With summer just around the corner, it looks like stock markets won’t be the only ones seeing red. Weeks of volatility and sell-offs have been difficult for all but the most seasoned self-directed investors to stomach.
For DIY investors, the news isn’t all bad though. The pullback in stock markets typically means that online brokerages will need to work harder to encourage online investors to open an online trading account, and that means potentially bigger or more attractive incentives.
By far, the biggest development last month was the launch of commission-free trading on stocks and ETFs at CIBC Investor’s Edge. This is huge news for younger investors, as well as for competing online brokerages across the board. As the first of the big five bank-owned online brokerages to offer full commission-free trading, it seems like CIBC’s peers will have to consider adjusting their commission rates or young investor offerings.
Fortunately for RBC Direct Investing, their 100 commission-free trade offer is both large enough and long enough in duration to weather this price move by CIBC Investor’s Edge. Perhaps it was fortuitous timing that RBC chose to extend their offer at the beginning of last month, and with this move from CIBC Investor’s Edge, they may consider extending it even further.
Against that backdrop, the launch last month by Qtrade Direct Investing of a 50 commission-free trade offer does provide something to online investors looking for a deal when opening an online account, but clearly, the stakes have been raised.
The reality for Canadian online brokerages is that there are only a few months left to make plans for the next RRSP season, and with all the action happening in markets right now, for better or worse, online investors are checking their accounts and wondering if they’re getting great value. It’s one thing to sell a stock into a storm and another to incur a commission charge on a loss.
Wealthsimple Trade’s “free stock” promotion expired on May 31st. This popular promotion has been a windfall for the zero-commission broker, mirroring the performance of US online brokerage, Robinhood, who has a similar (but actually a free stock) program in place.
Another important expired deal was from National Bank Direct Brokerage. Their recent promotional discount on margin rates seemed especially well-timed given the discussion on rising interest rates that is dominating the news cycle right now. It was the first “discount” on margin interest rates we’ve seen in some time, so given the current interest rate environment and volatility in markets, it could make this offer especially attractive to very active or sophisticated investors.
Nothing new to report on this month as far as deal extensions are concerned. The RBC Direct Investing commission-free trade offer is worth watching as it was extended into this month.
No new deals activity to report at the start of the month.
The budget and rate hikes have generated a lot of “interest” lately. Interestingly (see what I did there), the link between the discussion on frothy real estate and self-directed investing is a lot closer than you think, especially for one bank owned online brokerage.
In this edition of the Roundup, we review a fascinating set of data points to emerge around bank-owned brokerage Scotia iTRADE and explore what this remarkably quiet online brokerage is working on this year, as well as what peer firms and self-directed investors can learn from iTRADE’s recent activities. Also in the Roundup, an exciting upcoming webinar about getting into self-directed investing (featuring an expert panel that includes Sparx!). We close out this edition with a very timely selection of investor forum posts talking about iTRADE.
Whatcha Say Scotia iTRADE? A Deep Dive into Emerging Developments
We often spend time in the Roundup profiling Canadian online brokerages that are actively talking about new features. There are times, however, when it is warranted to pay attention to who is not speaking up about what they’re doing – especially when they are a bank-owned online brokerage.
Earlier this year, we published the latest edition of our Look Back / Look Ahead series, which offered leaders at Canadian online brokerages the opportunity to directly communicate what they’re working on to self-directed investors and industry enthusiasts alike. There was no charge to participate and all online brokerages in Canada were invited to submit a recap of what they were working on and what self-directed investors could look forward to in the year ahead.
Among the group of online brokerages that we did not receive a direct update about, Scotia iTRADE stands out as an interesting case, especially considering recent remarks from a pair of important conferences, notably the National Bank Financial Services Conference and the Scotiabank Annual General Meeting (AGM). Despite not receiving a direct update in the Look Back / Look Ahead, comments from these conferences have provided some clues as to what this online brokerage is focusing on for 2022, as well as their strategy when it comes to competing in the current online brokerage marketplace.
Often, communications by financial services firms are vetted and polished through numerous steps before they get released into the real world. Occasionally, however, things slip through the cracks. Recently, we were able to get a bit of a hot take on the world of self-directed investing, in particular, of younger investors from Scotiabank.
