Tag: Qtrade Direct Investing

Dessert-lovers, rejoice! This past week was a great time to enjoy the fruits of investing labour, with tech giant Apple announcing they will be initiating a 4:1 stock split, as well as the tech-heavy Nasdaq pressing into new all-time-high territory.

In this week’s Roundup, we report on the current state of the deals/promotions drought and consider what it may signal for the industry. From there, we continue to look at the role that promotions can play to attract new clients or help hang on to existing ones. As always, we’ve included the highlights from tweets and investor forums.

Striking Out on Deals

In case you needed to be reminded, it’s not still March, and August is (amazingly) here. Time isn’t the only thing that has been distorted this year, however.

For DIY investors, the stock market’s nosedive and subsequent meteoric recovery have all but defied conventional wisdom. And, regardless of why the markets may be continuing to push higher, the reality is they continue to do so. As a consequence, DIY investors are continuing to open new online brokerage accounts at a higher than “normal” pace.

Ironically, after years of facing margin pressure because of rising technology costs and declining revenues from price wars, online brokerages (at least those in Canada) did not seem to be prepared for the surge in interest when it finally came in. Business has been so good at Canadian online brokerages, in fact, that many of the systems serving new customers cannot keep up.

Customer service lines at Canadian online brokerages are painfully slow, and technology platforms have stumbled through the spring and early summer.

The unlikeliest of all casualties amidst this activity: online brokerage deals.

At the outset of August, yet again, there have been no new official mass-market deals launched or offered for online investors that aren’t part of standing offers. While the beginning of a new month offers no guarantee that an online brokerage deal would launch, for the better part of the last decade, the beginning of a month has provided online brokerages the convenient starting point for a promotion. And for most of that time, brokerages seized on that opportunity.

After the conclusion of RSP contribution season (in early March), we have witnessed a steep pullback in the number of online brokerage deals and promotions being offered to DIY investors in Canada. It is no coincidence that this pullback coincided with the record trading levels and interest in opening online brokerage accounts, but it does beg the question: when demand for online brokerage accounts shifts so significantly, what else gets taken off (or put on) the table?

For the moment, Canadian discount brokerages appear to be content with the fact that demand for account openings remains strong enough that incentive offers are not required. Furthermore, promotions would only strain systems further and create additional backlogs for applications for accounts as well as delay the ability to get investors up and trading quickly. Though it sounds counterintuitive, the reality is that there really can be too much of a good thing.

Viewed from a slightly different perspective, however, the lack of deals activity during the past several months might be more a symptom of the lack of scalability of systems than some shrewd calculus to boost earnings. Conversely, the fact that Questrade has retained their cash-back (referral program) promotion and their standing commission-free trading deals implies that they have the technological capability and workflow to support bringing on a high volume of new clients.

In addition to the lack of new deals, there was one deal that officially met an early retirement last month: the referral offer from Qtrade Investor.

Removing a referral offer is an interesting decision on a number of levels. First, this category of deal enables online brokerages to determine how much they are willing to compensate individuals for a referral. Referrals are one of the most potent ways in which financial service providers can earn new business, and as such, it was curious to see Qtrade Investor pull the plug on this offer.

The second reason it was curious to see this promotional offer wind down was because of competition. With the Qtrade promotion now deactivated, this leaves BMO InvestorLine, Questrade, and Scotia iTrade (and, technically, Interactive Brokers) with a referral offer.

It is worth noting that Questrade currently sits unchallenged in terms of deals, so hands down they are getting an unparalleled amount of exposure for commission-free trade and cash-back offerings. For the moment, it appears that online brokerages are pushing their “switch to us” campaigns instead. Ads for TD Direct Investing, one of the largest online brokerages, have already surfaced again.

As distorted as time may be for many, there are (thankfully) hard deadlines for individual investors to contend with – such as the end of the calendar year, which is relevant for TFSAs and capital gains/losses. There is also the next RSP contribution deadline, in March 2021, which may seem far off now but which online brokerages must start early to plan for.

