The spookiest month for online brokerage deals and promotions is finally here. October is famous for tricks and treats, and this year in particular, it seems like investors are in for a few treats in the deals section (and some sneaky tricks too). Sadly, it also signals the end of the wildly popular Sparx88 custom offer from Questrade.
In the “treats” column, there is a mix of new and extended offers for self-directed investors to choose from. To kick things off this month, HSBC InvestDirect has launched a commission-free trading offer, and both Qtrade Direct Investing and RBC Direct Investing have extended their offers as well.
Like all Halloween treats, if there’s one thing for self-directed investors to pay attention to with these new and extended offers, it’s the expiry dates. In particular, there are two sets of dates: the actual expiry date to be eligible for the offer, and the expiry date on the commission-free trades as well.
As the commission-free trading battle escalates among Canadian online brokerages, we are starting to see the number of commission-free trades being given out increase, as well as the timeframe over which to use these trades – to a degree. The exception, for now, seems to be the latest offer by HSBC InvestDirect which gives clients up to 60 days to use up to 60 commission-free trades. By comparison, Qtrade Direct Investing is offering 50 commission-free trades that are good for use until just about the end of April 2022 – which is almost seven months from the time of this posting. And, RBC Direct Investing is giving out 50 commission-free trades that last up to two years.
Somewhere in the treats may be a trick or two.
Expiry dates, especially those that are scheduled in the not-too-distant future, may be one way Canadian online brokerages might encourage users to sign up sooner rather than later. As we have seen in several cases this year, including in the Qtrade Direct Investing and RBC Direct Investing offers that were extended, the “flexibility” on the expiry dates is something that online brokerages can use as an option to lean into offers that are working, or pivot away from in case they see conditions change.
With so much change expected across the Canadian online brokerage industry over the coming months, we believe deals and promotions will be an exciting place to monitor. Nothing buys time on lowering commission rates like a commission-free trading deal, so for those online brokerages looking to explore the appetite for commission-free trading interest, there’s never been a better time to run an offer like this.
Expired Deals
There was only one noteworthy deal expiration heading into October: the end of the Sparx88 Questrade promotion. After a four-plus year run, this deal wound down as some behind-the-scenes changes to how Questrade manages custom offers required that this be phased out. On the plus side, there will be a new Sparx/Questrade offer coming soon, so stay tuned.
Extended Deals
Two big names in the Canadian online brokerage space elected to extend their current commission-free trade offers. The first, RBC Direct Investing, moved the expiry date from their 50 commission-free trade offer from the end of September to the end of October. Qtrade Direct Investing also extended their 50 commission-free trade offer until the end of December, a bold move considering the anticipated ramp up of offers slated to come online in the next two months.
New Deals
HSBC InvestDirect is bringing back a familiar face – the 60 commission-free trade offer. Starting in October and running through to the end of December, HSBC InvestDirect is offering up to 60 commission-free trades (North American equities and ETFs only) good for up to 60 days.
To stay on top of all of the latest discount brokerage deals and promotions, including quick access to promo codes, be sure to check out our online brokerage deals section.
With the Canadian federal election finish line in sight, whatever the decision, there’s likely to be a shakeup for self-directed investors and wealth management in general. It’s a toss-up, though, on whether any candidate will get more votes than Ted Lasso at the Emmys.
In this edition of the Roundup, we kick things off with one US online brokerage that continues to gain traction by listening to clients and is poised to grow with the launch of a new feature that is the envy of other brokerages. Next, we look at one Canadian online brokerage poised for a name change and potentially much more heading into the fall. Finally, we close out with some interesting chatter from self-directed investors about US-themed topics.
Given that Interactive Brokers typically targets and appeals to active traders, the continued growth in new accounts despite month/month declining volume of trades presents an interesting picture. There is clearly an appeal to individuals seeking out Interactive Brokers despite them having a paid commission structure. To be clear, Interactive Brokers also has a zero-commission option called IBKR Lite; however, the majority of their trading accounts come from their paid commission structure.
As Canadian online brokerages contemplate the shift towards zero-commission trading, there might be a clear lesson to being able to provide clients with a quality trading experience that they would be willing to pay for.
New Account Growth Momentum Continues
As the chart below clearly illustrates, new account growth at Interactive Brokers has been on a bit of an upswing after bottoming out in May.
One of the reasons that traders might be turning to Interactive Brokers is because of market volatility. When markets are volatile, it tends to attract in active traders and “fast money” seekers. While it may not be predictive of a volatile turn in the market (especially since the data was from August), there’s a sense that some kind of big market downturn is nearing. Recent comments by founder of Interactive Brokers Thomas Peterffy about upcoming “compression” in the markets is also a sign that certain online brokerages are thinking about a market downturn as well.
Another factor driving new account growth could be driven by Interactive Brokers eliminating inactivity fees in July. By preventing clients from leaving, the hurdle to positively impact net new accounts is lowered. Though Canada makes up a very small portion of the Interactive Brokers business, chatter from online investors in Canada nonetheless shows that bringing over less active accounts, such as TFSAs and RRSPs, makes more sense now that those additional accounts won’t incur inactivity fees. This fits with the view that accounts are continuing to be opened despite trading activity falling.
Cryptocurrency Trading a Catalyst for Customer Growth
Another catalyst for account growth at Interactive Brokers will likely come from their latest decision to launch cryptocurrency trading.
As we reported two weeks ago, the roll out was interestingly quiet. However, this past week, the PR machinery kicked off with the official announcement and appearance by Peterffy on CNBC.
The shift in messaging by Interactive Brokers regarding cryptocurrency trading has been interesting to watch. For quite some time, there was a notable skepticism about digital “currencies,” however, it seems that now there is a different thesis emerging: a small but important risk associated with individuals losing faith in traditional currencies.