The comment, which came from Scotiabank’s Group Head, Canadian Banking, Dan Rees, was as follows:
So, younger individuals who don’t want to take advice and want to go DIY on their own. Generally speaking, those don’t work out that well, right? That said, we also know that we have sophisticated investors who do want to run their own money as part of managing their overall portfolio, so they may have a relationship with a portfolio manager and run 15% on their own, in our case in an iTRADE account. And we want to support both of those positions.
There’s a lot to unpack from that statement; however, the focus for Scotiabank, it seems, is on servicing sophisticated clients (read: high net worth) with advice-related products rather than the self-directed investing products. Since younger investors don’t typically fall into that category, these remarks imply that resources will be prioritized for sophisticated self-directed investors rather than entry point ones. This is especially interesting considering several peer bank-owned online brokerages are paying much more attention to supporting new retail investors.
As if to make very clear where Scotia is directing their attention, the image on the Scotia iTRADE homepage also skews directly towards “homeowners” rather than those whom would not have a mortgage (or own their own home).
Mr. Rees’s comments seem to explain a lot when it comes to the curious silence and muted online presence that Scotia iTRADE has had for several years now.
Whereas previously Scotia iTRADE was active on social media and in promotions, investor education, and platform enhancements, these seem to have all been dialed back considerably. But based on some comments at another conference, that might soon change – at least when it comes to technology.
The other interesting place where Scotiabank talked openly about Scotia iTRADE recently was at the Scotiabank AGM early in April. Normally, an AGM is not really the forum to air grievances about the online brokerage experience. So, it was both surprising and telling to see that the first question raised at the Scotiabank AGM came from a Scotia iTRADE client (and Scotiabank shareholder) Robert Wells. And this time, the “official response” sounded a lot more official.
Mr. Wells’ question was as follows:
Scotia iTRADE charges me $270 to enter and exit a $500 options trade and competitor banks only charge $40 for the same trade and it is disconcerting for a shareholder to feel compelled to transfer my brokerage account to another bank that charges almost 1% less for margin loans, far less on fees and commissions and provides far better customer service. Does Scotiabank management have an estimate of how many other customers are transferring their accounts to no or low commission banks? And, does Scotiabank management have a strategy to remain competitive in this new era of low fee brokerages?
The response from Senior Vice President Client Solutions and Direct Investing, Erin Griffiths:
At Scotiabank we strive to deliver a consistent high-quality experience across our platform and at Scotia iTRADE specifically we review our fee schedules regularly to ensure they are competitive in the Canadian marketplace, that they are compliant with the local regulatory framework, and also that they are delivering value to our clients.
For the option trading specifically, we charge $1.25 per contract which is consistent with many of our peers and we also offer free trading through the Scotiabank Ultimate Banking package as well as through over 100 different exchange traded funds that we have on our platform.
With regards to value, we’ve invested significantly and continued to invest significantly in our people and our platform. We have increased our contact centre staffing by 32% over the past year, and we continue to invest also in our technology, modernizing the online experience for our clients; launching a new mobile application later this summer and a new active trading platform later this year in addition to many other things.
And then finally with regards to the question around transfer out activity, we regularly monitor that on a monthly basis, and we are very pleased to see that consistently we have more clients who transfer into iTRADE as their platform of choice over transferring out, and that has allowed us to continue to increase our market share and assets relative to our peers and add shareholder value.
There’s a lot of information provided in both the question and the response; however, it is clear that just because Scotia iTRADE doesn’t talk much about what they’re working on, it doesn’t stop people – including shareholders – from wondering what they’re doing, especially in this ultra-competitive segment (see the From the Forums section below for more examples of this). It’s also clear that things are being worked on at Scotia iTRADE, just not being telegraphed well to broader stakeholders.
What shines through loud and clear from the question by Mr. Wells is the dissatisfaction with commission pricing, margin fees, as well as customer service.
Any regular reader of the Roundup will know that Scotia iTRADE has struggled with meeting customer service needs over the past few years. So although it is a surprise to see a question about service levels surface at an AGM, it is certainly not a surprise to hear this being an issue that clients of Scotia iTRADE experience. Of course, what “better customer service” means exactly is up for debate, but there are at least three different ranking firms that paint a consistent picture of Scotia iTRADE falling short when it comes to delighting clients.
