstream exposure.

Having earned top spot in several online brokerage rankings, including the low cost online brokerage crown from Surviscor, and best online brokerage from MoneySense, and best online brokerage for investor satisfaction from J.D. Power, forum chatter among DIY investors clearly shows increased awareness of, and interest in, this online broker. After many years at the periphery, there is something noticeably different about the volume of interest as well as the comments and feedback from existing users.

Objectively, National Bank Direct Brokerage’s price point of standard commissions, the option for commission-free ETF trades combined with the commission-free trade promotional offer for new clients, and the perceived safety and convenience of a bank-owned online broker present a compelling combination for DIY investors. The biggest hurdles facing National Bank Direct Brokerage at this point, it seems, are awareness by more Canadian DIY investors (something that advertising can address) as well as the account opening experience.  

Thus, the decision to extend the deal through the end of the summer bodes well for National Bank Direct Brokerage, as well as for DIY investors, and raises the bar for competing Canadian online brokerages.

Differentiating between Canadian online brokerages is challenging for most DIY investors, so one of the natural starting points is price and subsequently features. With National Bank Direct Brokerage in the spotlight on both of those components, promotions are a natural complement to round out the increased visibility of this online brokerage with value-conscious DIY investors.

In addition to National Bank Direct Brokerage’s promotion extension, there were a couple of other bank-owned online brokerages that had important developments in the deals arena.

HSBC InvestDirect’s 60 commission-free trade offer expired at the end of June. Promotional activity from HSBC InvestDirect has been somewhat cyclical in terms of offers coming to market. Unlike other brokerages, such as BMO InvestorLine, which have much more frequent promotions, HSBC InvestDirect tends to be very tactical during the calendar year. As a result, though this commission-free trade offer expired, if history is any predictor, there could be space for one or two more promotions from HSBC InvestDirect between now and the end of the RSP contribution deadline in 2022.

The other bank-owned online brokerage to cross our deals and promotions radar this month was Scotia iTRADE. Specifically, the modest commission-free trade deal that offers new clients five commission-free trades, plus a bonus five for attending a series of educational webinars aimed at educating attendees about investing online.

With the number of free trades offered being so low (in comparison to other offers currently available), the point of interest here is that Scotia iTRADE is reactivating promotions and doing so by positioning commission-free trades alongside investor education. Of note, this commission-free trade promotion and associated investor education webinar series (pitched as a “bootcamp”) is targeted to younger investors.

This younger demographic of investor is increasingly of interest to Canadian online brokerages, as the past year has shown the appetite for online investing has increased among younger DIY investors. There is clearly a need for better understanding of how investing and markets work that DIY investors can benefit from.

It will be interesting to see how other established online brokerages – such as the bank-owned online broker peers – apply incentives and promotions around key activities (like attending a webinar series). For Scotia iTRADE, however, it is going to be important to gauge whether DIY investors believe that the effort required to attend a webinar is worth the reward of a few commission-free trades.

The bank-owned brokerages weren’t the only ones getting creative with deals and promotions this month, as the challenger brand Wealthsimple Trade also appeared to ramp up its promotional efforts as well.

Throughout the spring and into the early part of the summer, there has been a noticeable acceleration of the use of the “free stock” promotion by Wealthsimple Trade. As part of this offer, new clients (that sign up organically or via referral) can be eligible to receive the cash equivalent of the price of a stock from a pool of select stocks (chosen by Wealthsimple Trade).

This lottery-based approach appears to be similar to the approach used by popular US online broker Robinhood, however, in the case of Wealthsimple Trade, the dollar-equivalent of the stock is provided to the new client instead of a share of a particular company. And, to boot, the dollar amount for the highest stock, Amazon – which last closed at about $3,500 USD (about $4,300 CAD) – makes for a great headline.

The fine print on the Wealthsimple Trade promo clarifies that the “bonus” is a cash deposit and that the value of the bonus ranges between $5 and $4,500, with about 90% of clients receiving less than $50.

One of the most important objectives of online brokerages offering promotions is client acquisition (i.e. getting more customers). In the case of the Wealthsimple Trade promotion, the math behind the current promotion implies that there is a very low cost to Wealthsimple Trade to obtain a new client by using this structure. Even without knowing the probabilities and associated bonus amounts for the remaining 10% of clients, the fact that the average payout is $20 for a new client makes the cost to Wealthsimple Trade extremely attractive.

Despite it being an unusually busy summer for feature releases at Canadian online brokerages, there is also creative activity taking place on the deals and promotions front.

Now that we’ve crossed the halfway point of the calendar year, it is a safe assumption that several influential Canadian online brokerages are already working on their plans for promotions launching this fall (or sooner).