While a billionaire is hardly representative of the mass market, it seems that he, like the clients of advisors using Interactive Brokers, wanted direct exposure to cryptocurrencies. Despite Peterffy’s deep skepticism on digital currencies, he’s savvy enough to recognize that some exposure to them is now a requirement to hedge against the scenario that confidence in traditional currencies falters. Intriguingly, Peterffy admitted that he’s been a holder of bitcoin in his portfolio for at least three years.
Interactive Brokers launching cryptocurrency trading is a very big deal for the online brokerage space.
While regulatory uncertainty may still prevent other brokerages from following suit right away, that Interactive Brokers figured out a way forward will expedite other brokerages wanting to seriously figure out how to deliver this as well. Robinhood already does; however, they have not yet figured out how to grow without attracting significant regulatory scrutiny. The experience in navigating regulatory hurdles, however, is something that may work in favour of larger and more established brokerages.
The source of interest in cryptocurrency has now gone beyond the “fast money” and extends to the “smart money” that is using exposure to cryptocurrency as a hedge. And, if Peterffy is an indicator of “smart money” then he has already validated the thesis on crypto.
For Canadian online brokerages looking at the US market is a little bit like peering into the future. Now that the zero-commission trading trend, which emerged in meaningful way in the US in 2019, has arrived in Canada, figuring out how to generate revenues outside of commissions on equities trading will be a priority. While the focus for revenue drivers from active traders will likely still be options trading (for those brokerages that offer them) in the near term, the convenience (and temptation) of crypto exposure and trading is on the horizon.
It will likely be some time before Wealthsimple Trade, the only online brokerage in Canada that has an associated product to trade cryptocurrency, faces competition from other online brokerages on the crypto trading front. Exactly how long, however, will be tough to tell. As was the case with National Bank Direct Brokerage launching commission-free trading, competition for online brokerage market share can come from unexpected places.
Looking at the latest stats for Interactive Brokers and the launch of cryptocurrency trading as well, we anticipate there to be continued strength in new accounts heading into the end of the year. Any kind of spike in cryptocurrency prices or volatility will. The lesson to Canadian online brokerages is clear on a few fronts. Despite what personal feelings executives may harbour about crypto, the reality is clients from entry level retail investors to sophisticated ultra-wealthy clients are looking for access to cryptocurrency. And, as Interactive Brokers has shown, listening to and delivering on what clients want is a great way to keep them.
Virtual Brokers Rebranding Moving Ahead
This past week Virtual Brokers sent out a notice to clients that they will be updating their branding…soon. It’s been in the works for a while but back in May of 2020, we reported that the parent of Virtual Brokers, CI Financial, announced that they would be consolidating brands they owned (including Virtual Brokers) to a streamlined CI-containing name: CI Direct Investing. When it comes to branding, the “direct investing” label has grown in popularity, replacing terms like “discount brokerage” and “online brokerage.”
Since the mention of the rebranding in 2020, advertising and marketing from Virtual Brokers has been notably quiet. Prior to their acquisition by CI Financial, Virtual Brokers was a visible presence online and especially in the Globe and Mail online brokerage rankings.
Now that a new moniker seems imminent, we expect that regaining the spotlight will also be a part of the plan.
What the CI-branded online brokerage has in store for a big splash could be interesting, especially given the timing. While traditional advertising and marketing might generate some curiosity, in a marketplace where zero-commission trading is now a reality at National Bank Direct Brokerage and Desjardins Online Brokerage and, to some extent, Wealthsimple Trade, getting noticed is going to have to come along with a hefty promotional offer and/or lower commission pricing.
In terms of timing, CI will not want to miss the opportunity to challenge other online brokerages this RSP season, the marketing ramp up to which typically starts in October and November. Already it’s shaping up to be a busy season.
Earlier this year, Qtrade Direct Investing also launched a significant rebranding effort and heading into RSP season they will likely be looking to make a bolder move to advertise to Canadian investors. We noted in an interesting reference to Qtrade Direct Investing’s new marketing strategy that their new agency, King Ursa, has a campaign scheduled for launch in November.
And, on the deals and promotions front, Wealthsimple Trade recently announced that they’re not doubling but tripling down on their referral program, offering triple the stock rewards to encourage new accounts to sign up.
While Virtual Brokers was a well-known name to the investors and traders, CI Financial’s move to rebrand under the parent entity makes a lot of sense for the long run. For their part, CI has been aggressively growing and it’s clear they’re not afraid to think big or punch heavy. With $320 billion dollars of assets under management and annualized revenues of $2 billion dollars, the CI brand brings with it much more financial horsepower than the Virtual Brokers brand alone ever could have.
There’s also another picture emerging too, based on the strategy to globalize their brand, which could see CI setting itself up to take some of its digital and direct investing/trading capabilities further than just Canada. Their aggressive moves to acquire US wealth management firms could be setting the stage for a wider push beyond Canada, and the digital platform could set CI Financial up to challenge online brokerages there too. After all, PayPal recently reaffirmed its commitment to roll out stock trading to its clients in the US, so there are still financial services providers willing to bet on direct investing as a way to gain or keep market share.
It won’t be too long before we see what the formal roll out for the new Virtual Brokers will be. Based on the recent developments across the self-directed investing space in Canada, we’re betting we won’t be able to miss the launch, and neither will Canadian online brokerages.
From the Forums
Taste Tested
The rumour mill keeps swirling around US-based online brokerage Tastyworks coming to Canada. In this post on reddit, find out what investors had to say about the potential arrival and the long wait.
Wealthsimple Trade USD…Coming Soon?
Also from the rumour pile, this post from reddit caught our attention regarding a highly sought-after feature from Wealthsimple Trade: USD accounts. Along with a potential update on the timeframe, the fact that the post was written by someone already transferring away from Wealthsimple was fascinating – especially in seeing what Wealthsimple is doing to get people to stay.