It is unlikely that online brokerages are abandoning incentive offers altogether, heading into the latter portion of their fiscal and calendar years, but there may be a much more cautious tone leading up to the US election (in November) and because of the general market dynamics of late.

More Than Just a Promo

Even though no official new offers were launched for Canadian DIY investors to start the new month, that doesn’t mean there weren’t some interesting developments on the promotions and deals front worth reporting about. In fact, quite the contrary.

One of the most exciting/interesting pieces of news on the promotional front was an article referencing a move by Interactive Brokers in which they telegraphed their intention to give away shares in their company to attract new clients.

Perhaps it is a move akin to Robinhood offering free stock in some big-brand public companies as part of the incentive offer to join Robinhood, but this doesn’t take away from the ability to get on the radar of investors by doing so.

Interactive Brokers’ decision to attempt to provide stock represents, in itself, the confidence in their own share structure and, most importantly, their own brand. Whether it succeeds or falls short of the intended goal, this latest move by Interactive Brokers is a reflection that promotions aren’t just limited to cash-back or commission-free trading – they can also take the form of equity. Though not something commonly done in Canada, with potentially a second online brokerage offering this up in the US, it might represent an interesting way to control the cost of acquisition of new clients while (in the case of Interactive Brokers) adding evangelists who, as shareholders, have additional incentive to see the brand succeed.

While the story about Interactive Brokers in the US prepping to issue shares as part of a new promotion continues, there was another development in the Canadian online brokerage space, with CIBC Investor’s Edge, that also highlights a different way in which promotions are being used.

Over the past two weeks, CIBC Investor’s Edge was in the process of rolling out a new trading platform that proposed to add a significant refresh to the platform’s look and feel, as well as to improve the functionality. Unfortunately, things did not go according to plan.

According to social media posts from Investor’s Edge clients, the rollout of the new trading platform caused significant interruptions to trading, so much so that they issued a blanket commission-free trade offer to all of those account holders who were deemed to have been impacted by the service outages.

@cibc investors edge nice attempt but after all the money you cost me over those 10 days of incompetence do you really think 14 days is adequate sorry but that’s like rubbing salt in the wound it will take more than that to keep me from taking my money elsewhere pic.twitter.com/ouDb7gxpmk

— Eat 'Em and Smile_The Unacceptable🇨🇦 (@DH_OU812) August 2, 2020

@CIBC investors edge your upgrade is horrible. It’s been 5 days and I am still unable to sell my holdings. Forget about how much opportunity I miss, I am literally watching my stocks going down and losing all my gains.

— Peter Zheng (@PeterZh88929277) July 25, 2020

An incident of this magnitude at a major (bank-owned) online brokerage is a rare event. However, the fact remains that the duration and magnitude of this impact are likely what drove the decision to waive commission fees for a two-week period.

Although it cannot officially be called “commission-free” trading the same way it is at other brokerages, it nonetheless does establish that one of the options available to online brokerages to generate goodwill with their customers is via commission-free trades. Of course, the premise in that offer is that the platform would be stable enough to enable DIY investors to be able to execute trades.

The takeaway for both Interactive Brokers and CIBC Investor’s Edge is that ultimately, the return on investment for these unique offerings has to be there for the discount brokerage.

In the case of Interactive Brokers, there are not many details available yet, but offering stock is a unique way to achieve a lower client-acquisition cost without directly impacting profits. With respect to CIBC Investor’s Edge, there is clearly an attempt by the brokerage to repair the relationship with clients who were negatively impacted. The math to keep these clients justifies this course of action, but it also flows upstream into investing in the technology to avoid (or minimize the risk of) outages.