With a massive amount of money invested in enhancements and improvements at many online brokerages, looming competition on the commission-free trading front, as well as a return to “normal” that now includes individuals working from home (and returning to an office), it will be increasingly more challenging to stand out to DIY investors. As a result, like the weather in the summer, we fully expect deals and promotions action to heat up from here.

Robinhood IPO in Motion

Despite it being an incredibly busy year for IPOs (or perhaps because of it), there is one recently announced IPO that is almost certainly going to make waves when it officially launches: Robinhood.

This past week, the popular US online brokerage filed its prospectus to become a publicly traded company under the ticker symbol HOOD (to be listed on Nasdaq). While the details about how much money they intend to raise, and at what share price they intend go public at, are still to be determined, the ability to look “under the hood” at the company’s financial and performance figures reveals a data gold mine to anyone interested in the online brokerage industry in general, and the rise of Robinhood in particular.

Like any prospectus, the document is comprehensive, and as a result, incredibly long and detailed. Buried in the 300+ page document, however, are some incredible figures and statements about the current state of the online broker and what some of its future plans include.

As lengthy as the Weekly Roundup can get, there is far too much information about the online brokerage industry in the prospectus than can be covered in detail here. So, as more information inevitably emerges over the next few weeks, here are some initial figures that stand out.

Valuation: The rise in the valuation of Robinhood is staggering. From its inception in 2013, the company has grown to be worth (at time of publication) $12 billion USD and forecasted to be worth as much as $40 billion at public offering.  

Number of new accounts: The stat cited by Robinhood in its prospectus was that an estimated 50% of all new accounts created in the US between 2016 and 2020 were Robinhood clients. The total number of clients at Robinhood as disclosed in their prospectus was 18 million.

Cost of acquisition: Through the use of a variety of tactics, Robinhood’s cost of client acquisition at the end of March 2021 was – wait for it – $15. That number reflects exceptional performance improvements that have taken place over time, however, it’s a figure that’s sure to give any online brokerage, Canadian or American, a jolt. One of the key drivers of the exceptionally low client acquisition cost has been the Robinhood Referral Program. As mentioned above in the context of Wealthsimple Trade, the promotion of providing a “free stock” for the referral bonus has paid off in spades for Robinhood. It almost defies belief to report that 98% of customers receive a reward between $2.50 and $10.

Revenue mix: There are several interesting data points reported on when it comes to Robinhood’s revenues, but the standout figure relates to the product mix – specifically that options trading represented the highest amount of revenue for Robinhood.

Unlike many other IPOs, the Robinhood IPO is more than just business – it has taken on almost a cultural significance.

While many industry observers and consumers might view the vision of Robinhood to “democratize finance” with skepticism and discount it as marketing, the reality is that through a combination of design, technology, and pricing (and marketing – which they also have spent a fortune on), Robinhood has carved out a space for itself that enables it to compete – on some level – with much larger and longer established brands in the same space.

What was perhaps most striking about the vision for the company as laid out in the IPO filing, was the desire to become the “go-to” app for personal finance, just as Gmail is the go-to app for email and Google Maps is for maps. And, just like those apps, the market that Robinhood is eyeing goes beyond just the US, and is looking at Asia and Europe as additional destinations.

Without question, the Robinhood IPO is going to be in focus and discussion throughout July – which is being forecasted as the launch date for the IPO. To add to the conversation, Robinhood has set aside a significant portion (between 20% to 35%) of its shares to make available to its customers at the time of IPO, meaning that clients will be able to access the actual IPO pricing rather than have to wait until the stock starts trading to get those shares.

From a big-picture perspective, it is fascinating to have witnessed Robinhood launch from inception and grow into an internationally recognized financial services brand worth billions of dollars. The lesson for Canadian online brokerages is clearly that fintech firms can and will come in and displace market share for existing stakeholders. It is already happening in Canada with Wealthsimple Trade, and if Robinhood’s IPO journey is any indicator, there’s an even stronger impetus for Canadian online brokers to pay attention to design and features or risk being forced to play catchup.

From the Forums

Day Trading Up

Fast money and high stakes trades aren’t for everyone. Rare as they might be, DIY investors interested in day trading need to know which online brokerage is best when it comes to supporting this kind of activity. Find out which online broker was a unanimous choice in this reddit thread.

In-formed Opinion

When it comes to opening an online brokerage account, one of the least enjoyable parts of the experience is the sheer number of forms and agreements that need to be completed. One common anxiety-inducing form is the W-8BEN. Find out what one DIY investor went through in this post.

Into the Close

That’s a wrap on this early-July edition of the Roundup. Now that we’re into the second half of the year, and things are opening up again, trips and get togethers will be in focus. Of course, for any hockey fans, the Stanley Cup is in focus as is the cool rink the games are being played in. Stay cool out there!