Into the Close
That’s a wrap on another eventful week. Technically this past week did feature an official announcement from Desjardins Online Brokerage lowering their commissions to zero, so the conversation around prices dropping for self-directed investors continues. It’s going to be a wild week of earnings announcements and now that the dominoes have started to fall with regards to commission pricing, it’s going to be anybody’s guess as to what online brokerages in Canada start doing heading into the end of the month. Hold on tight.
During the pandemic, it’s understandable to lose track of time. Yet, there are some dates that stand out, such as September 11th, that are forever etched into the minds of those who lived through the terrible tragedies of that day. Despite 20 years going by, it is still a vivid memory for many, and though painful to reflect on, the lessons learned from that day show that hope can ultimately triumph over hate.
In this edition of the Roundup, we kick things off with a look at the new features that launched on SparxTrading.com to help self-directed investors and industry enthusiasts track and research the latest developments in the online brokerage space. Next, we report on the latest zero-commission trading chatter, with a potential big move by one brokerage and another big brokerage potentially not moving. As always, we have some interesting commentary from the forums, including the launch of cryptocurrency trading at one brokerage that rolled out abnormally quietly.
Suffice to say, we felt it needed a makeover to keep pace with the new world of online investing. Little did we know at the time, 2021 would also be the year in which so much would change in the world of online investing. It seems like our timing was about right when it came to prepping a new look and feel for a brave new world filled with new trading platform features, zero commission pricing, and new providers (coming soon).
This past week, we rolled out some important updates to the website which we think will help self-directed investors (as well as industry observers who want to keep up with what’s going on in the space) stay on top of the big changes heading into RSP season.
Investor Feedback Added to Online Brokerage Reviews
When it comes to researching online brokerages, one of the biggest questions online investors have is what other online investors have to say. Community is a huge part of the self-directed investor experience, however, navigating the different online sources and forums can be a bit daunting.
To help make accessing user feedback easier, we have now integrated comments made about each online brokerage on channels like reddit and Twitter and directly connected them to each online brokerage review. So, for example, the latest comments made by online investors about Questrade or Wealthsimple Trade on reddit appear at the bottom of each of these respective online brokerage reviews.
Given that some of these brokerages generate a lot of conversation online, we added the ability to filter by channel, so readers can focus on the conversation taking place on reddit or on Twitter. To help combat spam and other nefarious activities, we also have developed a filtering system, so users also don’t have to scan through the questionable materials to find the good stuff.
Finally, to make things easy to verify, we’ve hyperlinked each of the comments so anyone researching investor comments from our website can go directly to the reddit or Twitter post to see what the rest of the conversation contains.
Our system is designed to evolve and learn over time so while it is not perfect at filtering out or capturing all of what we’d like, it’s a great advancement and beats having to sift through everything about a single brokerage manually. It’s something we’re going to continue to tinker with to improve, but we’re really excited to see this feature now in action.
Deals and Promotions Section Gets Reorganized
When we first launched the deals and promotions coverage on SparxTrading.com, we were able to capture most of the information in an “at a glance” format using tables.
Unfortunately, even though our website was responsive (a big deal circa 2011-2015), the tables that powered our comparisons and the deals and promotions were not. Despite that being the case, these tables were really popular because they provided a birds-eye view of the different offers and promotions out there – a great feature for people who were browsing and for online brokerage staff who wanted a handy reference when comparing offers across the industry.
It was a big decision (and a huge amount of work) to completely refactor the deals and promotions section, but we felt it was worth it to deliver a more relevant user experience and make it more accessible to users on mobile devices. In the new format, self-directed investors can efficiently compare online brokerage promotions and offers using filters to pick what attributes are most relevant, whether that be minimum deposit amounts, account types, or offers from specific online brokerages.
In terms of the latest updates, one of the first things users will notice on the deals index page is that we’ve tidied up the design and user experience on the filter to perform more efficiently. Users can filter deals by deposit amount, online broker, account type, and deal type. Those interested in browsing can also view all deals by selecting all.
To keep advertising to a minimum on the website in what is sure to be an increasingly crowded advertising market, we wanted to find an alternative way to feature offers. There are now two spots at the top of the deals index results list for specific deals to be highlighted. These are offers that we might be compensated for either through affiliate revenue and/or via paid placement by online brokerages.
Featured Deals Snapshot
Finally, we’ve adjusted the design of the deals cards themselves to display promotions and essential information more clearly. Data about the deal, such as the minimum deposit, expiry date, and promo code, are readily visible at a glance and the details about an offer are easily expanded when needed.
We anticipate deals and promotions to play an even greater strategic role in how Canadian online brokerages navigate the new reality of a bank-owned online brokerage offering zero commission trading.
Case in point, we’ve seen a big bank competitor to National Bank Direct Brokerage, RBC Direct Investing, offer a 100% increase in the number of commission-free trades and the duration in which to use them compared to their previous offer. Specifically, new accounts at RBC Direct Investing can qualify for 50 commission-free trades for up to two years. Most passive investors will be challenged to use that up within the time frame, so those self-directed investors looking for the features of a bank-owned brokerage like RBC Direct Investing and don’t mind the premium commission price, will find a promo that can be used for up to two years compelling.
Also, there’s a lot that can happen within two years now that commission-free trading is starting to surface (see article below) and innovation among online brokerages is accelerating. Using deals and promotions strategically enables online brokerages in Canada to effectively delay the switch over to full zero-commission trading.
More Zero-Commission Trading Chatter
Another week, another big development in the zero-commission trading [storm] and another week in which other stories get bumped because zero-commission trading in Canada is kind of a big deal.
While we generally don’t report on rumoured activity, in our in-depth analysis of the launch of commission-free trading by National Bank Direct Brokerage, it was clear that the closest rival to NBDB would not have much choice but to either match the offer or make a substantial cut to pricing to defend its business.
There are few details to report on at this point, however, what has come through online investor chatter has been reports of clients contacting Desjardins Online Brokerage directly and having commission-fees waived. Until a formal announcement is made, there is likely to be a flood of calls and emails from clients requesting the same, which is why we expect to see a definitive (and formal) response rather quickly.
