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Discount Brokerage Weekly Roundup – June 14, 2021

Taking a Moment

There’s a lot that goes into the production of a Weekly Roundup that many readers don’t see. Looking back on the week that was is as much a habit as knowing which letters to capitalize in an online brokerage’s name. Despite the hundreds of times having done this, occasionally something happens in a week that forces a pause from business as usual.

This past week there was a terrible tragedy that took place in London, Ontario. Four members of a family were murdered simply for looking and being different than what someone decided was appropriately Canadian. They were murdered because they were Muslim.

Like many Canadians, it is hard to find words to capture how thoroughly awful and traumatic this event was. And so, we are left with yet another heavy but necessary exercise: to not turn away from the terrible news but this time to watch and engage.

The news cycle will move on before the people will. A young boy will be left to figure out the rest of his life without his parents and sister beside him. Muslims and other religious and ethnic communities across Canada will forever be slightly less trusting that everything will be OK.

Before getting back to business as usual, I wanted to call attention to Islamophobia and the responsibility all of us bear to call out prejudice when and where we see it.

Please take a moment and either watch or read about this family.

All of us have a part to play in looking out for each other.

A Tale of Two Tables: 2021 MoneySense Online Brokerage Rankings Released

It’s hard to believe, but the DIY investor datapalooza (or datastravaganza?) that is characterizing 2021 continues to chug along well into June.

Earlier this month, a popular Canadian investment publication, MoneySense magazine, published their 2021 Canadian online brokerage rankings, essentially capping off the last of the major discount broker rankings for the summer.

Even though the fall feels far away, online brokerages are undoubtedly at work planning for their ramp up at the end of the year. These latest Canadian online brokerage rankings will ultimately prove to be a big part of what will help online investors shape their perceptions and decisions around which online broker they choose to go with, and ultimately impact how online brokerages market and talk about themselves for the rest of the year.

Why is this Online Brokerage Ranking Important?

Now in its ninth year, the MoneySense rankings have become a go-to resource for many DIY investors curious about the online brokerage marketplace in Canada. As the landscape evolves for online brokerages and self-directed investing, so too do these rankings.

Helping MoneySense stay on top of those changes is Surviscor, a financial services research firm that evaluates Canadian online brokerages across a number of different parameters.

Frequent readers of the Weekly Roundup will already be familiar with the research and in particular, the online brokerage rankings, produced by Surviscor. For a timely throwback, be sure to check out our Look Back/Look Ahead series featuring Glenn LaCoste, President and CEO of Surviscor, and the author of this year’s MoneySense online brokerage rankings.

With yet another online brokerage ranking appearing this year, it’s a lot for online investors to digest. The MoneySense rankings in particular offer an interesting way to see the importance of defining what’s “best” when it comes to online brokerages. Also, in digging through the data, we uncovered an interesting relationship between a major driver of investor decision making, cost of services, and the performance on measures of investor experience – like service.

There’s lots to dig into, so grab some caffeine and get ready to scroll.

Methodology

Online brokerage rankings and evaluations help to make sense of the often-confusing question: “which online brokerage is best?”

With several Canadian online brokerage rankings available for online investors to consult, it is important to come back to a familiar concept – that each online brokerage ranking measures the idea of what’s best in a different way.

The MoneySense online brokerage rankings are often cited as a resource to evaluate almost all of Canada’s online brokerages. Like most of the other comprehensive rankings, information is published annually, and as a result, the data takes a snapshot of the past year or so in the world of DIY investing at Canadian online brokerages.

It is important to note that the data for the MoneySense online brokerage rankings comes from financial services research firm Surviscor. Specifically, according to the methodology, the MoneySense rankings are based on a combination of the following Surviscor reviews:

1. Online experience

2. Mobile experience

3. Cost of services experience

4. Service experiences

Points were assigned to each online brokerage according to a points-based system in which each brokerage received a score based on its ranking within the seven sections of the review:

1st = 5 points

2nd = 4 points

3rd = 3 points

4th = 2 points

5th = 1 point

The overall score was the sum of the awarded sections and reported as points.

In addition to reporting on the points earned by each brokerage as part of this review, the MoneySense rankings also reported the “Best online brokers” by category. The breakdown is as follows:

  • Best online broker for fees
  • Best online broker for customer service
  • Best online broker for ETF investing
  • Best online broker for stock investing
  • Best online broker for financial literacy
  • Best online broker for market data
  • Best online broker for customer onboarding
  • Best online broker for mobile experience

Within each of these categories, the top two firms were reported.

Strengths & Limitations

One of the strengths of the review is that there is lots of data reported for investors to consider, and it has been published in a way that identifies the top two firms in each of the stated categories. This saves a lot of time for investors or readers who simply want or need a quick answer from a reputable source.

A big plus this year is that there is a companion publication on the Surviscor blog which dives into detail on the scores and provides more context on the process.

In terms of limitations, presenting this volume of information can be a challenge. For example, the methodology stated:

“Each firm was assigned a score based on its ranking within the seven sections of review (5 points for first; 4 for second; 3 for third; 2 for fourth; and 1 for fifth), and the overall score was the sum of the awarded sections.”

Given that there are eight reported categories (noted above), it was not immediately clear which seven sections of the review were being referred to, and as a result, validating the math or seeing how scores varied across sections would have added important context to rankings.

For example, one of the immediate questions that jumps to mind with the points system is what the maximum possible score would be?  Without that information, it is hard for the reader to get a sense of just how good a particular brokerage is. And, when the scores are close, or tied, the value of points and how they get calculated becomes even more important to contextualize results.

Results

The results for the 2021 MoneySense online brokerage rankings are shown in the following table.

FirmMoneySense PointsMoneySense Rank
Questrade361
National Bank Direct Brokerage312
TD Direct Investing253
Qtrade Direct Investing224
BMO InvestorLine95
Scotia iTRADE66
RBC Direct Investing57
Desjardins Online Brokerage48
Wealthsimple Trade48
Virtual Brokers48
Canaccord Genuity Direct48
CIBC Investor’s Edge212
HSBC InvestDirect113
Laurentian Bank Discount Brokerage014

Questrade took the top spot in this year’s rankings with a total of 36 points, followed closely by National Bank Direct Brokerage (31 points), and TD Direct Investing in third place (with 25 points). Again, without a maximum score, it is difficult to know exactly how well any one brokerage could have done.

The methodology states that there are seven “sections” and a five-point maximum which would imply a maximum score of 35. However, Questrade has clearly exceeded that score, hence some confusion.

Data outside of the top five brokerages was not published in the MoneySense rankings, however, it was available on the Surviscor site, which helped identify additional context on how the entire field of online brokerages performed this year.

One of the first noteworthy items is just how sharp the drop off is from fourth to fifth place in these rankings. Qtrade Direct Investing placed fourth with 22 points. However, BMO InvestorLine, with just nine points, managed to make it into the top five.

Even though on a relative basis, a top five finish may not sound so bad, in the case of this year’s ranking, the distance between fourth and fifth is materially different.

Another interesting observation about the data is the number of firms who tied for eighth place. CG Direct, Desjardins Online Brokerage, Virtual Brokers, and Wealthsimple Trade are very, very different firms, and yet each tied for eighth place with four points.

Somewhat stunning are the positions of CIBC Investor’s Edge and HSBC InvestDirect, who placed 12th and 13th respectively. In the case of the former, being a “Big Five” bank-owned brokerage should in theory enable it to have the resources to score better, but with a score of two points, it implies that Investor’s Edge was rarely a top five brokerage in any of the evaluated categories. Similarly, HSBC InvestDirect scored one point, and it too barely placed in a top five finish in any of the categories measured.

Surviscor’s “behind the scenes” look at the MoneySense rankings also provided some additional context and important takeaways when it came to this year’s analysis. The following five statements were made in reference to the data and the items that online investors (and online brokerages) should pay attention to.