Last year, for example, DALBAR Canada, which regularly reviews phone and chat service at Canadian online brokerages, found Scotia iTRADE had an average phone wait time of 179 minutes – the longest average phone wait time of all brokerages surveyed. And although their survey was taken at a time when volumes were actually higher than normal in 2021, it speaks to the responsiveness and preparedness of call centres to handle the needs of clients that end up having to call in.
Surviscor, another firm which analyzes the Canadian online brokerage marketplace, found that Scotia iTRADE averaged 64 hours to respond to service inquiries by email, according to the latest Surviscor ratings of iTRADE. Despite the service experience, however, the overall ranking for Scotia iTRADE was still reasonably high according to Surviscor, which indicates that there are compelling features available to support DIY investors.
Finally, J.D. Power’s Self-Directed Investor Satisfaction Study, which measures the “voice of customer” perspective, found that Scotia iTRADE ranked last among Canadian online brokerages in terms of satisfaction, scoring 576 out of a possible 1,000 point scale.
In response to the service shortfall pointed out by Mr. Wells, Scotia’s official position appears to define the issue, in part, as a resource constraint at the contact centre level, an indirect admission that “wait times” are likely a driver of dissatisfaction with the service experience.
Of course, without providing specifics as to the headcount providing support and how many customers it is providing support to, it is difficult to know how big of a difference, in absolute terms, 32% more resources translates into. Earlier this month, for example, users of the iTRADE platform reported having to wait hours to contact customer service at iTRADE over a technical glitch. In contrast, at least one peer firm, BMO InvestorLine, has been exceptionally transparent about reporting wait times, which now are reported in minutes (or even seconds). Clearly, for Scotia iTRADE there’s a lot more work to be done with call centre wait times to get them to a competitive level.
Not able to access itrade for 4 hours. Called the call center 3 hrs wait time amd still waiting. Worse bank and it happened before. They dont care when u call. They say its the way it is and we are sorry. Scotia lost a customer here for life.
If there is one point that jumps out about Mr. Wells’ specific question, it is related to the investment products and services being discussed. Specifically, options trading and margin lending. Both of these are hallmarks of active and/or sophisticated investors – precisely the kind of online investor that almost every online brokerage considers to be of the highest value.
As such, it is particularly damaging that a client with this profile is coming forward with this kind of service experience. It is a fair assumption that Mr. Wells is not alone, and as such, shareholders and potentially high value clients may view these comments as a red flag.
What we did learn from the response to Mr. Wells’ question, however, is that Scotia iTRADE is planning to launch a new mobile app this summer, as well as another active trading platform coming later this year. A quick look at the Scotia iTRADE mobile app rankings for the iPhone (1.3 stars out of 5) and for the iTRADE Android app (1.4 stars out of 5) show that a new mobile app experience is long overdue and the expectations for things to improve substantially are high. No pressure.
The reality for Scotia iTRADE is that despite new technology being a welcomed change, launching a new online trading platform (let alone two) will be a big lift requiring solid execution from multiple teams. Based on the roll outs from other online brokerages of new platforms, it will likely take time and lots (and lots) of communication with clients to avoid a flood of calls to the customer service channel and confusion that typically accompanies a major update. And whenever there is confusion or delay, the most active investors – aka some of the most sophisticated ones – are the loudest to speak up about things going wrong. Again, no pressure.
Finally, another revealing data point relates to client growth (aka turnover or “churn”).
As a shareholder, part of Mr. Wells’ concerns focused on customer attrition. Rightly so, because Scotiabank, like any other business, requires either more revenue per customer or more customers to grow. Ms. Griffiths pointed out in her response, however, that numbers on client turnover are reviewed monthly and that Scotia iTRADE continues to attract more clients than it is losing.