Currently, the standard commission at Desjardins Online Brokerage (aka Disnat) is $6.95 for the “Classic” option and as low as $0.75 per trade for the “Direct” option – typically the choice for active traders (defined as making more than 30 trades per month).
If confirmed to be true, the roll out taking place in this fashion is evidence that Desjardins Online Brokerage is being forced to respond quickly, and likely, reluctantly.
Unlike other online brokerages outside of Quebec, the local competition between National Bank Direct Brokerage and Desjardins Online Brokerage is extremely fierce. National Bank Direct Brokerage has set its sights on expanding nationally, which then justifies its move to zero-commissions because it can win the volume of business required to make commission-free online investing. For Desjardins, however, it does not seem like they have the same growth path in mind. With their stake in Aviso wealth, they can simultaneously cater to their core market in Quebec while continuing to benefit from higher commission pricing being charged by Qtrade Direct Investing outside of Quebec for however long that can be continued.
Though clearly an important development, Desjardins Online Brokerage potentially being the next online brokerage after National Bank Direct Brokerage to eliminate trading commissions on equities and ETFs is still something the whole landscape of Canadian online brokerages can absorb. TD Direct Investing going to zero, on the other hand, would be a game changer.
This past week at the Scotiabank Financial Summit, comments by outgoing TD CEO, Bharat Masrani, revealed the executive view of going to zero commissions. Below is an excerpt from a discussion with Meny Grauman, Managing Director at Scotiabank, host of the virtual summit.
Meny Grauman
You talked about TD’s Direct Investing business, definitely yes, very topical. So I thought to just touch on that. National Bank and Wealthsimple going to $0 commissions and the question is, will TD match that offer? What’s the competitive response? How do you see this all playing out in the market?
Bharat Masrani
You know, Meny, we’ve been in this business I think we were the first bank in Canada to get into it in the mid ’80s I think. And, we’ve seen price compression come and go. We’ve seen lot of different sort of business models emerge out of it, and we’ve been able to manage it very well. So, is this a shocker? Absolutely not. Ours is a very large business, fully segmented and very integrated to the rest of the TD offerings. In fact, 80% of our direct investing clients have other TD products and TD relationships as well, so tells you how integrated we are.
Secondly, the offerings we have, from a very sophisticated options trading to a offerings for active traders, for offering for long-term investors, so you know there are offerings, there are specialized products available in each of these segments. And is it, I mean, you should, this should not come as a shock, but based on certain types of traders, we have special arrangements based on their needs and their offerings, and what value they need. And so, when we look at our trading commissions are taxed well, the reality is, depending on which segment you’re looking at, it could be less than that.
So I think it’s important to keep that in mind. So we feel very comfortable with our position, the offerings we have integrated with retail, the products that we offer, the services, if you look at thinkorswim platform, there’s nothing like that in the options trading business. And if a client needs that, that’s where they’re going to go.
And finally, I mean, there’s a lot of sort of, write-ups on this, but the overall commissions in this business represents about 1% of total revenues at TD. So we’ve got to keep this in perspective as to what it does to the bank, than to think that oh, my God, this is a major, major, I’m not undermining anything, every part of our business, I love every part of our business and the business model around it. But our job is to adapt to the environment we find ourselves in rather than hoping, wishing and praying that we go back to the good old days, that does not happen. And we have shown consistently that we will adapt, and we will adapt faster than others and I have no doubt that we will do so.
And another point I’d make, we just introduced TD GoalAssist, that’s a new offering there that competes very well, if a client is just requiring vanilla type of trading and services and then not the other value-added services that I just talked about. So important point is event that has occurred don’t want to underestimate as to what it means, but we feel very comfortable with the business model we have and the value proposition we provide to our customers.
There’s clearly lots to unpack from that statement, however, there are three specific data points of interest.
First, 80% of TD Direct Investing clients are also clients of other TD products and services. If this is true for TD, then it is likely comparable at other big-bank-owned online brokerages as well. The notion that Canadian self-directed investors would prefer to have the convenience of keeping all of their financial affairs at one firm is evident in that data point. The move by National Bank Direct Brokerage, therefore, is likely a play to acquire new customers that will then also want to simplify the management of their financial affairs by housing other financial relationships under the same digital roof.
The second point of interest is that revenues from commissions at TD represent about 1% of total revenue. For a finer point, as referenced in their last earnings call, the amount would be 50% of the broker dealer fees and commissions which last year brought in $860 million dollars and year to date have generated $849 million dollars. The “hit” that TD would incur, therefore, would be something that could be absorbed by the bank as a whole. For reference, TD generated $42 billion dollars in revenue in 2020 and almost $32 billion dollars year to date.
Third, and perhaps most instructive to those holding out for the big banks to make a move similar to National Bank Direct Brokerage and potentially Desjardins Online Brokerage, is that TD feels confident enough in their value proposition, in particular with their options trading platform and other elements, that they don’t need to rush to lower their commissions to zero. On this front, they’re happy to let others go first, which likely mirrors what at least one or two of the big bank online brokerages are thinking as well.
While TD is clearly stating they are ready to adapt (read: respond) if a sizeable competitor or peer firm moved to reduce their commissions substantially, self-directed investors hoping for a quick response to National Bank Direct Brokerage shouldn’t hold their breath. Movements by Desjardins Online Brokerage and potentially other smaller online brokerages seem to be inevitable in order to preserve market share. TD Direct Investing doesn’t really have to worry about that.
The rate-limiting factor, it seems, is how aggressively National Bank Direct Brokerage is prepared to advertise against competing brokerages while those online brokers maintain high commission rates. With more discussion and conversation on zero-commission trading to be almost a given, National Bank Direct Brokerage will likely be heavily referenced in that discussion, earning them a big discount on the media exposure.
That said, picking a fight with all of the other Canadian online brokerages this far ahead of the RSP season still gives competitor firms a chance to respond. And they will.