  • Beware the marketing when it comes to fees
  • Firms never get a second chance to make a first impression
  • Financial literacy is weak
  • Mobile experience is still not where it needs to be
  • $0 commission is not always worth it

With so much data to crunch, it can be a challenge for DIY investors and industry analysts alike to form a “big picture” of what’s going on in the online brokerage space.

Surviscor’s multiple studies to measure online brokerages got us curious, so we compiled the ranking data from each of the four online brokerage analyses cited in the MoneySense rankings, and crunched the numbers to see what the correlation would be between the combined rankings of each evaluation and the MoneySense ranking data.

Methodology, Part Deux

First a(nother) note on methodology. The rankings in each of the four different Surviscor evaluations used in the MoneySense ranking were averaged out and reported along with a standard deviation. The computed rank is one that we generated based on the average rank across each of the evaluations.

 To try and get as close to an apples-to-apples comparison of how different online brokerages ranked against each other in each of the four evaluations, it was necessary to make some minor adjustments to the data.

In the Service Experiences, Interactive Brokers was actually evaluated, so for the sake of consistency across comparisons, they were excluded from the data and the ranks of other brokerages adjusted upwards by one. Wealthsimple Trade was assigned the lowest value for not having been able to be measured. For the actual service experience scores, check the link here.

Adjustments were also made in the Online Experience and Mobile Experience rankings. Laurentian Bank Discount Brokerage and CG Direct were assigned the lowest rank since they did not offer anything that could be evaluated using those tools.

Results

One of the first things to stand out is that the top four brokerages in the 2021 MoneySense online brokerage rankings are the same four online brokerages when computing scores across the four Surviscor evaluations, however, the order in which they appear is different.

In the computed rank, the measure that we calculated, Qtrade Direct Investing came in first, followed by National Bank Direct Brokerage, Questrade, and TD Direct Investing, respectively. What also stood out in the top three is that the average rank between Qtrade Direct Investing, National Bank Direct Brokerage, and Questrade is very close, ranging between 4.0 and 4.8. Having the standard deviation handy (shout out to the stats profs who drove home the point about standard deviations) as a measure of consistency, however, adds a bit more nuance to the top three online brokerages.

Specifically, Qtrade Direct Investing has a relatively low standard deviation (2.3) indicating their ranking is relatively consistent from one evaluation to the next. By comparison, Questrade has the highest standard deviation of the group (5.7), which points to the remarkably poor ranking they received in the Cost of Services evaluation (they ranked 13th). Having the context of all the data helps to illustrate where exactly the top three online brokerages excel relative to each other, and to see how consistently (or inconsistently) online brokerages are scoring.

Consistency cuts both ways, however.

RBC Direct Investing had the lowest standard deviation (1.2) of all of the rankings, implying a fairly consistent score across different evaluation studies. Their average rank was sixth, and the computed rank put them in fifth place overall.

By comparison, Virtual Brokers also had a very low standard deviation score (relatively speaking) at 2.1, but their average rank of 9.8 landed them with a computed rank of 13th overall. This implies that Virtual Brokers has consistently performed poorly on the four Surviscor evaluations for 2021.

It was also intriguing to note that after about eighth place in the MoneySense ranking, the divergence between these scores and the computed rank became more pronounced. In particular, CIBC Investor’s Edge ranked 12th in the MoneySense ranking but ninth in the computed ranking, only slightly behind Scotia iTRADE and Desjardins Online Brokerage.

Takeaways

Being able to step back and take a big picture view of the data provides a unique window into how the different evaluations generated by Surviscor come together, and how they compare to the MoneySense rankings.

When placed side by side, the combined Surviscor studies used in the MoneySense ranking show that firms that are strong on experiential factors, such as online, mobile, and service, tended to do better overall in the rankings.

Interestingly, with the exception of National Bank Direct Brokerage, firms that tended to do well on pricing had a negative correlation to performance on the MoneySense or combined Surviscor rankings. This points out that perhaps there is an inverse relationship between the cost of services and the experience of online investing.

Thus, having the additional data presented in a big picture format does help illustrate what exactly online investors would have to trade off. For example, in choosing between Questrade and National Bank Direct Brokerage, investors can see that the tradeoff might be one of “cost of services” versus “online experience.”

Clearly there is lots of data to explore, which can be both a pro and a con for online investors looking for a quick answer to “which online brokerage is best?”

The reality is that rankings help to compress a lot of the analysis into an easy to digest number. However, as illustrated above, how one defines “best” – even when using the same underlying data – can impact how specific brokerages are perceived and reported on by media, online brokerages themselves, and other DIY investors.

What is evident in looking at the big picture of this data is that the field of Canadian online brokerages is crowded, and with even more new entrants poised to add to the numbers, keeping on top of the evolving space is an ongoing challenge. For those that want to avoid the spreadsheets and comparisons, rankings offer a quick shortcut. But like everything else when it comes to investing online, it pays to do your homework.

Into the Close

That’s a wrap on this week’s Roundup. It’s been a difficult week but here’s hoping we can look for, find, and create the good in the week ahead.

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Discount Brokerage Weekly Roundup – June 7, 2021

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

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

New Month, New Deals

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

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

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

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

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

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

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

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

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

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

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

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

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

Summer Blockbusters are Back

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

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

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

This past week it was Questrade’s turn.

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

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

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

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

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

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

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

From the Forums

Care to Share?

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

Instant Gratification

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

Into the Close

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

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Discount Brokerage Deals & Promotions – June 2021

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

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

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

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

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

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

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

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

Expired Deals

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

Extended Deals

No deal extensions to mention at this time

New Deals

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

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Discount Brokerage Weekly Roundup – May 31, 2021

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

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

BMO InvestorLine Launches Commission-Free ETF Trading

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Latest Canadian Online Rankings Point to Underwhelming Experiences for DIY Investors

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

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

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

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

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

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

What are the rankings about – what do they measure?

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

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

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

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

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

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

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

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

What are the findings from this year’s results?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Takeaways

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

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

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

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

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

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

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

From the Forums

Riding the Commission-Free Waive

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

BMO InvestorLine Now Offering Commission Free ETFs (reddit)

Zero Commission ETFs (Financial Wisdom Forum)

Commission Free ETFs at BMO Investorline (Red Flag Deals)

Commission-Free at Last

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

Into the Close

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

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Discount Brokerage Weekly Roundup – May 17, 2021

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

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

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

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

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

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

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

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

Method Matters

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

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

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

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

Options commissions

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

ETF commissions

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

Data costs

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

Account interest

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

General account fees

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

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

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

Results & Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Method Determines Measures

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

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

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

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

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

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

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

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

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

Takeaway

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

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

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

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

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

From the Forums

Price of Fame

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

Flipping the Switch

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

Into the Close

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

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Discount Brokerage Weekly Roundup – May 3, 2021

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

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

Discount Brokerage Deals Update for May

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Methodology

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

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

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

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

The “Rise” of DIY Investing

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

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

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

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

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

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

DIY Investors Enjoy It

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

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

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

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

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

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

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

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

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

Perceived Knowledge: The Double-Edged Sword

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

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

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

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

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

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

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

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

Key Takeaways

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

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

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

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

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

Into the Close

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

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Discount Brokerage Weekly Roundup – March 22, 2021

Spring has officially arrived. And while the arrival of the new season didn’t fall on a quadruple witching day, in the online brokerage world it nonetheless lived up to its reputation of bringing change, volatility, and the promise of sunnier days ahead.

In this edition of the Roundup, we look at the latest trading commission price drop from a bank-owned online brokerage and the potential consequences it will have for DIY investors and fellow online brokerage competitors. Next, we jump into some interesting deal activity that’s taken place this month, including the launch of a new offer that might trigger even more promotions to start sprouting this spring. As always, we’ve got chatter from DIY investors courtesy of Twitter and the investor forums.

National Bank Direct Brokerage: Commission Price Drop

The days of the $9.95 standard commission pricing for trades at Canadian online brokerages are numbered. How much lower they go from here and how quickly these changes take effect will depend on who among the larger or more popular players decides to act. A recent commission pricing drop by National Bank Direct Brokerage, however, is likely to add significant cause for other Canadian online brokerages, big and small, to revisit their own commission pricing structures.  

