Tag: National Bank Direct Brokerage

National Bank Direct Brokerage

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Discount Brokerage Weekly Roundup – July 5, 2021

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

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

Online Brokerage Deals Get Creative

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Robinhood IPO in Motion

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

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

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

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

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

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

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

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

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

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

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

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

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

From the Forums

Day Trading Up

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

In-formed Opinion

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

Into the Close

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

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Discount Brokerage Deals & Promotions – July 2021

As we kick off a new month, the activity in the online brokerage deals and promotions section appears to be mixed.

On the positive side for DIY investors, there was an important extension of a popular promotion from National Bank Direct Brokerage that will undoubtedly continue to attract attention and serve as a catalyst for other online brokers to serve up something equally compelling to new clients.

Wealthsimple Trade also appears to have made some important updates to its promotional mix, pushing more definitively into the “free stock” deal for new account sign ups and for referral offers.

Finally, there was a small commission-free trade offer from Scotia iTRADE linked to DIY investor’s taking a stock market education training series which reflects the ability of incentives to be used alongside key value drivers (in this case investor education).  

Less positive is the fact that some deals have expired heading into July. Specifically, HSBC InvestDirect’s commission-free trade offer ran its course and concluded into the start of July.  

Now that we’ve crossed into the second half of the calendar year, we fully expect deals and promotions activity to start picking up, even more so as we approach September.

This year there’s definitely something unusual in terms of online brokerage activity. Given the large number of new features being released by online brokerages this summer, it’s a safe bet things won’t be as quiet as they usually are when it comes to promotions, and we’re anticipating seeing some more creative offers surface over the next few months.

As always, if there are promotions that we’ve missed that would benefit other DIY investors, let us know and we’ll update our coverage.

Expired Deals

HSBC InvestDirect’s commission-free trades offer formally wrapped up at the end of June.

Extended Deals

National Bank Direct Brokerage extended its popular 100 commission-free trade offer. The new expiry date for this promotion is September 30th.

New Deals

The newest offer to cross our radar was from Scotia iTRADE, who is offering up to 10 commission-free trades (five for using the promo code during account sign up, and five for attending their educational ‘bootcamp’ on investing). This was an interesting offer insofar as it was offering up commission-free trades as a reward for attending a series of educational webinars on investing.

Be sure to check out our discount brokerage deals filter for more information on current promotions.

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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 – April 5, 2021

Despite the short week last week, markets didn’t mind and leaped ever higher. While patient investors were rewarded, not everyone was so hoppy, it seemed.

In this edition of the Weekly Roundup, we jump into the latest deals and promotions activity spotted at Canadian discount brokerages in April, and the trends that seem to be emerging from the latest offerings. Next, we take a look at why some investors are not so keen on markets grinding upwards and what that could mean for Canadian online brokerages through the rest of the year. Tweets will be off for a few weeks, but we’ll wrap up with interesting discussions taking place on investor forums.

Online Brokerage Deals Spring Into Action

There’s good news for DIY investors on the hunt for a deal when opening an online trading account. April brings with it more than just rain and signs of spring, as another Canadian online brokerage has also decided to step into the deals and promotions pool, bringing the post-RSP season count of new deals to two.

It might seem unusual to make a big deal out of just two online brokerages doing anything, however, it’s not just any two online brokers. While it’s too soon to call something a trend outright, there are some interesting parallels that make a case for a possible pattern emerging.

To start off the month, HSBC InvestDirect launched a new commission-free trading offer that features 60 commission-free North American equity or ETF trades which are good for use for up to 60 days. The offer, which launched at the beginning of April, runs through the end of June and is available to both new and existing clients.

Midway through last month, National Bank Direct Brokerage also launched a massive commission-free trading promo, ponying up 100 commission-free trades which were good for use for up to one year.

With a competing commission-free trading offer already on the market that is both larger and longer in duration, why might Canadian DIY investors consider HSBC InvestDirect’s promotion?