Had National Bank Direct Brokerage dropped this news in October or November, other Canadian online brokerages would have been hard-pressed to pivot their campaigns and advertising buys quickly enough.
With a few extra weeks of lead time and a healthy fiscal year performance across the board, there just might be enough capital and circumstance to warrant some pretty interesting fireworks this year. And it seems the best place for that might just be the deals and promotions section. Here’s hoping.
From the Forums
Interactive Brokers Crypto Trading Launch
After a lot of hype around cryptocurrency trading being available at Interactive Brokers around September of this year, the actual launch of this feature was abnormally quiet. No coverage (yet) on major media but in this reddit post, online investors took notice (and we did too). More to come on this story but check out the early reactions.
Crunching the Numbers on Motley Fool
As a very visible source of information about different investing opportunities, Motley Fool is a recognizable name among online investors. In this interesting post on reddit, one individual shared their analysis of whether the forecasts from Motley Fool lived up to the reality when it came to portfolio performance.
Into the Close
Apparently, there is lots to say (and still more to come) when it comes to zero-commission trading. There are other fascinating stories unfolding across the online brokerage space, so we look forward to highlighting those as well. At a certain point we can probably defer the reporting to a DJ Khaled meme. Until then, however, there’s lots going on between the launch of football (NFL) and the final stretch of the Canadian federal election (where people toss political footballs and, occasionally, pebbles). Whatever you’re focusing on this week, we hope you find some reasons to stay positive!
If you find it hard to believe that it’s already September, you’re not alone. With so much taking place this year, especially in the online brokerage industry, the months have flown by, and we now find ourselves on the cusp of what is usually the “busy season.” Another reason that time flies: it’s because we’re having fun.
After a marathon edition of the Weekly Roundup last week, we now return to a more digestible edition of online brokerage industry coverage. First, we launch into the deals and promotions updates to start the month and look at the increased importance that promotions are poised to play in a commission-free world. Next, we recap some other important developments, including the 10-year anniversary (that’s X in Roman numerals!) of the launch of SparxTrading.com. Finally, we close out with commentary from the online investor forums.
Deals and Promotions Update
There are lots of different reasons people look forward to the start of a new month, but here at Sparx Trading, it’s a convenient time to review Canadian online brokerage deals and promotions.
In case you missed it, the big news this past month – perhaps this decade – is that National Bank Direct Brokerage eliminated commission fees for trading stocks and ETFs in August. This is still a very recent development, so while we have yet to witness any immediate reactions in pricing or promotional changes from Canada’s online brokers, we believe it will be a matter of time until we see other online brokers start to lower their pricing as well.
Given the lack of immediate reduction in pricing of commissions, online brokerage promotions and incentives are poised to take on an even more important role for Canadian online brokerages to secure existing accounts and even attract new ones.
Despite the immediate relevance that zero-commission trading provides to National Bank Direct Brokerage, one of the big challenges it faces is the “friction” that online investors who would rather not move. Another challenge is the fact that as an online brokerage, National Bank Direct Brokerage is relatively unknown compared to bigger bank-owned brokers or those that have been aggressively advertising, such as Questrade or Wealthsimple Trade.
Thus, Canadian online brokerages who aren’t yet ready to drop their commission prices to zero have a brief window of opportunity to show up big during the next few months. As such, we forecast that September through November will represent a very volatile period for Canadian online brokerages.
In this month’s deals and promotions, there’s a lot to report on already. Starting with the special Sparx Trading exclusive promotion from Questrade. The now famous Sparx88 promo code for Questrade accounts is having its sunset at the end of September, after having a run of just over four years.
It has delivered exceptional value for online investors opening an account with Questrade as one of the best commission-free offers at that online brokerage and played an important role in the promotions space after Questrade largely pulled back from offering multiple promotional offers.
There some important changes taking place behind the scenes at Questrade, so we were informed it would no longer be possible to run this offer. For anyone who signs up using the promo code before the expiry date of September 30, they have until the end of December of this year to use up their commission credit.
On the expiry front, there were a pair of deals that officially concluded at the end of August – one from Scotia iTRADE as well as one from BMO InvestorLine. In keeping with historical trends, however, BMO InvestorLine replaced their outgoing cash back offer with a new cash back incentive. Interestingly, BMO InvestorLine’s newest promotion runs until the beginning of November, which is about the point of time in which we expect to see a surge in launches of online brokerage promotions.
Also worth noting, the minimum deposit requirement for the InvestorLine offer has been raised from $15,000 to $25,000. Currently, BMO InvestorLine is the only Canadian bank-owned online brokerage advertising a cash back promotion. Intriguingly, the only other Canadian online brokerage offering a cash back is Wealthsimple Trade, whose “free stock” sign up bonus offers self-directed investors some cash when opening a new account. Questrade and Scotia iTRADE have cash bonuses available through referral codes.
Another interesting development that we first spotted being advertised online in August was a commission-free trading offer from RBC Direct Investing.
Unlike some of its previous commission-free trading offers, RBC Direct Investing’s promotion was both larger and longer in duration. This new offer, which runs until the end of September, is for 50 commission-free trades that are good for two years. Previously, RBC Direct Investing’s free trade offer was typically 25 trades for one year, so this new promotion effectively doubles that.
The move to increase the size and duration of the commission-free trade offer is likely to be something other Canadian online brokerages consider when planning similar commission promotions. As mentioned above, by providing a longer time horizon for investors to use commission-free trades, there is less immediate pressure to switch brokerages and less pressure to lower commission levels outright, especially for passive investors or those who are not yet ready to make the leap to a lesser-known brokerage.
While the beginning of the month started with a shockwave of news, the end of the month provides a natural jumping off point for several online brokerages. Qtrade Direct Investing and RBC Direct Investing both have campaigns that are scheduled to expire at the end of the month, so it will be interesting to see what, if any, offers show up to replace them.