From the Forums

Bank of Dad

In this post, a Redditor asks for advice on the best way to teach his young son about investing, using $400 as the starting point. Fellow forum users suggest savings accounts, GICs, RESPs, and the ever-popular “Bank of Dad” – and lament wasting their childhood money on candy and toys instead of learning useful skills for the future.

Neither a Borrower Nor a Lender Be?

A Redditor asks in this post whether it’s a good idea to borrow money to invest in the markets right now. A long and lively discussion ensues, with commenters weighing in on everything from market crashes to midlife crises.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – Curated tweets by SparxTrading

Into the Close

With a shortened trading week for investors in Canadian stocks, all eyes for market action are now on the US market. As it happens, there’s all of a sudden a lot more sports around to distract/pay attention to. What this means is that there may be a gradual easing off of market participation by online investors since (SO MANY) sports schedules are intensely packed in. Could that be what finally tops out the market?

Here we are at the beginning of a new month. If the old adages are to be believed, then May is where we can look forward to flowers, and when investors would typically sell and look to return in the fall. Of course, those would be in normal times, and with many of us still parked at home, the rule book for this May is going to be anything but typical.

In this edition of the Roundup, we continue to digest the numbers on the popularity of online investing being shared and what those numbers help to explain about the current state of online brokerages in Canada. From there we examine the current state of the deals and promotions being offered at the beginning of a new month and speculate on what the “new normal” is shaping up to look like for deals from discount brokerages. As always, there’s a healthy serving of commentary also included from DIY investors on Twitter and in the forums.

Waves of Interest

The big story in the online brokerage space these past two months has been heavily focussed on numbers. Notably, the numbers of DIY investors – be they active traders or first-time investors – who have been jumping into the stock market, in spite of the sharp declines in stock prices and unprecedented volatility.

With the start of a new month, Interactive Brokers has once again released their trading activity metrics, which offer a unique window into the behaviour of investors and the business conditions of online brokerages.

The metrics published by Interactive Brokers show that there were 46 thousand net new accounts opened, an increase of 15% over the prior month and an incredible 461% increase over the same period last year. In fact, there were more online brokerage accounts opened at Interactive Brokers in April than there were in the last six months of 2019 combined.

Digging further into the numbers published in their press release, it is also possible to see magnitude and direction of activity by investors across April and March. For example, there were 7.2 million buy orders compared to 5.64 million sell orders. To put these numbers into context, these are about 2 – 2.5 times higher than the 2019 average in each category.

The growth in new accounts and the surge in trading behaviour provided by Interactive Brokers’ figures puts what’s been happening here in the Canadian discount brokerage space into sharper focus.

Although different in absolute numbers, on a relative basis the flood of new accounts and trading volume implies that Canadian online brokerages had a VERY good past two months in terms of revenue generation and asset gathering. Unlike their counterparts in the US, Canadian discount brokers haven’t dropped their commission rates to zero, so total revenue gained should be substantial.

Indeed, messages from DIY investors on social media about delays in getting new accounts opened, as well as messages on the websites of Canadian online brokerages communicating delays due to higher-than-normal volumes, once again validate the idea that the sheer volume of interest has overwhelmed many service channels.

Out of curiosity about the delays experienced by clients when attempting to reach an online brokerage by phone, we looked at the open job postings for client service reps for the online brokerage arms of a few of Canada’s largest bank-owned brokerages. The surprising finding in this quick scan was that there were only two of the big five banks with active postings for their wealth management (i.e. online brokerage) divisions. Of further interest, at one of these brokerages, the training program is an intensive full-time commitment of 20 weeks. What this implies is that if Canadian online brokerages that are experiencing severe delays in responding to clients haven’t already done so, hiring into the role of client service is going to be a challenge (especially if everyone does it at once), and the turnaround time for a fix is not going to be short.

As has been reported in Roundups in the past few weeks, these unprecedented times in the stock markets and economies have, almost counterintuitively, resulted in a watershed moment for account openings and trading volume.