One of the reasons that HSBC InvestDirect’s new offer might appeal to new clients is because HSBC InvestDirect has the lowest standard commission rates for a Canadian bank-owned online brokerage, at $6.88 per trade. It might seem like a few pennies per transaction when compared to National Bank Direct Brokerage’s or CIBC Investor’s Edge standard commission of $6.95 per trade. However, investors who are ultra-price sensitive and who want to have the convenience that a bank-owned online brokerage affords, as well as the potential security of one provider for their personal financial and wealth management needs, can find all of these with HSBC InvestDirect.

Another key reason why investors might lean towards HSBC InvestDirect is because this online brokerage is fairly unique among most Canadian online brokerages in that it enables trading on international stock exchanges, something that is of increasing appeal. It is why in the fine print of the new offer by HSBC InvestDirect, trading is restricted to North American equities and ETFs. No other online brokerage makes it a point to stipulate that commission-free trades apply only to these geographies.

In comparing the commission-free trading offers from HSBC InvestDirect and National Bank Direct Brokerage, both show that the numbers of commission-free trades being offered are relatively high. By comparison, Questrade, one of the online brokerages that has a long-standing promotion for commission-free trades, comes in at a much more modest range (up to 18 commission-free trades), depending on how commission credits are used.

Based on our long-term deals and promotions research, commission-free promotions are less appealing to DIY investors than cash back offers. That said, some investors will find free trades valuable when considering opening an online brokerage account. It might be just the component to help tip an investor in the direction of either one of these non “big five” bank-owned online brokerages.

The fact that the two newest online brokerage promotions to come to market after RSP season are commission-free trading offers points to a possible preference by online brokerages to use this kind of deal to stay on the radars of online investors.

The good news in the near term for DIY investors is that Canadian online brokerages appear to be shifting from taking a passive stance on promotions to taking a more active one. This means there are likely other online brokerages (that aren’t the “big five”) which will consider launching offers in the coming weeks and months.

In terms of timing, launching a new promotional offer at this point in the calendar year might offer some advantages, because the competition for attention isn’t as fierce (and therefore expensive) as it is leading up to RSP season, or into the end of the year.

One of the big milestones in April is the deadline for filing income taxes at the end of the month. We have already observed that Wealthsimple is using products in its ecosystem, Wealthsimple Tax (formerly Simple Tax) and Wealthsimple Trade, to combine these two worlds in a very unique promotional offer. Users of Wealthsimple Tax’s paid feature can be eligible to receive a free stock in their, wait for it, Wealthsimple Trade account. No other online brokerage has this streamlined marketing capability between the world of taxes and the world of investing, despite how tightly intertwined these two worlds actually are (especially this time of year).

For any Canadian online investors who couldn’t, or didn’t need to, capitalize on the offers from online brokerages in the first calendar quarter of this year, the good news is they can now choose from two sizable commission-free trade deals and, if history is any indicator, perhaps a few more as the spring progresses.

For Canadian online brokerages, the fact that another two bank-owned online brokerages stepped into the deals and promotions pool with commission-free trade offers is a signal that this kind of offer is one possible way to stay visible with online investors while keeping costs low at the same time.

Commission-free trades are not as costly as cash back programs to administer, and thus offer greater flexibility. For example, the minimum deposit requirements for cash back promotions tend to be higher than for commission-free trade promotions, which in turn makes it less likely for potential clients to sign on.

The current market climate for online investors is also something worth considering.

Unlike the same point in time last year, there is much greater clarity and certainty available to the stock markets on the direction of the major global economies. Yes, it appears that the return to “normal” will be slow, but already markets have seen a significant drop in volatility and therefore opportunity for rapid wealth growth (or loss).

Thinking longer term, however, this year will be interesting for commission-free trade incentives overall.