The ramp up to the start of RSP season is also just around the corner, which, based on everything that has transpired these past few weeks, suggests prime time for some big incentives to start showing up. Larger online brokerages may just roll the dice and come to market with similar offers as they had last year, but smaller or less popular online brokers are at a pivotal moment where they will have to be launching exceptional new features or introduce offers that are going either buy time or clients (or both).
With the move by National Bank Direct Brokerage catching many industry observers (including us!) by surprise, these next few weeks and months will bring a host of pleasant surprises for Canadian self-directed investors. And we haven’t even mentioned the new online brokerages slated to enter the online trading scene soon. It seems entirely fitting that “fall” is the season in which we’ll now start to see commission costs for online investors meaningfully drop. Stay tuned.
Online Brokerage Quick Takes
After the marathon read that was last week’s Roundup, we wanted to give readers a bit of a break with some quick highlights of other news stories around the online brokerage space that didn’t get as much press or coverage.
The launch of fractional shares at Wealthsimple Trade earlier this year was a very big deal. Despite the rollout only featuring a handful of Canadian and US stocks, a few weeks ago, a lot more were added to the list of stocks eligible for fractional trading. At the time of publication, that list has now grown almost ten-fold to 150 stocks. The vast majority (115) of those stocks are US-listed securities, which, given their popularity, availability, and profitability to Wealthsimple Trade, makes sense.
However, the list of Canadian stocks (35) has some additional names which are very familiar to Canadian investors. Interestingly, on the list of US securities, there are also a number of ETFs.
This much wider selection is going to be of much greater appeal to investors, however, unsurprisingly, the demand for more Canadian securities is likely a priority for self-directed investors (rather than traders) in Canada.
Complementing the launch of more securities eligible for fractional shares is the increase in the amounts that can be funded instantly to Wealthsimple Trade from $1,000 to $5,000. The monthly subscription to enhance features on Wealthsimple Trade is currently $3 which also provides real time snap quotes from Canadian exchanges as well as Nasdaq.
Fast deposits of larger sums of money are an area that non-bank-owned online brokerages have struggled with in the past, so it is no surprise to see “account funding” be a feature that Questrade, as well as Wealthsimple Trade, are working to improve.
The summer has been a busy one for Wealthsimple Trade with no signs of a slowdown in terms of new feature releases. It appears that they are pushing very hard to have some very big features in place for RSP season, and with news coming out almost weekly on Wealthsimple Trade, it is hard to imagine other online brokerages being able to rest easy knowing that current pain points of Wealthsimple Trade customers are going to be that way for too much longer.
SparxTrading.com Turns 10!
Also eclipsed by the big news from National Bank Direct Brokerage: SparxTrading.com’s official birthday!! It’s hard to fathom that we officially went live 10 years ago in September with a mission to help untangle the journey of self-directed investing and that we’ve been around for this long.
It has been quite the journey to where we are today. From a conversation among friends expressing frustration at the state of online investing to becoming one of the most important voices in the Canadian online brokerage industry, I certainly didn’t picture this world 10 years ago.
In so many ways, the world for online investors a decade ago was dramatically different than the one now. There was no inkling that commission-free trading was “a thing” and we were just coming out of the Great Financial Crisis, so sentiment on markets was understandably skeptical. Nevertheless, it was clear at that point that the world of online investing was prohibitively inaccessible to so many, and it was time to change that.
I would like to think that in some small way, we’ve helped improve the experience of online investors over the past decade, whether it’s been through making it easier to research online brokerages in Canada, improve access to deals and promotions, or advocating directly to leaders across the industry as to what online investors are interested in.
As anyone who knows the Canadian online brokerage landscape will tell you, change often happens slowly, so patience has been a defining trait since day one.
The first “official” post on the original Sparx Trading site is still available – it was a reference to an investment blog called Juggling Dynamite, which is still going strong today. And, in a twist of fate that can only be one of those signs the universe tends to toss our way every now and then, a recent post on that blog happens to be a harbinger of where the parent to Sparx Trading, Sparx Publishing Group, is heading towards to help make the world better.
The Sparx team has now grown to 18, many more if you include new family members, pets, and one heck of a spider plant.
We’re so excited to see what the next 10 years has in store, and with the latest shift in the online brokerage industry in Canada, there seems to be as much of a need today for clarity for self-directed investors as there was when we first started. True to the mission of Sparx Publishing Group, we’re content to make the world better one post at a time.
Like most of the online brokerage industry, we too are actively working on new features and can’t wait to have them launch soon enough.
Thanks to everyone who has helped us get to this point, especially you curious and supportive readers who enjoy the world of online investing as much as we do!
From the Forums
Kind of a Big Deal?
At the start of the month, it seems fitting to be talking about making a move from one online brokerage to another. In this post, one online investor wanted to know what the consequences were of transferring assets into a TFSA from a non-registered account. Check out what fellow online investors had to say about making the shift.
Sliced vs Diced
Smaller portions are all the rage right now when it comes to buying stocks online. With some very popular stocks like Amazon out of reach for many new investors, online brokerages and investment firms have gotten creative, in particular using fractional shares and ETFs to lower the bar to get a literal piece of the action. Find out what one reddit thread had to say about fractional shares versus ETFs on the NEO exchange.
Into the Close
That’s a wrap on the long weekend edition of the Roundup. There’s a lot in play – including the return of NFL football – so there’s something extra for fantasy football portfolio managers to stay on top of. We’re thrilled to be stepping into our 10th year with so much change taking place. September is often associated with the “back to school” theme, however, as we’ve come to appreciate (this year more than ever), every day brings something new to learn.
September is officially upon us, and with fall just around the corner, change seems to be the appropriate theme to capture what’s taking place in the online brokerage industry in Canada.
Of course, the big news this month is that National Bank Direct Brokerage launched commission-free trading at the end of August, signaling the start of a new chapter for the industry in which bank-owned brokerages are prepared to compete with the nimble upstarts in terms of pricing.