This month, we noted that the standard equity commission pricing at National Bank Direct Brokerage (NBDB) dropped about 30%, from $9.95 down to $6.95 for all clients. Previously, NBDB charged $9.95 per trade to all clients, but for those clients who were also a client of National Bank – the parent brand to NBDB – a discounted price of $6.95 was available. That restriction is no longer in place, and the $6.95 price is available to all.

Why NBDB chose to lower their commission rate to the $6.95 level and why they decided to do so now are a good indication of how the industry as a whole has approached lowering their commission prices, even in the face of a growing competitive presence in Canada of zero-commission trading and increasing expectations (thanks to Robinhood and other US online brokerages) that trading online should be commission-free. Online brokerages in Canada, for the most part, are taking a measured and stepwise approach to lowering commission pricing, taking cues from competitors as a way to estimate the prices for commission rates that can be supported.

One important driver for National Bank Direct Brokerage is likely competition from its longtime local competitor, Desjardins Online Brokerage.

The drop in standard pricing brings National Bank Direct Brokerage in line with Desjardins Online Brokerage, which lowered the standard commission pricing for the “everyday investor” product, Disnat Classic, to $6.95 in early 2020. While there are still pricing gaps between these two Quebec-focused online brokerages at the very active trader pricing segment, the interesting consequence to National Bank Direct Brokerage enabling all clients to have access to the $6.95 pricing is that National Bank is pursuing an expansion strategy across Canada, implying that NBDB would now also set their sights on other markets outside of Quebec.

The takeaway for the online investing space in Canada is that a much more robust bank-owned online brokerage offering is now available to Canadian DIY investors. Unlike the lower-cost non-bank-owned online brokerages, National Bank Direct Brokerage brings with it many of the features and the convenience of a big five bank-owned online broker. This means that someone looking for the lower cost pricing typically available at an independent online broker but the convenience and perceived security of a larger institution will now have a serious look at NBDB as an online broker. And, once they start looking, there will be some interesting things for investors of all activity levels to find.

For young investors, for example, National Bank Direct Brokerage offers 10 commission-free trades per year and an even lower commission pricing of $4.95 per trade, simply for being 30 years old or younger. No other Canadian bank-owned online brokerage (yet) has this double feature set. Also, the threshold of 30 years old is higher than at several competitors, where the definition of “young” typically ends at age 25 or 26.

Very active traders at National Bank Direct Brokerage also have access to deeply competitive pricing, at $0.95 per trade, and an advanced trading platform, Market-Q. While Desjardins Online Brokerage’s active trader brand, Disnat Direct, does have cheaper pricing, at $0.75 per trade, the reality is that at the sub-dollar-per-trade range, the other factors of banking convenience might come into play.

Lowering commission pricing is something that Canadian online brokerages have seen as inevitable. That said, how quickly the commission pricing drops has shown itself to be highly dependent on who is the one setting the pace.

Despite the existence of a zero-commission provider, for example, there haven’t been any other Canadian online brokerages that have felt compelled to drop their standard commission prices to that level. Instead, we have observed that certain products, such as ETFs, have become the entry point into zero-commission trading, with firms such as Qtrade Investor, Questrade, Scotia iTRADE, and most recently with TD Direct Investing’s Goal Assist. In the category of commission-free ETFs, National Bank Direct Brokerage has also been somewhat of a leader among the bank-owned segment of online brokerages. In 2017, they launched completely commission-free ETF trading – both buying and selling, albeit with minimum purchase requirements.

For NBDB to capitalize on this latest pricing shift, the challenge, it seems, will be to overcome the marketing and advertising hurdle created by the likes of Interactive Brokers, Questrade, TD Direct Investing, and Wealthsimple Trade in markets outside of Quebec. Another online brokerage that has significant market awareness with large markets across Canada is Qtrade Investor, courtesy of their multiple wins and strong finishes in the online brokerage rankings of influential financial research sources. Each of these brokerages commands significant awareness, and, as a result, NBDB has their work cut out for them to start becoming part of the mainstream conversation of online brokerages.

That said, with 14 Canadian online brokerages for National Bank Direct Brokerage to compete against, their pricing immediately makes them worthy of a top-five or -six consideration. When competing against bank-owned online brokerages, however, they could potentially move into the top three.

Undoubtedly, TD Direct Investing would be high on the list of bank-owned competitors, followed, potentially, by BMO InvestorLine in terms of active marketing and advertising. Clearly, by lowering their standard commission rates to $6.95 per trade, National Bank Direct Brokerage has just earned themselves a major advantage relative to their peers. The online broker with the biggest risk of being displaced is CIBC Investor’s Edge, which, up until now, had retained the position of offering the lowest standard commission among the big bank-owned online brokerages.

When we first reported the pricing drop by CIBC Investor’s Edge to $6.95 per trade in 2014, the impact among DIY investors was immediate. Our data showed that DIY investors soon came to see CIBC Investor’s Edge as a value-based option for trade execution. Even so, the pricing structure reflected some of the limitations for active trader experience at Investor’s Edge.

In this case, National Bank Direct Brokerage has pricing for the “passive investor” but also has platforms and pricing for very active investors and young investors. This makes them unique among the “banking” peer group.

Given the propensity of Canadian online brokerages to make smaller moves – especially among the bank-owned online brokerages – we expect that standard commissions might not be the starting point to match the new pricing at National Bank Direct Brokerage. Other places that online brokerages might be able to target to retain clients would be in their definition of “young” investors, which NBDB defines as 30 and under, or with commission-free ETF trading.

National Bank Direct Brokerage’s latest commission pricing move has made them an option that many DIY investors will be hard-pressed to ignore going forward. As a result, it may not be too much longer before the bank-owned online brokerages cannot ignore them either, and yet another wave of commission pricing drops ensues.

So long as the commission-pricing at NBDB stays quiet, the online brokerage industry in Canada won’t have to move quickly. That said, in a day and age of Reddit threads and social media reach, all it might take is one post for that to change.

Deals & Promotions Updates

March is synonymous with spring and with the changes that accompany a new season. While the beginning of the month saw a significant reduction in the number of Canadian online brokerage offers from larger players, we predicted that it would likely not be too much longer before new offers sprouted up again. And, it turns out, we didn’t have to wait that long after all.

This month, we’ve already seen BMO InvestorLine replace an outgoing deal with a new cash-back promotion, and, excitingly, this past week we noted that National Bank Direct Brokerage also launched a new 100-commission-free-transactions offer. More on that in just a moment.

Starting with the BMO InvestorLine cash-back promotion, the new promotion, like its predecessor, is a tiered cash-back offer. The starting deposit tier for the latest offer is higher, however, starting at $25,000, compared to the previous $15,000. Cash-back amounts have also been scaled back significantly at most deposit tiers. Starting tier deposits qualify for a $50 cash-back (compared to $150 the last time), and the highest deposit tier, $1 million and over, still qualifies for a bonus of $2,000.

For National Bank Direct Brokerage, this has been a big month, with newer pricing (see above) and the revival of a 100-commission-free-transactions offer. The new offer provides 100 commission-free trades, which are good for use for up to one year after the account is opened. This new promotion runs until the end of June and is open to new and existing clients so long as the account type is new.  Interestingly, the offer applies to trades of stocks and options (and ETFs), which are sometimes not available during certain commission-free trade promotions.

The (re)launch of a commission-free trade offer from National Bank Direct Brokerage, along with their new pricing offer, might prompt other online brokerages to consider coming to market with an offer this spring as well. Interest in investing and trading remains elevated among DIY investors. However, if the thesis that the catalyst for the surge of interest was individuals working from home or putting stimulus money into investing products, then the reopening of the economy (and sports and travel) could lead to decreased interest or availability of individuals to continue actively trading.

Most Canadian online brokerages elect to take a “wait and see” approach to emerging trends rather than risking taking the position as a leader in innovation. With that in mind, deals and promotions offer a proven method to continuously stay on the radar of investors – especially those who might be lured to leave because of dissatisfaction with pricing or service.