Without the benefit of specific numbers, it is hard to quantify that increase, and, importantly, over what time frame. Regular readers of the Roundup know that we track customer growth (or contraction) trends at US online brokerages fairly closely. Unlike the publicly traded US online brokerages, Canadian online brokerages do not report this information in any regulatory filing, so while some online brokerages cite strength in account openings or the number of clients, there is no objective way to validate that information nor is there associated information that goes along with that data. Specifically, there is no data associated with the number of clients that would indicate the value of those clients either in terms of average assets or trading activity – metrics that as a shareholder would directly enable to gauge if Scotia iTRADE is attracting (and retaining) the right mix of clients.
The paradox of Scotia iTRADE is that despite having a strong feature set and value proposition (now) for self-directed investors, there is little in the way of regular awareness campaigns or creative approaches to engage with self-directed investors to let them know about these features.
Scotia iTRADE now has over 100 commission-free ETFs (up from 49 last year), strong ranking scores from Surviscor, and average scores from Globe and Mail, as well as a powerful set of research and insight tools.
That said, without telegraphing what they’re working on to a broader audience or keeping pace with what peer firms such as BMO InvestorLine, RBC Direct Investing and TD Direct Investing are clearly working towards in content development – let alone firms like National Bank Direct Brokerage in pricing – it appears that not only are Mr. Wells’ concerns well founded, but they will also continue to lead to more uncomfortable questions.
Now that Scotia iTRADE doesn’t have a channel of its own to steer that discussion, it only leaves shareholders, clients,m and other DIY investors who still know about this online brokerage to wonder aloud what happened to Scotia iTRADE?
Spring is the season of change and that is exactly the theme of an upcoming webinar where yours truly will be appearing on a panel discussion opening an online trading account.
The Spring into ETF Investing series, presented by BMO Exchange Traded Funds as part of their ETF Market Insights, will be broadcast on April 29 and May 6 and will feature guests from the world of capital markets and personal finance discussing a variety of topics related to ETFs and wealth management.
Tune in on April 29 (or catch the replay on YouTube) for two episodes, one episode on generating monthly income using ETFs and the second on opening an online trading account. Viewers can either register for the webinar in advance or watch the session live on YouTube.
From the Forums
Ready for Change
If you thought we’re the only ones talking about Scotia iTRADE, guess again. In this post on reddit, one very frustrated Scotia iTRADE user asks for more information on when changes will be coming to their platform.
Flow of Funds
Yet another post about Scotia iTRADE, but this time some good news. This helpful redditor posted links to new commission-free ETFs offered by Scotia iTRADE. The new list of ETFs that are commission basically doubles the number previously available, with just over 100 ETFs now available to trade commission-free.
Into the Close
What a wild ride it’s been. The combination of a short week but no shortage of stock market activities courtesy of earnings means that even more fun was packed into fewer days. Between Elon Musk on Twitter and budget buzz still going strong, Easter eggs are still rolling in.
Change is certainly life’s only constant. And even though, historically, change has been relatively slow to take effect among Canadian online brokerages, when it does show up, the effects tend to endure. As we steer into the season of change, it seems like both the pace and breadth of change are starting to accelerate, with some remarkable developments.
In this (we’ll call it “toddler time-distorted”) edition of the Roundup, we look at an unusual pattern emerging in the deals and promotions activity at Canadian online brokerages and what it could signal for promotions going forward. Next, we highlight a new look that one online brokerage is sporting for spring, and whether it is dressed in what the cool kids are into these days. Finally, we’ll wrap up with some timely topics self-directed investors are chatting about online.
Usually around the start of each month we go through the latest deals and promotions to see what new offers have shown up and whether there are any interesting developments in the ongoing race to garner attention (and assets) from self-directed investors. This month, however, there was a signal of continued unusual activity among the Canadian online brokers that suggests there are some interesting changes coming to the way in which online brokerages create and launch promotions.
Of course, “change” is a relative term, so, before diving into what seems to be evolving with online brokerage deals and promotions, it’s useful to get a sense of what is “typical.”
Although many online investors now know that Canadian online brokerages offer deals and promotions, especially during RRSP season, that hasn’t always been the case. There was a time many years ago that most Canadian online brokerages were reluctant to use promotions and incentives to attract in new self-directed investors. Interestingly, as commission prices began to drop in a meaningful way, roughly around 2014, so too, it seemed did the resistance to trying out using offers to encourage new users to try out a brokerage.