On the deals and promotions front, this is a particularly busy month, now likely made even busier by National Bank Direct Brokerage’s latest pricing move. All of this is great news for Canadian self-directed investors, who will likely benefit from more compelling promotions and pricing in the coming weeks and months.
The launch of the new commission-free trading structure at National Bank Direct Brokerage wasn’t the only story that is relevant to the deals section this month, however. For example, we saw cash back offers still lead the way at BMO InvestorLine; Qtrade Direct Investing still has their cash back offering, and we (finally) spotted the official terms of an RBC Direct Investing deal that appears to be advertised on search engines.
Another big piece of news in the deals section: the best Questrade promo offer code on the market, Sparx88, is being retired at the end of September.
Given everything that’s in motion this month, we’ll be keeping an eye out for more offers and if you spot any you think would be of value to other online investors, let us know.
Expired Deals
There are a couple offers that have officially expired at the end of August. The commission-free trade offer from Scotia iTRADE linked to their investor education initiative concluded, as well as BMO InvestorLine’s summer cash back offer (a new one has replaced it).
Extended Deals
No extended deals to report at this time.
New Deals
The most exciting new deal to report on this month is from RBC Direct Investing. We had first spotted this in August, however, locating it online was a challenge since it appears to be tied to different Google searches – something that is a fascinating tactical choice. This new deal represents an important shift for RBC Direct Investing, as the number of free trades being offered (50) is higher than any recent commission-free offer they’ve put forward, and the time horizon to use the trades is two years. Like several other offers, this deal is scheduled to expire at the end of August. Check out the online brokerage deals index for more details.
BMO InvestorLine launched a slightly modified cash back offer upping the minimum deposit requirement from $15,000 to $25,000. The cash back amounts range from $50 to $2,000 so it is one of the few offers currently available to provide larger cash back rewards for large deposit amounts. This offer expires at the beginning of November, which is likely the window of time in which we expect to see more online brokerages launch RSP-linked campaigns.
While Canada being on fire at the Olympics is a definite plus, Canada is literally on fire (at least in this neck of the woods in BC) this long weekend. Despite the hazy skies, ambitions at Canadian (and American) online brokers are pushing faster and higher.
In this long (and smoky) weekend edition of the Roundup, we jump into the latest updates from the deals and promotions section, highlighting a new offer from a popular online brokerage. Next, we do a quick sweep of some interesting developments, including new stocks available for trading at Wealthsimple and the brave new world for Robinhood now that they’ve IPO’d. Finally, there is some fascinating fodder in the forums to cap your summer reading list off.
Before diving into the details of the promotions active this month, it’s important to highlight that August is the start of the final quarter of the fiscal year at many Canadian online brokerages. Why that matters is because this final stretch of the year offers brokerages a chance to bring their full year numbers up. While trading volume isn’t something that brokerages can directly impact, attracting assets and new accounts are. And, one of the fastest ways to do that is with promotional activity.
Looking first at the newest offer in play, Qtrade Direct Investing has an interesting promo aimed at the FOMO crowd: 50 commission-free trades. One of the reasons this promotion is interesting is because it lives up to its FOMO name, with the deal only lasting until the end of September. Another FOMO angle is that only the first 100 people to sign up for this account are eligible to receive it.
While limited time offers are not unusual, short term (one to two month) offers are fairly rare and combining these offers with a limited quantity feature is virtually unheard of at other brokerages. This is not the first time Qtrade Direct Investing has tried the limited quantity approach, but the titling of this offer as a “FOMO” promotion is targeting this deal to millennial investors who would have likely also seen this labelled applied to GameStop and AMC trading earlier this year. The fact that the deposit requirement is a minimum of $10,000 also significantly lowers the hurdle for younger investors to be able to take advantage of it.
Promotions generally take time and effort on the part of online brokerages to configure and manage, so there have to be additional benefits to the exercise that go beyond just the new accounts. One of those additional advantages would likely be understanding what kind of demand for online brokerage accounts currently exist.
Earlier this year there was an unmistakable tsunami of interest in opening new accounts; however, as the year has progressed, there has been a definite pullback in the number of new accounts opened. The launch of a new promotion at a typically quiet time in the calendar year might be a way to gauge whether DIY investors – especially younger ones – are still keen on trading.
Two other online brokerages on the deals radar this month are BMO InvestorLine and Scotia iTRADE. Both of these bank-owned brokerages have promotions that are currently scheduled to conclude at the end of August. In the case of BMO InvestorLine, there is a strong likelihood that a new offer will appear to replace the outgoing promotion; however, for Scotia iTRADE, it is not entirely clear whether there will be another special offer coming.
The good news for DIY investors is that the quiet period for promotional activity is almost over. In all likelihood, the combination of the end of the fiscal year and a surge in new feature releases means that online brokerages are going to be more inclined to either test some creative offers or launch some campaigns that will last into the mid-fall when the ramp up to RRSP season kicks off.
Online Brokerage Quick Updates
Wealthsimple Trade Enables Hundreds of Canadian Securities Exchange Listed Stocks
When it comes to online brokerages in Canada, Wealthsimple Trade represents an interesting case. On the one hand, there is a clear value proposition with zero-fee trading commissions for Canadian-listed securities, on the other, there is a limited availability of those shares for trading because stocks have to meet certain price and volume criteria.
This past week, Wealthsimple Trade took a significant step forward in increasing access to a big chunk of a Canadian-listed stocks by enabling access to just over 200 stocks listed on the Canadian Securities Exchange (CSE). The CSE is home to Canada’s largest contingent of publicly-traded cannabis companies and also has stocks in blockchain and esports, all areas in which the core audience of Wealthsimple Trade are interested in trading.