What deals and promotions cannot do is solve for technology or service gaps (even though we have seen compensation in the form of trading commissions help smooth out some service shortcomings). So, it is likely – perhaps even sound business strategy – for those online brokerages who are confident in their ability to deliver strong service and technology to lean into promotional offers at a time when other firms are struggling or lagging. As such, a promotional offer could be seen as a sign of confidence and strength in the service delivery model, and an absence of one – at least in the near term – might have DIY investors asking why certain brokerages are choosing to stay out of the spotlight.

Discount Brokerage Tweets of the Week

From the Forums

My Definition Is This

In this post, an investor who is unsure and nervous about how the Canada Revenue Agency defines day trading asks if it’s okay to sell stocks from a TFSA after owning the stocks for just a few days. The CRA doesn’t provide a clear definition, so Redditors weigh in with their opinions.

New Tuber in Town

A new investor asks in this Reddit post if the Canadian Couch Potato method of investing is still relevant in 2021. An in-depth discussion ensues, touching on ETFs, meme stocks, and more.

Into the Close

That’s a wrap on another week. While markets and investing are the focal point of the Roundup, there’s also a human side to this, and this past week was a dark chapter for the AAPI community. Sadly – and, frankly, unacceptably – the level of hate crimes against women and Asians in particular has increased during the pandemic. It is up to all of us to speak up against racist behaviour wherever possible.  Here are some steps from Stop AAPI Hate that anyone can take to assist a person experiencing a racist attack or hate crime:

  • Take action: Approach the targeted person, introduce yourself, and offer support.
  • Actively listen: Ask before taking any actions, and respect the other person’s wishes. Monitor the situation if needed.
  • Ignore the attacker: Using your discretion, attempt to calm the situation by using your voice, body language, or distractions.
  • Accompany: If the situation escalates, invite the targeted person to join you in leaving the area.
  • Offer emotional support: Help the other person by asking how they’re feeling, and assist them in figuring out what they want to do next.

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Discount Brokerage Weekly Roundup – March 15, 2021

One look at the past week in March and daylight savings isn’t the only reason to be losing sleep. From the excitement of Bitcoin’s highs to the now-constant (like Pi Day) news of platform outages to Beyoncé’s smashing of a Grammy record, March has been full of surprises. Interestingly, it seems like Canadian online brokerages also picked up on this theme heading into the Ides of March.

In this edition of the Weekly Roundup, we review some of the newest features to sprout up at Canadian online brokerages and analyze the shifting landscape of financial services in Canada. From there, we dive into some strange and interesting signals surrounding the “new” retail investor and look at how they are impacting online investing. As always, we’ve got some interesting and…colourful…commentary from DIY investors in the forums and from Twitter.

Out to Launch: New Features Sprouting Up in March

March is synonymous with spring and, therefore, also with new and exciting things.

This year, there’s already much to look forward to. However, when it comes to the Canadian wealth management landscape, there are some interesting developments sprouting.

BMO InvestorLine Launches adviceDirect Premium

Starting first with BMO InvestorLine. This past week, BMO InvestorLine formally announced the launch of a new premium tier of their adviceDirect service offering. The new feature, adviceDirect Premium, is geared toward clients with $500,000 or more in investable assets and offers a range of new functionality, most notably enhanced planning and research resources.

Now over eight years old, adviceDirect has often occupied a niche role in the world of online investing. As a hybrid between the world of DIY investing and digital advice, it has evolved a number of times to find its identity as the “middle child” of the wealth management suite offered by BMO.

The timescale of the product is especially relevant given the context of what the product offers and the current state of online investing. AdviceDirect is unique in that online investors can contact a licensed investment representative to review their portfolio and to get additional insight on possible investment decisions. Although the investment rep does not necessarily have to put orders through, the key value driver is that a DIY investor can get an informed opinion about their particular investment picture and goals.

Prior to the mad rush into the markets instigated by COVID-19, the need for orientation to the markets was somewhat measured. Passive investing was all the rage, and the numbers of DIY investors who were new to trading or who wanted to get into investing were increasing at a manageable pace.

Fast forward to today, however, and the wealth management industry – in particular the online investing space – is filled with chatter centred around the lack of experience of investors entering the market. This past week, for example, a pair of articles essentially found that the kinds of questions new investors were seeking answers to reflected a significant lack of knowledge about the world of investing online. Of particular note was the following stat: “A Deutsche Bank survey found that almost half of U.S. retail investors were completely new to the markets in the past year. They are young, mostly under 34.”

While the Canadian online brokerage market is different, the overall trend of newer investors coming to online investing is likely similar. The takeaway: There are lots of new investors in the market who don’t quite know what they have gotten themselves into.

It is interesting, then, that adviceDirect has chosen to launch a premium product at this point. On the one hand, a premium tier is consistent with an overall trend for BMO InvestorLine to seek out clients with larger deposit amounts or investable assets. At a macro level, however, the timing couldn’t be better to bring on clients who would likely benefit from having a “voice of reason” available for consultation before making some big investing decisions. Investor forums now routinely have stories of DIY investors who bet big and lost considerable amounts of money by taking risky trades. Those risks far outstrip the management fees charged by the adviceDirect platform.

The online investing world has typically been a place where either you’re a DIY investor or you’re not. BMO InvestorLine’s latest enhancement to its long-standing hybrid model offering might have finally found itself ready for a world where “DIY” doesn’t imply an all-or-nothing proposition. The challenge, however, is whether or not adviceDirect can ramp up its marketing and appeal to DIY investors faster than other online brokerages or roboadvisors can.

Questrade Launches Mortgages

This past week, the line between online brokerages and banks got a little blurrier as two wealth management firms continued their push into banks’ traditional territory of mortgages and money transfers.

Starting first with mortgages. Questrade, which acquired Community Trust Co. in 2019, has been quietly building up to a formal launch into the world of offering mortgages. That day, it seems, has arrived, and last week, Questrade clients received the formal announcement that QuestMortgage has officially gone live.

For the moment, QuestMortgage is open to Questrade customers only. Given the current frenzy over real estate in Canada, however, it is likely that the timing of launching to all Canadians is on the minds of the folks at Questrade. The QuestMortgage prime rate is 2.45% at the time of publication, and a five-year fixed-rate closed mortgage ranges between 2.04% to 2.24%.

While these rates are higher than at other firms, the reality is that there will likely be a curious set of existing clients who either know and/or like Questrade and would be willing to see what a mortgage through QuestMortgage might be like. That said, one of the challenges of the bank-owned online brokerage approach is that service in one category of product tends to impact the decisions and perceptions in another.

This past week, for example, Questrade’s platform suffered an outage during trading hours, and, as a predictable result, lots of clients were understandably angry – including to the point of wanting to leave. If there are hiccups and issues during this rollout with Questrade clients, it could alienate existing clients, giving them cause for concern with the brand as a whole.

Wealthsimple Relaunches Cash Solution

Another big development in the world of money for Canadians came from Wealthsimple.

Typically, we would be referencing Wealthsimple in the context of online trading or even online investing through their roboadvisor service. However, this past week, Wealthsimple published an article in their Wealthsimple Magazine and sent out an email campaign highlighting their Cash app, in an effort (it seems) to ramp up the awareness of this new(ish) product.

What’s so special about Wealthsimple Cash? To start, it promised to enable instant money transfers between parties. And, going way back to the announcement of the cash feature in 2020, there are some other key features such as bill payments, ATM cash withdrawals, and a highly sought-after physical card.

As with the comment about Questrade venturing into mortgages, however, the rollout and client experience with one part of the brand will invariably influence the perception of the brand as a whole. There are now several apps in the Wealthsimple ecosystem, each representing a possible relationship with a consumer. As a result, a negative experience in one of these areas has the potential to cause someone to leave the whole set of products.