Canadian online brokerages, despite their higher commission structures, are facing a huge surge in account openings and a revenue windfall from active trading. It remains to be seen which online brokerage in Canada can successfully deliver consistently positive client service at scale and, more importantly, seems interested in prioritizing doing so. A quick scan of the open job postings at Canada’s largest banks shows that, at this point, hiring more customer service agents to assist specifically with the online brokerage segments of their business isn’t a priority.

While deploying more people to assist with growth is one strategy, the numbers from Interactive Brokers – which counterintuitivelyis arguably the online brokerage most committed to automation – have shown that having a highly scalable business structure pays for itself. Their ongoing investment has enabled Interactive Brokers to accommodate and process new accounts at a rate much faster than online brokerages with less automation to their system.

Whether Canadian online brokerages are, at the moment, content to grow at their own pace or are simply unchallenged to do so more quickly, one thing is clear: the longer it takes DIY investors to open accounts when markets present opportunities, the more likely DIY investors will send their assets and trades to an online broker that can execute on this quickly.

Deal-ayed Gratis-fication

Normally, the start of a new month would be the opportune time to recap the deals and promotions being offered by Canadian discount brokerages. These are not normal times, however. With the start of a new month, the deals and promotions being offered by Canadian discount brokerages are largely the same as they were during April.

The current deals-and-promotions landscape for cash-back or commission-free trade offers is dominated by two firms: Questrade and BMO InvestorLine, with the latter being the only big Canadian-bank-owned brokerage to be running a cash-back promotion offer.

The most popular category remains the baseline transfer promotion, which provides reimbursement of transfer-out fees that most online brokerages charge when moving accounts to another provider.

With demand being as strong as it is, and Canadian online brokerages struggling to keep up with processing new account sign-ups, there has clearly been a shift away from most Canadian discount brokerages offering deals or promotions to incentivize DIY investors to sign up for an account. Interestingly, it seems that awareness-based marketing campaigns are being run at the moment, with advertising by TD Direct Investing, Scotia iTRADE and Qtrade Investor showing up on social media feeds.

The takeaway appears to be that while online brokerages are “open for business,” it is not business as usual. At this point, the speed with which an account can be opened and opportunities seized upon takes precedence over the incentives that determine where an online investor turns to – at least for many investors. Translation: FOMO is firmly in control. Of course, commentary by both (and only) Questrade and BMO InvestorLine about the successful rates of account opening may simply be coincidental to their marketing efforts through the big drop and bounce.

As for what happens next from here, it is likely that larger online brokerages enjoy the benefit (and challenge) of being large and don’t have to provide incentives unless they are really interested in capturing market share. For smaller online brokerages, it is clear that this ought to be a time for leaning into the attention that more DIY investors are paying to the space. With online brokerages deferring their promotions, at least for the time being, once things “normalize” from an investing standpoint, it seems like offers could become hyper-competitive. There are still many unknowns on the promotions front, but looking at the big picture, the competition for new customers for financial services and online investing is going to be a lot tougher than it was heading into the COVID-19 pandemic.

Discount Brokerage Tweets of the Week

Discount Brokerage Tweets – Curated tweets by SparxTrading

From the Forums

Oh, Canada

A Redditor asks, “Why should I continue to invest in the Canadian market?” in this forum post. Fellow users rally around the benefits of hedging investments by putting money in the Canadian and US markets and warn the poster to be wary of recency bias.

Speculation Nation

In this post, a user invites the forum to speculate which companies may go bankrupt as a result of the turbulent markets.

Into the Close

For better or worse, stock markets are always forward looking. This week, however, there may not be a lot to look forward to except heightened uncertainty. The math on unemployment figures in Canada and the US is terrible, and as far as plans to “restart” entire economies, it will be anything but smooth. Markets, for now, seem to have digested a lot of very bad news and are priced on the expectations that things will be resolved in some sort of orderly fashion. This week will certainly test that thesis.