For the CSE and Wealthsimple, this is clearly a win-win. Wealthsimple Trade has achieved a unique position in the online trading landscape in Canada, having reaching a critical mass of importance that enables it to challenge larger and older online brokerages despite not having all of the features of those other brokerages. By closing that gap between themselves and the existing competition, Wealthsimple Trade is well-positioned to benefit from any big movements in the cannabis space that could reignite investor interest in the industry (e.g. any movement on legalization in the US). On the CSE side, more access to retail investors also means more possible trading to take place on their market, ultimately translating into greater potential revenue.
Memes in the HOOD
If there’s one name in the US online brokerage market that’s been in the news practically all year, it’s been Robinhood. Earlier in the year, it was a rollercoaster ride of emotion from hero to villain, as Robinhood found itself in the middle of a public firestorm from DIY investors who wanted to ride on the “meme stock” train only to find themselves shut out of trading those stocks by Robinhood.
The fallout from the meme stock controversy has still not subsided, and despite what would ordinarily been considered a blowout year of performance, there is a clear overhang on the Robinhood story that clearly had an impact on what should have been an exceptionally big deal of Robinhood going public via IPO.
The Robinhood IPO and the journey to this incredible milestone will almost certainly be the focus of business case studies, more so as a question of what went wrong. The fact that the stock was priced at the lower end of its range and that it still fell on opening day (and for a few sessions afterwards) point to clear pessimism on the part of the investing public. Until the market can accurately discount the risks for activities such as payment for order flow (and where regulators may elect to clamp down) as well as some of the liabilities, there will be a constant uncertainty to what Robinhood should be worth. The bigger challenge, however, is how Robinhood will fare as a public company in order to grow its revenue to make it an attractive investment over the long term. They have a massive account base (22 million at last count) so there is room to monetize that, and it’s not just any account holder, it’s the prized millennial segment that so many online brokerages and wealth managers are only now ramping up to try and win over. Robinhood has a six-year head start on this group. The question, ultimately, is how Robinhood intends to grow its earnings.
One interesting feature about Robinhood is that because of its line of business, it can be a better proxy for ordinary online investors than Interactive Brokers can. In the case of Interactive Brokers, their target is more active investors, including day traders, so there is some limitation as to what can be interpreted when Interactive Brokers releases its trading figures. Another interesting feature we can expect as well is that in order to grow earnings in what might be a declining level of interest in markets (compared to 2020 and early 2021), Robinhood will have to innovate and that could open up a slew of new features and components that Canadian online brokerages can look to for inspiration as they too wrestle with how to attract and win market share with millennial investors.
There is much more on the new chapter in the Robinhood story, so be prepared for this name to become cemented into the psyche of retail investors and wealth management everywhere.
From the Forums
Fractional Shade
Some stories you find in the spotlight, others you find in the shade. And in the case of this forum post on reddit, there was clearly a lot of shade being thrown by Interactive Brokers Canada at the whole Canadian fractional share trading story.
The shots fired by Interactive Brokers Canada management at Wealthsimple Trade and the latest innovative launch of Canadian Depository Receipts at Neo Exchange are unlike anything we’ve seen from the normally spotlight-shy brokerage. Ironically, despite having access to fractional shares for years, Interactive Brokers Canada has not heavily marketed this feature and as a result, Wealthsimple Trade and now the new CDR feature have stolen the innovation thunder away from Interactive Brokers. See what sparks were flying among online investors here.
Help with Homework
DIY investing requires doing some degree of homework, especially when picking an online brokerage to start trading with. In this post from RedFlagDeals.com, it is fascinating to see the degree to which some online investors would prefer to seek out answers to questions from fellow DIY investors rather than addressing questions directly to online brokerages or digging around on a website for answers. While at first glance it may seem like trying to take the easy route out, long customer service wait times and website navigation are some of the unseen reasons why sometimes even simple questions get raised in forums instead of addressed by online brokers themselves.
Into the Close
That’s a wrap on this short-week edition of the Roundup. Here’s hoping you’re managing to stay safe and squeezing in relaxation before what is shaping up to be a very busy September.
August is here and even though we’re still in the midst of summer, for many online brokerages in Canada, they’re kicking off the final stretch of their fiscal year. When it comes to deals and promotions, this is the final stretch to get any important performance boosts in or any budgets submitted for next fiscal year.
The good news for investors is that there is already a new offer to kick off in August courtesy of Qtrade Direct Investing. Also, this month will be important for two bank-owned brokerages: BMO InvestorLine and Scotia iTRADE. In the case of the former, there is a seasonal shift in deals, with their current cash back promotions set to conclude at the end of this month. For Scotia iTRADE, the investor-education-oriented offer for attending their bootcamp expires at month’s end.
With September just around the corner, there’s no question online brokerages are collectively strategizing on what they should be doing for this fall. For online brokers keen to get a jump on the extremely busy few months ahead, be on the lookout for more headline-worthy offers.
Expired Offers
No offers expired to begin the month
Extended Offers
No extended offers to begin the month
New Offers
Qtrade Direct Investing launched a new commission-free trade deal aimed at millennial investors. To qualify, new clients need to deposit at least $10,000 and be one of the first 100 individuals to open an account. This promo runs from the beginning of August just until the end of September. See the online brokerage deal comparison tool for more details.
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.
All of us have a part to play in looking out for each other.
This mural was made by 15 year old Yumna Afzaal. Her star was stolen by hate but the spirit of her inspiring words cannot be denied. It should be shared & never forgotten. This is what every Canadian should aspire to #OurLondonFamilypic.twitter.com/aAYF9bKpw0
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.
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.
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.
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.
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.
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
2020
2021
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 Brokerage
654
Questrade
645
RBC Direct Investing
615
BMO InvestorLine
607
Desjardins Online Brokerage
599
TD Direct Investing
591
CIBC Investor’s Edge
585
Scotia iTRADE
576
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:
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.
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.
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:
Equity trades
Options trading commissions
ETF commissions
Data costs
Account interest rates
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:
0-4 trades
5-9 trades
10-33 trades
34-49 trades
50+ trades
Results & Analysis
The table below shows the rankings of all the Canadian online brokerages measured as part of this study.
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!