In the case of the Wealthsimple Cash app, there is already skepticism and negative sentiment brewing – in part relating to the delay in the rollout of the promised features that the Cash app was launched with. While Wealthsimple had hoped to be transformative with the technology and user experience (and, to be fair, the proposed user flow in terms of sending cash seems straightforward), ultimately it comes down to reliability and execution, which is where the current reviews and reactions from Wealthsimple clients stem from.

Despite the slow rollout of the most sought-after features, Wealthsimple is clearly going after the business domain of the traditional big banks in Canada. The convenience factor that emerges when individuals are able to manage multiple parts of their financial lives in one easy-to-use platform is a very powerful force. Equally powerful in Canada, however, is inertia. Individuals who are content to stay where they are because of a perceived amount of effort to change are not yet hearing the kind of enthusiasm about the Wealthsimple Cash feature that would induce them to switch. Though the banks might be safe for now, it’s clear(er) that the winds of change are starting to blow.

Neighbourhood Watch

If there’s one thing that living through 2020 has taught us, it’s that these are really unusual times. Just when traditional wisdom implies that things ought to zig, we see them zag. Nowhere has this been more true than in the world of DIY investing. What has started to emerge from a series of discussions about the world of online investing appears to be a sense of impending doom – almost as if there’s an iceberg in the water and the “new” stock market is the Titanic.

To be fair, there are perennial pessimists when it comes to the stock market. Since the Great Financial Crisis of 2008/9, naysayers have been waiting and calling for a massive correction in the markets. The same could be said for the sentiment post-March 2020. Looking at historical data on crashes and bear markets, however, paints a less dire picture than the market doomsday prophecies would imply.

That said, there appears to be an undercurrent of pessimistic conversation surrounding DIY investors who are new to markets and trading that is unlike anything witnessed in recent memory, such as in a pair of articles from this past week (here and here).

Some of the key takeaways paint a picture of the “new retail investor” who relies on social media for orientation to the markets and for trading ideas. Anecdotally, this would appear to be the case with communities on Reddit, such as Personal Finance Canada, growing to an exceptional size and rivalling traditional media sources for information on topics related to personal finance (including investing). At the time of publication, the Personal Finance Canada community on Reddit has grown to almost 480,000 members.

Data cited in a MartketWatch article (sourced from Magnify Money) is also consistent with this observation. It found that almost 60% of Gen Z and millennial investors (aged 40 and younger) were a member of an investment community such as Reddit. Also, just over 40% of respondents to the Magnify Money survey reported turning to YouTube for investing information.

This past week, there was also yet another hearing held in the United States, this time by the Senate Banking Committee, that put the commission-free trading model of Robinhood under the microscope and, with it, the activities of very active traders or investors.

Other insights from data being shared during the heightened scrutiny of Robinhood show that the majority of the high-volume trading is coming from a very small number of trading accounts. Approximately 2% of clients would be considered day traders, according to one report, which is shockingly small. A similar scope of influence was recently reported by Wealthsimple Trade about its client base, which revealed 14% of clients traded GameStop stock, with 81% of those who did purchasing seven shares or less.

What these different data points suggest is that there’s a very different type of trading behaviour taking place in the current markets. Specifically, with so many new investors joining the markets, with more time and access to some discretionary capital, and with new technologies and lower barriers to trading, the ability for investors to “pile” into a trade – and to do so quickly – the mindset of younger investors is decidedly different and is material to market behaviour.

For online brokerages, while COVID-19 lockdowns and restrictions persist, being visible on the channels that online investors are turning to makes sense. It is likely why, in Canada, aggressive advertising by Wealthsimple Trade shows up on YouTube, and Questrade commercials air during sporting events. What remains to be seen is how trading activity changes if and when working from home becomes less common for those younger investors. That said, the data shows that while there might be more excitement and engagement in markets overall, the ultra-active segment of investors might be vulnerable to retreating quickly if market conditions shift or macro conditions – like having to go back into the office – surface.

At the heart of much of what we’ve learned over 2020 and now 2021 is the growing power of the financial community of users on social media platforms. For online brokerages to remain relevant and go beyond commoditized providers of online trading services, job one still remains being able to connect people to the markets. However, not far behind is to figure out how to tap into the power of online communities of DIY investors.

Discount Brokerage Tweets of the Week

From the Forums

School Daze

In this post, an investor with two young children who wants to start saving for their education debates the relative merits of setting up two RESPs, a family RESP, or a high-interest savings account. A lively discussion ensues, with Redditors talking about everything from government grants and TFSAs to couch potato investing and what happens if the children decide not to pursue higher education.

No Time Like the Present

A 32-year-old with a spouse and a child is worried about having no savings for emergencies, retirement, or the child’s education and asks in this post how to start investing in the stock market. Redditors offer a wealth of suggestions – and reassure the nervous investor that age 32 is still relatively young to be embarking on the path to financial security.

Into the Close

That’s a wrap on another highly eventful week. With so many wheels in motion, the recovery trade and talk of stimulus in the US has put a spring in the step of the economy. It seems fitting that in a week following the Grammys, we’ll be watching some chart-toppers in the stock markets. While the choreography won’t compare, the drama is almost sure to be newsworthy.

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Discount Brokerage Weekly Roundup – March 8, 2021

March is here in full force. Even though the RSP contribution deadline for 2020 is now behind us, there is no shortage of activity taking place this month on the digital front. From Fraud Prevention Month to International Women’s Day to rising oil prices to NFTs to a bombshell interview from Oprah, there is a lot to tune in to. And one more thing: There’s still a global pandemic.

This edition of the Weekly Roundup leans into the convoluted but interconnected web of signals to pull out two fascinating stories on the online brokerage space in Canada. The first story looks at the deals and promotions for March but dives deep to provide context on the current state of deals activity against a new competitive landscape. And, speaking of competition, Canadian online brokerages that might not be concerned about a new entrant showing up any time soon may want to rethink that position as we profile the long and winding journey of one US online brokerage that is poised to make a move north of the wall. Of course, what would a Roundup be without comments and perspectives from DIY investors? Be sure to check out some thought-provoking conversations taking place in the forums and on Twitter.

Online Brokerage Deals & Promotions Update

It’s official. The 2020 RRSP season is officially over, and while the huge rush to ensure that money moves to the appropriate place by the contribution deadline has ended, the data analysis on the campaigns deployed by Canadian online brokerages is now in full swing.

Normally, the start of a new month is accompanied by a deals update that follows a standard format of recapping the latest deals and promotions offered by Canadian online brokerages, as well as discussing what deals are new and which ones have expired.

Contextually, however, 2021 is still very much an anomalous year when it comes to DIY investing and especially online brokerage promotions.

One of the most important insights to emerge over the past year at Canadian online brokerages is that there can actually be too much of a good thing. Normally, promotions and deals are used by online brokers to incentivize DIY investors – new and experienced alike – to consider choosing a particular brokerage.

Last year, however, we saw numerous online brokerages, especially around March and April, pull back or withdraw their offers altogether. It was the first time we had witnessed that happening in at least five to six years. The reason: Demand for online accounts was simply too high, and Canadian online brokerages were overwhelmed and opportunistic. If people were willing to pay (and also to wait), a promo probably wasn’t required to get them to sign up.

The dry spell in deals started to clear toward the tail end of 2020. At that point, we started to see a more normal course of activity, with multiple large Canadian online brokerages offering up cash-back promotions as part of their lead-up to RSP season. And then January 2021 happened.

Recall that it was just over a month ago that yet another surge of online investors poured into the world of DIY investing and trading, this time fueled by trading communities like Wall Street Bets and social media channels feeding a frenzy of momentum trading.

Data we reported on in the previous Weekly Roundup about Interactive Brokers, for example, showed that January 2021 resulted in a 221% month over month increase in new accounts and an almost 700% increase over the same period last year. The latest metrics released by Interactive Brokers from February revealed that almost 76,000 new accounts were opened during the month. While significantly lower (-35%) compared to January in terms of net new accounts opened, when compared to the same point last year, the number of accounts opened in February is over 400% higher.