In Canada, there is already one online brokerage that offers standard commission-free trading (Wealthsimple Trade), and there was recently news of another commission-free online broker possibly launching towards the end of 2021. There is also the possibility that Tastyworks shows up with an ultra-low standard trading commission structure for Canada this year, too. With so many commission-free providers in the mix, it could prove to be the catalyst for most Canadian online brokerages to have a standard commission-free trade offer if they don’t want to lower their commissions to zero right away.

As always, we’ll simply have to wait and see how the rest of the spring and summer play out as far as promotions. With the launch of these recent deals and the looming uptick in commission-free trading offers, we find it hard to believe that most online brokerages won’t be taking this opportunity to ramp up their marketing efforts, including using incentives, to solidify their own growth goals.   

Have We Reached Peak “YOLO”?

This past week, the S&P 500 closed above 4,000 points for the first time ever, and it seems that some investors have had enough.

With volatility decreasing while indices like the S&P 500 make new highs, the get-rich-quick crowd appears to have hit a wall.

For anyone paying close attention to the world of online investing, especially over the past year, one of the biggest catalysts for investors jumping headfirst into the markets was the massive shock to stock prices that followed initial news of the pandemic lockdowns. With the outside world in chaos, individual investors hunkered down inside. Whether they were working from home or just at home, one of the only places that had any signs of life was the stock market.

Online brokerages in Canada and the US saw this play out firsthand.

It started as a surge in online account openings followed by backlogs in call centre wait times. One other odd thing occurred too – many Canadian online brokerages started to retreat from offering deals and promotions. The reasoning was clear: demand was so strong that they didn’t have to create even more by running incentives. We believe, however, the pendulum of investor interest in trading is about to swing back.

This past week, Interactive Brokers released their monthly operating metrics. However, in those numbers was a stunning figure: a 21% m/m decline in new account opens. This is the second consecutive month of double-digit drops (February saw a 35% m/m decline) and while that might normally be a shocking occurrence, on a year-over-year basis, Interactive Brokers new account opens are up 51%.

These massive drops in new account openings in 2021 are the result of a statistically anomalous period for investors being interested in trading the stock market, and the sharp drops from the highs in January underscore numerically just how strange the push to begin the year has been. The fact that these numbers at Interactive Brokers are dropping, however, suggests the heightened enthusiasm might be waning.

Other sources point to this online investor pullback being true as well.

According to a recent article analyzing US retail investor behaviour, there has been a staggering drop off of stock buying, to the tune of 60% near the end of March, and estimates of traffic decreases to US online brokerage Robinhood’s website are pegged at 63%.

In Canada, an article from the Globe and Mail describing the allocation of CERB money to online investing also conveys a sentiment of caution, rather than the frenzied “YOLO” trades that were taking place at the end of January or during this point last year in various beaten down travel stocks.

DIY investors simply aren’t jumping into the markets because there isn’t the perception of opportunity that comes with stable markets. That said, the data now suggests that while the big surge may be over, interest in stocks and trading remains elevated as a result of those who did enter the markets during 2020 and 2021.

So, what could this shift in investor interest mean for Canadian online brokerages?

One of the most immediate consequences is that new account openings will likely continue to drop off. Interestingly – perhaps almost counterintuitively – new account openings might be inversely correlated to the volatility of stock markets, which would force a rethink of how online brokerages position themselves for choppy markets.

While volatility has historically been a warning signal to stay away from markets, there is now a cohort of investors who have seen that doing the opposite actually pays off. Going forward, Canadian online brokerages will likely have to be prepared to bolster systems to deal with the increased interest that accompanies volatility.

Another near-term consequence will likely be how online brokerages approach attracting new clients.

The surge in investor interest over the past year exposed gaps among various online brokerages, in terms of being ready to take on new clients. Those online brokerages with online sign-up processes already in place were able to win clients more quickly than those who had not invested in these systems. As such, new clients found the path of least resistance into markets.  