At that time, one of the most active Canadian online brokerages when it came to special offers or promotions was Questrade – who aside from much lower commission prices than their peers – was a constant name to watch because they ran so many promotional offers. The kinds of promotions they ran ranged from various commission-free trade offers to promotions featuring a free iPad.
It was not long after other online brokerages lowered their commission prices, that one of the first big shifts in the deals and promotions activity took place: Questrade stopped offering so many promotions.
Instead of offering so many different promotions, Questrade decided to consolidate their offers and focus their promotional offers on their affiliate program and referral bonuses (and later launching TV ads). Many of the same promotions, such as their five free trades or first month free, are still available today. Regardless of the season – including RRSP season – Questrade’s strategy was still the same when it came to promotions. Namely, stick to their core offers.
It’s difficult to characterize just how significant of a shift that was at the time; however, by the time Questrade did ramp down, other online brokerages, notably BMO InvestorLine, had picked up the practice of regular promotions outside of RRSP season. In fact, since that time, BMO InvestorLine has effectively carried the torch for launching “new promotions” just about every season.
So, if there was one online brokerage in Canada that we did not expect to see a break in promotional cadence, it was BMO InvestorLine. And yet, this month that is exactly what’s taken place.
To be fair, BMO InvestorLine hitting pause on deals is not without precedent. That said, the last time they did so was near the start of the pandemic, when BMO InvestorLine’s unprecedented investor interest overwhelmed systems.
This time, however, there isn’t a rush of investors flooding the systems of BMO InvestorLine with new applicants, which begs the question, what would cause BMO InvestorLine to pause offering an already live tiered cash back promotion at a time when major rivals still have open offers?
It’s difficult to know exactly why, however, it seems that shuttering an active deal is likely the result of something abrupt instead of something planned, especially given the timing being so close to the launch of their latest cash back promotion.
Perhaps the economics of a tiered cash back offer simply don’t work for BMO InvestorLine, or perhaps the costs of running a campaign to acquire new clients exceeded the benefit those clients would bring. The latter point is one of the drivers behind online brokerages typically choosing to launch promotions during RRSP season instead of during the whole year. When online investors are “in market” for a new online brokerage or seeking to park new assets in an account, as is the case during RRSP season, online brokerages want to be as visible as possible.
That said, instead of stopping promotions outside of RRSP season, one of the strategies BMO InvestorLine has employed in the past was to raise the deposit threshold at which an individual investor could qualify for a promotion. Thus, instead of requiring a minimum deposit of $15,000, BMO InvestorLine could raise the minimum deposit to $50,000 so that only those individuals who bring the kind of value BMO is seeking qualify for incentives.
So, though speculative, if costs of a program suddenly get put under the microscope to the point that they lead to a decision to cut loose a promotion in midstream, then a good candidate reason why would be a “cost cutting” program. And for that to take place at BMO InvestorLine, a bank-owned brokerage, that is very interesting timing indeed. If, after all of the years of running this program, something fundamentally has changed (or is about to) for promotions-led acquisition, it does beg the question as to what BMO is encountering now that makes the math for promotions untenable at this time.
Though the online promotion of the deal is now gone, self-directed investors interested in the cash back promotion at BMO InvestorLine may be able to access the offer via customer service touch points (e.g. in branch) on a case by case basis. When a client is of sufficiently high value (what that value is, we don’t yet know), then they might be offered a cash back incentive.
The latest move by BMO InvestorLine to shutter an active offer is a step change for an online brokerage that has almost consistently leaned into “always on” promotions and bears a resemblance to the structural shift in promotional strategy that Questrade undertook many years ago. Unlike that decision, however, BMO InvestorLine does not have the same magnitude of affiliate channels nor social media community support that Questrade had when it decided to shift its promotions strategy.
Instead of being a leader among Canadian bank-owned online brokerages when it comes to promotional activity, it seems BMO InvestorLine is more content to run with the pack. With no other big bank-owned online brokerages currently offering cash back promotions right now, all attention for self-directed investors looking for a cash back deal on a new trading account is being directed to Qtrade Direct Investing.