In the Canadian marketplace, data from financial services research firm Investor Economics also shows that over 2 million online brokerage accounts were opened in 2020, up from just shy of 850,000 in 2019. It is thus not hard to triangulate that, for the beginning of 2021, and in particular RSP season, Canadian online brokerages have had another exceptional year in terms of volume of interest.

This backdrop is important when looking at the current slate of deals and promotions offered by Canadian online brokerages, especially with a view toward whether or not more promotional offers can be expected to show up in the near- to intermediate-term. Having deals from large providers such as TD Direct Investing, Scotia iTRADE, CIBC Investor’s Edge, and Qtrade Investor expire at the same time is enough to cast some doubts on what happens for the next few months.

The short answer is that it does seem like Canadian online brokerages are willing to deploy promotional offers between now and the kickoff to next RRSP season, which generally happens at the beginning of November. For anyone keeping score, that is about six months away. Here’s why we think that’s the case.

First, there’s the inevitable restart of the economy through the summer. While folks have been working from home, it has probably been a lot easier and less noticeable to nosey coworkers to have a trading window open or be trading online or watching stocks on your phone. When offices start reopening and individuals begin going to the office again – as will happen – the mechanics of being able to trade from work are going to become harder. That bodes well for deals and promotions since a more “normal” cadence of activity is likely to require online brokers to work harder to get individuals to pay attention to investing while those individuals go back to juggling life as usual.

Another reason we’re bullish on deals and promotions heading into the stretch between now and the start of November is that there is increased competition for incumbent Canadian online brokerages – especially from Wealthsimple Trade but also from potential new entrants looking to make a splash in the Canadian market (see next story below).

For anyone who’s spent any time on YouTube, Wealthsimple Trade’s barrage of advertising should be a clue that they’re heavily investing in spending big money to get attention. Wealthsimple Trade’s commission structure alone should garner them attention, but it was still fascinating to see them start to launch promotional offers at the tail end of 2020 as well as some even bigger promotions linked to referral offers mid-February 2021.

Larger or more well-known Canadian online brokerages may have a buffer against this advertising and promotional onslaught, but outside of three to four online brokerages in Canada, the rest of the field has to reevaluate a lot about how, when, and where they show up to Canadian DIY investors.

One viable option for online brokerages to compete is through offering deals and promotions on an ongoing basis, with different offers available at different points in the year. Another option is better marketing around offers that are already available – with a case in point being Scotia iTRADE. They have a promotion for commission-free trades that is bundled with a premium banking package offered by their parent brand, Scotiabank. Despite having traction with value-hungry consumers, this offer is relatively under-advertised to the general public.

On the good news front for DIY investors, there are still online brokerages offering deals and incentives for investors looking to get into the markets or who are interested in a new service provider.

Promotional offers from RBC Direct Investing – a major bank-owned online brokerage – are still available through the end of March, and BMO InvestorLine also launched a new cash-back offer to replace their RSP campaign. In the case of BMO InvestorLine, the minimum deposit amount on their new cash-back offer was raised to $25,000 and expires on June 1st, 2021.

Also, as stated earlier, it is bullish that a firm that currently has zero-commission trading is offering promotions on top of their ultra-competitive pricing. And considering Wealthsimple Trade’s aggressive marketing, it is unlikely that their competitors can afford to stay quiet for much longer.

Whether it is because of elevated trading activity, the dynamic nature of the restart of return to work, or the new competitive landscape for online brokerages in Canada, we believe that more Canadian online brokerages than normal will turn to promotional offers as a fast, effective way to stay relevant to DIY investors.

What the data from 2020 and early 2021 have shown is that large pools of DIY investors can quickly rush to market to get on board with a trading opportunity. Online brokerages looking to get ahead of the next big push, as well as to get in front of the big return-to-work shift, will likely be considering deals and promotions as a tactical way to be visible throughout these next few months. The takeaway: Investors who haven’t already joined the market can anticipate some interesting offers without having to wait until the fall to take advantage of them.

A Taste of Something Different: Signals Point to 2021 Arrival of Tastyworks in Canada

It started out, at least for me, in the Las Vegas airport on a journey back to Canada in 2014. I stared up at the TV in the departure lounge and saw a strange cherry logo alongside messages about online trading. It all seemed very Vegas, but the name tastytrade was something I made a mental note to remember.

Little did I know at the time that the combination of curious name and logo would potentially become one of the bigger stories in the Canadian online brokerage space in 2021.

What Is Tastytrade?

Back in 2014 and 2015, it was difficult to answer exactly what this firm was all about. After doing a little bit of research on tastytrade, it became clear that this brand was something different in the online investing space.

Launched in 2011, it was all about providing content on investing, with a heavy focus on options trading, mixed in with some fun and insightful segments. One thing it wasn’t short on was opinion and debate. But, they were American, and being in Canada meant that aside from an alternative to programming on CNBC or BNN, the talking heads on tastytrade probably wouldn’t have a direct influence on life here in Canada. At best, it seemed like a fun channel to tune in to for trading banter.

The next time tastytrade came back on my radar was October 2015. Back then, my hair, like the Weekly Roundup, was shorter, and the big news of the day was that TD Direct Investing had just “officially” joined Twitter. And, for good measure, one of TD Direct Investing’s early tweets: tastytrade would be coming to Canada for the first time on October 26th as a guest of TD Direct Investing.

I was fortunate enough to attend that first session at the CBC studios in downtown Toronto. In the before times, when travel and live events were a thing, investor education was also something Canadian online brokerages invested in far more heavily than they do today. Calendars on online brokerage websites were crammed with investor education events – which, at the time, is what this seemed like it would be.

Little did anyone know at the time how big of a deal it would be that the largest online brokerage in Canada was bringing a new financial brand north of the wall.

The session itself lasted the better part of a day. While spending a good portion of a day at an investor education event geared toward options was something I had done before (a couple of times), it was clear from the get-go this event was different.

First, it was impressive that instead of an education session, it felt more like a rock concert. There was fancy sushi (no boring sandwiches here), and the auditorium was filled with a community of fans who came to see and hear the founder of tastytrade, Tom Sosnoff, do his thing live. The energy in the room was unique. It could have been, in part, because attendees were actually part of the live broadcast of the tastytrade show. They could see that the personalities they tuned in to for options trading and market chatter were the same in person as they were behind the screen: funny, chill, and very smart.

While the actual segments of the shows were interesting, the most interesting thing to observe and experience was what happened during breaks.

Sosnoff was approached and literally encircled by a flock of adoring fans peppering him with questions about trades and options. He was able to engage an audience with a topic that most people – even back then – found opaque and mysterious. Again, this was Canada and it was 2015. No big rush to Robinhood, no GameStonks, no Reddit army. Whatever the following and fan base here, it was likely significantly higher in the US.

For TD Direct Investing, at the time, it was a big score to have tastytrade come to Canada. This event was a huge deal for their active options trading audience and, as it turns out, for their associates who ran the thinkorswim platform. Fun fact: Sosnoff created thinkorswim and sold it to TD Ameritrade in 2009 for US$750 million.

The next few years for tastytrade were spent continuing to grow and engage with their audience across the globe and launching their own online brokerage, tastyworks, in 2017. In the US online brokerage market at or about that same time, Robinhood was starting to make more waves among online investors. Not too long after the launch of tastyworks did we start to see comments left by DIY investors on SparxTrading.com that the best pricing for options trading was being provided by tastyworks. 

In a very short period of time, the tastytrade and tastyworks brands established themselves as a powerful force for active traders and investors who want to get the full experience of trading online, offering a unique community and great trading tools and user experience.

In a Weekly Roundup from February 2019, we spotted tastyworks’ rise in the US online brokerage rankings, where they appeared to be gaining ground on traditional online brokerage names in the space. Again, this was just two years after the tastyworks launch. The following interview from the Moneyshow in Toronto was also telling of the footprint tastytrade had developed in Canada by that time.

It wasn’t until 2020, however, that chatter around tastyworks coming to Canada started to pick up steam. To be clear, prior to 2020 the tastyworks team mentioned publicly that they intended to come to Canada. Unfortunately, regulatory and technology hurdles made coming here much slower.