With a pullback in investors wanting to trade, however, we expect there to be heightened deals and promotions activity among Canadian online brokerages, especially at brokerages agile enough to deploy these offers.

Marketing campaigns can take weeks or months of planning, so it is safe to assume that the planning for promotions in November through March of next year will be discussed during the summer. The fact that there will likely be fewer new investors coming to market means that online brokerages will have to factor this into their planning.

Also, as mentioned above, with new entrants to the Canadian online brokerage market on the horizon and fewer new investors, promotions pricing will be a key lever to get and keep attention.

The “new normal” in terms of online investing is already presenting itself. Stock markets tend to be future focused, so it is perhaps no surprise that investor behaviour might serve as a bellwether for other sectors of the economy. Many investors found their way into the markets because of rapid drops in prices of big-name stocks and a hope of getting rich fast. As life returns to “normal” and these larger names see appreciation in prices, there are fewer places for investors to find fast-money opportunities.

If there’s one thing that the “YOLO” investors don’t like, it’s when things get too hard. And, as any veteran of the market could tell you, doing nothing in the markets is a lot harder than it looks.

From the Forums

I Do Declare

Some big news coming out of the Canadian securities regulators prompted a wave of discussion among online traders in this reddit post. Cryptocurrency trading platforms operating in Canada will soon have to be registered as investment dealers with IIROC, the same governing body that oversees online brokerages. Check out the frenzy of discussions as confusion sets in over how this is all going to work, and what investors think of the move towards increased regulation.

Sibling Remedy

Helping family members with financial affairs can be dicey at the best of times. In this post on reddit, one younger sibling steps in to help an older one plan for a retirement that’s not too far away. There were many tips on to help navigate a touchy subject.

Into the Close

That’s a wrap on this edition of the Roundup. Even though it was a short week, there were still lots of egg-citing developments taking shape. Economic numbers continue to point towards the US economy starting to recover, and the new frenzy du jour here in Canada is real estate, where despite a recession and pandemic, housing sales numbers continue to skyrocket. If there was any question as to where the get-rich-quick crowd might have turned to after stocks and crypto have started to become less volatile, this might be a clue.

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Discount Brokerage Deals & Promotions – April 2021

If you’re fortunate enough to be in a place where spring is starting to arrive, the sight of new growth is a welcome change. Another spot where there are some pleasant surprises of growth: our online brokerage deals and promotions section.

This month, we’re excited to see a new commission-free trade deal cross the wires at the start of the month from HSBC InvestDirect. After the appearance of a new commission-free offer last month from National Bank Direct Brokerage it appears the look for the spring season is commission-free trading.

Of course, what would April be without some clouds and rain? Offers that expired heading into the month include RBC Direct Investing’s cash back (plus free trades) promotion.

As the saying goes, however, April showers bring May flowers and there seems to be more pleasant surprises showing up this month, so stay tuned for updates and be sure to check out our new deals and promotions filter to analyze the latest offers.

Expired Deals

March was a blustery month for deals activity among Canadian online brokerages. Most of the offers that were timed around RRSP season expired early in the month however there were two interesting promotions later in the month that also wound down.

In the middle of the month, Wealthsimple Trade’s latest referral contest expired. And, at the end of March, RBC Direct Investing’s cash back plus free trade promotion officially concluded.

Extended Deals

No extended deals to report at this time.

New Deals

Great news for deal hunters looking for commission-free trades as the start of this month features two new offers to review.

First, HSBC InvestDirect launched a new commission-free trade offer of 60 commission-free equity and ETF trades (North America only). This offer enables qualifying customers to trade commission-free (up to 60 trades) for 60 days. This promotion expires on June 30 and applies to both existing and new clients.

Second, be sure to review National Bank Direct Brokerage’s massive 100 commission-free trade offer. This crossed our radar in March and coincided with their recent commission-price drop, making this a competitive offer from a Canadian bank-owned online broker.

Review all the available online brokerage deals using our new deal filter tools here.