Despite several suggestions in the past that didn’t quite work out, things seem different this time. The series of signals that the arrival of tastyworks in Canada is imminent seems to be growing. If we rewind back to January 2020, a tweet from the current Co-CEO and President of tastyworks, Kristi Ross, about the online brokerage coming to Canada was the first strong indicator big things were coming:

Then, in June, another interesting update, again from Twitter:

Then, in September, on Twitter:

We were primed to see a new online brokerage set up shop in the Canadian market before the end of the year, but it did not end up happening. As it turns out, though, the tastyworks folks were also busy with some big news of their own.

Tastyworks announced at the beginning of 2021 that they were being acquired for $1 billion by IG Group Holdings.

After about a decade, Tom Sosnoff had done it again, turning an idea about trading options and building a community of users into a multimillion-dollar payout. According to the press release, the management of the tastyworks brand was to continue on, but it did raise some questions about whether or not a move to Canada was still in the cards. That question, however, was put to rest in a video in early February:

Although the video clearly signals tastyworks’ own acknowledgement of yet another delay, this article from The Globe and Mail about tastyworks coming to Canada was published last week, lending more weight to the idea of tastytrade’s Canadian launch actually happening this year. One of the biggest questions will be “What is tastyworks?” and, in all likelihood, this article is but one of many to come that will seek to answer that question as the tastyworks and tastytrade advertising machinery ramps up.

The journey to Canada for tastyworks has been a long and winding road.

Since their first hints in 2018 of coming to Canada, the online brokerage landscapes in both Canada and the US have changed significantly, with the biggest change being the shift in commission pricing. As we’ve seen over the early part of 2021, however, just because a platform offers a great user experience and low pricing does not guarantee customer delight. There has to be something deeper.

For online investors, especially active ones, community is huge, and Sosnoff is well aware of this. Tastytrade is a financial content powerhouse, boasting an audience in Canada of 10,000 daily viewers and a global audience of about 900,000. These aren’t just passive viewers, however. Scan comments and forums relating to options trading and pricing conversations and tastytrade comes up a lot – and with a lot of (generally) positive emotion. It has a loyal fan base and a vibrant community.

For Canadian online brokerages, the move north by tastyworks will be an inflection point for the standard of online investor experience. Tastytrade content is engaging, entertaining, and educational. There are 20 shows that take place on the network. There is fresh content every day, and you can watch the founder and other members of his team trade throughout the day. They don’t just talk about this stuff, they actually do it. Add to that the price for trading stocks and options that tastyworks will bring, and the picture forming is that most Canadian online brokerages are staring at a potential game-changer coming soon.

The irony of the tastytrade and tastyworks journey coming to this point in 2021 is not lost on me.

When, seven years after the fact, an online brokerage can get you to remember the first time you ever saw their name (let alone on a return trip from Vegas), that says something about the power of the brand. The fact that TD Direct Investing set in motion the chain of events that led to tastyworks coming to Canada, and that I have been able to watch it unfold, is amazing.

Also pretty cool is seeing that having a penchant for disruption, a passion for giving online investors great experiences, and keeping your hair long can end up working out after all.

Discount Brokerage Tweets of the Week

From the Forums

Hitting Rock Bottom

In this post, a 40-something investor with a wife and children asks for advice on how to rebuild after a financial catastrophe – that he brought upon his family through a series of bad bets on leveraged ETFs. Hundreds of Redditors offer words of encouragement and advice on everything from investing in simple ETFs to being grateful for family during tough times.

Risky Business?

A new investor with a lot of money to invest for 20+ years asks in this post how risky an ETF is and wants to know if a HISA or GIC would be a better choice. Redditors have strong opinions on the matter.

Into the Close

That’s a wrap on another edition of the Roundup. As alluded to in the opening, there’s a lot happening this month, and the Oprah interview is just the tip of the iceberg. We’re still tuning up the new features on the SparxTrading.com website and are looking forward to upcoming enhancements. While we might not get Oprah as a guest contributor (just yet), we are looking forward to including more interviews with interesting folks in the near future. In the meantime, we want to wish our readers tuning in today (Monday) a happy International Women’s Day and a profitable week ahead!

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Discount Brokerage Weekly Roundup – February 16, 2021

It’s fitting that after so much discussion about “shorts” in the news, we also now have a short(er) trading week upon us. With one fewer trading day, it also means the deadline for RRSP contributions is ticking closer, adding to the pressure that is evidently already building at Canadian online brokerages this month.

In this edition of the Weekly Roundup, we take yet another look at the customer service angle at Canadian online brokerages, this time zeroing in on another recent set of rankings that measure digital interactions. From there, we dive into some exciting new features being launched by Canadian brokerages that will help take some of the guesswork out of investing before and during retirement. As always, we’ll serve up a generous helping of investor commentary from Twitter and the investor forums.

Canadian Online Brokerages Struggle at Delivering Service Online

The drumbeat for better customers service among DIY investors in Canada is getting louder by the day.

Increased coverage among high-profile financial writers in Canada, as well as a number of studies by financial research firms, validates what we have been seeing for many months on social media: Most Canadian online brokerages are falling short on providing timely customer service experiences.

While data has been emerging this year that puts the issues faced by online brokerages in the spotlight, it is somewhat confusing for online investors since different studies measure different aspects of the “service” experience.

Both the actual wait times experienced by Canadian DIY investors and the unpredictability of what users can expect when reaching out as either a customer or an interested consumer have potentially far-reaching consequences to the industry as a whole. And, as the data shows, if these issues are not addressed, the recent online brokerage challenges taking place in the US could spill over to providers here in Canada.

The Story in Numbers

At the end of January, a couple of important Canadian online brokerage rankings were published. We covered The Globe and Mail’s online brokerage rankings in detail earlier this month, with a significant amount of time spent diving into the wait times that were measured at Canadian online brokerages in January (2021).

Online BrokerageWait Times (min)
BMO InvestorLine87
CIBC Investor’s Edge101
Desjardins Online Brokerage170
HSBC InvestDirect125
Interactive Brokers66
National Bank Direct Brokerage69
Qtrade Investor28
Questrade128
RBC Direct Investing90
Scotia iTrade179
TD Direct Investing58
Virtual Brokers7

For a quick refresh, the table above contains the average wait time data reported as part of the online brokerage rankings among the 12 firms that were reviewed. Interestingly, in a post by DALBAR on LinkedIn, additional information about the wait times was provided that illustrates the range of wait times at each firm. Readers of the Weekly Roundup post in which these numbers were thoroughly examined can appreciate why average values, on their own, might not convey the full picture. The study data cited by The Globe and Mail rankings reported the average wait times, but the graphic below adds additional context around those average values.

Aside from the 25x difference between the average of the lowest wait times (Virtual Brokers) compared to the highest average wait times (Scotia iTrade), one of the most striking trends to jump out is variation in wait times that occurred as online brokerages took longer to respond. At the far right of the chart shown above, five firms in particular stand out with highly variable wait time ranges:

Of these firms, it was most evident that Questrade had the highest range of wait times, which stretched from about 50 minutes to just under 300 minutes, with an average of 128 minutes. By comparison, HSBC InvestDirect had an average of 125 minutes but a much narrower range of wait times, stretching from just over 60 minutes to about 210 minutes. When ranges this wide are part of the service experience, it is essentially a gamble for DIY investors as to exactly how long they are going to have to wait before connecting with a service agent.

Another striking feature of the data on the chart is where Qtrade Investor landed in terms of wait times. Their “worst” wait time (of about 50 minutes) was approximately the best wait time that any firm behind them could achieve.

These data points are also important because of how they compare against another set of online brokerage rankings that focused specifically on service levels. Financial services research firm Surviscor also released online brokerage service rankings at the end of January and concluded that there were clear and persistent shortcomings in the response times of most Canadian online brokerages.

Unlike the DALBAR study, which took a snapshot of one week’s worth of telephone data in January 2021, Surviscor conducted 163 service inquiries per online brokerage between January and December of 2020 on contact forms, emails, and social media channels.

FirmResponse Time (hours)
Questrade2.90
Qtrade Investor4.02
Canaccord Genuity Direct11.15
National Bank Direct Brokerage29.38
RBC Direct Investing39.17
TD Direct Investing39.27
Interactive Brokers52.28
Laurentian Bank Discount Brokerage62.30
BMO InvestorLine76.10
HSBC InvestDirect77.55
Desjardins Online Brokerage89.75
Virtual Brokers91.68
Scotia iTrade94.20
CIBC Investor’s Edge104.17

The average industry response time in 2020 ended up being 55 hours, which was actually an improvement over 2019, in which response times across the industry averaged out to 62 hours. One of the most compelling points observed in the Surviscor analysis of service response times, however, was that service has been trending in the wrong direction for many years now, and although COVID-19 can certainly be considered a contributing factor, the data shows that even before the pandemic, meeting customer response times online was a challenge.

Change the Channel or Channel the Change

When comparing the data from the Surviscor and DALBAR studies, it’s clear that the kind of service experience a consumer can encounter with a Canadian online brokerage depends on the channel used, which is a big problem on a number of levels.

First, and perhaps most ironic, is that when it comes to online capabilities for service touchpoints at Canadian online brokerages, in spite of the hairpulling wait times, it is still faster (in most cases) to wait on the phone than it is to send electronic correspondence.

In fact, when comparing the magnitude of the difference between the phone and online channels, the range went from 1x (Questrade) to 786x (Virtual Brokers). Excluding the outliers, the average factor difference was 39x between phone and online interactions. One clear standout in both the digital and telephone categories was Qtrade Investor, which had the shortest wait time on the phone and the second-fastest response time online.

To Surviscor’s point, the digital interactions may have been deprioritized compared to phone channels because customers would be more likely to use the phone channels; however, as far as making a first impression count, most Canadian online brokerages would not get a flattering response.

A second important consideration is that for the financial services industry as a whole, trust is an integral part of consumer confidence.

Granted, DIY investors are flocking to the markets in droves because of perceived generational opportunities to build wealth, but when those same investors are hitting roadblocks to getting issues addressed or questions answered, confidence takes a hit. If you add issues of platform stability to that, then individual investors lose faith that financial services firms are up to the task of safely and reliably providing the opportunities for wealth creation that much of the marketing suggests is possible.

With just a few weeks to go until the RSP contribution deadline for 2020, this is prime time for DIY investors looking to online brokerages for RSP options. It is against this backdrop that the wait times experienced by Canadian investors stand out as something that could ultimately become a much more important component to online brokerage selection than has been the case in the past. Deeper than that, however, the notion of lag time is anathema in the age of online investing.

The recent Robinhood debacle that resulted in trading in certain securities being restricted has been blamed on wait times for trade settlement – a stunning vulnerability in the year 2021. For DIY investors in Canada, the clear and present risk to consider is an online brokerage’s capacity to meet a respectable service delivery standard, especially during times of market volatility or heightened interest (which is arguably when those systems are needed the most).

For Robinhood, not only did they suffer a blow in the court of public opinion, but they are also going to have to answer tough questions from lawmakers and face the wrath of an increasing number of lawsuits. Other than the growing chorus of complaints from Canadian consumers and financial media, there isn’t anyone holding online brokerages accountable for their service standards.

Ironically (again), the longer Canadian online brokerages take to address these service gaps, the more likely it is that the industry will find themselves taking centre stage in a mass media story or, worse, the focal point of a Reddit wave. Make no mistake, the clock on this story is most certainly ticking.

New Features From Online Brokerages Chip Away at Guesswork

After talking at length about where Canadian online brokerages are struggling, it’s a nice change of pace to shift the focus to areas in which they’re looking to innovate and deliver additional value to clients as well as to DIY investors more broadly.

Readers of SparxTrading.com know that we regularly engage with Canadian online brokerages on a number of new features and developments (case in point: our Look Back / Look Ahead series). Two interesting features that were brought to our attention from Canadian online brokerages are worth highlighting to readers.

BMO InvestorLine Launches a Checkup for Portfolios

With a tsunami of new investors joining the stock market, one of the biggest challenges many of them face is understanding how to answer a very basic question: “Am I on the right track?”

Fortunately for DIY investors, BMO InvestorLine recently announced a new online tool that helps investors analyze their current portfolios against a set of investor profiles, to see whether or not their portfolios are in line with their desired investment objectives.

The adviceDirect Portfolio Health Check tool is interesting for a number of reasons, but chief among them is that it is freely available to the general public to use, and it is both simple and fast to complete.

Individuals can enter details about their financial picture (no personally identifiable information is captured) and assess it on four key parameters: asset allocation, diversification, security ratings, and risk. In about three steps, users can quickly see where they measure up to their “personality” type and also see what they may want to consider changing in order to bring their portfolio in line with their respective investing personality type.

In terms of who might be interested, this tool appears to be built around investors (rather than traders) who are interested in taking a portfolio approach to building wealth. This means that the tool is likely to have mass appeal, and it serves as a great starting point to the conversation about whether or not the composition of a portfolio is on target.

From a business development standpoint, this is also an interesting and savvy move by BMO InvestorLine to be part of the conversation about wealth management. Analogous to mortgage calculators helping potential homeowners understand some of the mechanics around house purchases and borrowing, the adviceDirect Portfolio Health Check tool is a timely resource for anyone wanting to get a digital “second opinion” on how their investments stack up. This is entirely in line with their adviceDirect offering, which enables investors to consult with a licensed investment professional about recommendations but leaves the actual work up to the investors themselves to implement.

In a crowded landscape of online brokerages that would normally be focusing on commission pricing, this public-facing tool will enable BMO InvestorLine to be visible to the right kinds of investors at the right moment and, because it is free, for the right price.  

Looking in the RRIF-View Mirror

Against the backdrop of service enhancements at Canadian online brokerages, one important feature launched at the end of 2020 will help clients of RBC Direct Investing who are thinking about income when retiring.

Starting in December 2020, RBC Direct Investing enabled clients with Registered Retirement Income Fund accounts (such as RRIFs, LIFs, LRIFs, RLIFs, PRIFs) to be able to view payment details online, without needing to call or wait for a letter. In light of the wait times on the phone channel, this is a timely development.

To help navigate the most important details of a RRIF, the “RRIF View” provides a snapshot of a client’s plan, with information on the required minimum annual withdrawal amount and scheduled payment dates.

While this is a small development, it is an interesting example of a feature that is important to users who have this kind of account – it got a quick highlight as part of the Navigators series that publishes updates at RBC Direct Investing.

At this time of year, there is a lot of discussion about contributing to RRSPs, but there isn’t nearly as much information available on the next steps of funding retirement, in particular the variety of options available to individuals with an RRSP.

Fortunately, RBC Direct Investing also has a fairly good guide explaining RRIFs, which is helpful for individuals needing to navigate this new account type. With this new feature, RBC Direct Investing might also have the opportunity to spark a conversation about online brokerage platforms and the ease with which RRIF account holders can stay on top of key information.

Discount Brokerage Tweets of the Week

From the Forums

Timing the Market

A potential investor asks in this post whether they should wait until after the stock market crash – or at least massive correction – that many experts predict is imminent, in order to buy stocks at rock-bottom prices. Fellow Redditors share their strong opinions about the value of time in the market versus trying to time the market.

Up, Up & Away

From boredom to FOMO to a record bull market, there are many reasons that retail investing is surging in Canada right now. In this post, hundreds of Redditors discuss meme stocks, cryptocurrency, market bubbles, crashes, index funds, interest rates, and a whole lot more.

Into the Close

With the combination of Lunar New Year, Valentine’s Day, and Family Day, there have been many reasons to celebrate this past week, and Friday being that much closer certainly adds one more item to the list. There’s a lot of gripping drama playing out in the US this week, with the GameStonks trade under the microscope. With snow and cold showing up just about everywhere, including Texas, this is going to be a weird one. Hang in there.