The bigger consequence to bowing out of the post RRSP season promotions race may not be felt for some time but will almost certainly resurface again next RRSP season. One of the biggest benefits of an always on campaign is to continuously attract attention of investors and to be among the list of names those investors consider when the need for a solution arises. In this case, BMO stepping back simply opens the door to another lesser known or not historically active name to fill that void.
An alternate view is that online brokers may also be more willing to be agile when it comes to promotional activity. A case in point is the current cash back promotion from Qtrade Direct Investing.
Qtrade did something highly unusual at the beginning of this year by revising upward the amount they were willing to offer to new clients. They did not “set it and forget it” with the deal that launched last year but rather saw that their offer was not nearly as competitive as their peers and adjusted accordingly.
The fact that BMO InvestorLine was the only big bank-owned online brokerage in market with a cash back promotion perhaps made them realize they were overspending to acquire new clients. That they were willing to do so mid-campaign is maybe a sign of different kind of structural change: online brokerages are becoming nimbler.
This year alone we’ve seen Qtrade Direct Investing change deal amounts, BMO InvestorLine effectively shut down an already live deal, and RBC Direct Investing move around the expiry date on an unprecedented commission-free trade offer. If there was ever a case for expecting the unexpected, Canadian online brokerages seem to have made it their theme for 2022.
CI Direct Trading Sporting a New Look
Spring seems like the opportune moment for new beginnings. This month, CI Direct Trading, the brand formerly known as Virtual Brokers, officially rolled out their new public-facing website. Gone is the familiar combination of red, black and white, and instead, the new website reflects the last stage in the integration of Virtual Brokers with the CI Financial common look and feel.
While a “new” website isn’t necessarily a big step change, building a new online brokerage website in an ultra-competitive environment does present an opportunity to intentionally lean into the brand identity. Secondarily, for seasoned observers, it offers a glimpse into where the priorities are for a particular provider.
In the case of the new CI Direct Trading website, there are a number of interesting observations to comment on; however, the biggest theme that jumps out is integration.
Unlike Virtual Brokers, which was effectively a standalone online brokerage, CI Direct Trading’s new site was intended to fold the online brokerage into the CI Financial ecosystem. And, at first blush, it appears they’ve done so – perhaps too well.
In fact, in the drive to create a common look and feel between brands, the point at which CI Direct Trading starts and where CI Direct Investing stops is very blurry.
Navigating between the CI Direct Investing and CI Direct Trading is so seamless that as a user, you wouldn’t know where you are unless you look at the logo on the page, and even then, you’d have to really pay attention to the small text under the word “direct” in the logo. Recall that one of the principles of user-centred design is to answer a simple question: am I in the right place? On the new CI Direct Trading website, the answer for DIY investors in particular is unclear.
On a more nuanced note, the decision to use the names “CI Direct Investing” and “CI Direct Trading” is confusing because almost no other online brokerage in Canada uses the term “Direct Trading” in their names. Three big names in the “Direct Investing” space jump out, for example:
Qtrade Direct Investing
RBC Direct Investing
TD Direct Investing
Virtual Brokers used to be a direct competitor to these particular providers; however, CI Direct Investing (rather than Direct Trading) seems like it would be the place where a user would look to find a service similar to Qtrade Direct Investing, TD Direct Investing or RBC Direct Investing. Except, they would be incorrect. CI Direct Investing is more akin to a roboadvisor solution, not a DIY one.
Although it seems like semantics, in reality, the “DIY investor” industry has been undergoing its own identity crisis for the past decade. Ten years ago, the entire space was almost uniformly calling themselves “discount brokerages,” then it shifted to “online brokerages,” and now they are positioning themselves as “direct investing” solutions providers.
Why this matters so much is because when it comes to being found online, something that is exceptionally important in a hypercompetitive environment, individual investors are going to search based on what they know and think is the term they need to use in order to access the category of service providers. When the category shifts, so too does the audience searching for it.
Another interesting theme is that the new website leans heavily into the “less is more” look. There are fewer options and less text as well as clear headings so that there is less information to have to parse through on the front page. From a visual perspective, there is also a heavy presence of mobile screens, a decision that undoubtedly is intended to relate to a generation of “mobile first” traders.
In a tinge of irony, the screenshots of the CI Direct Trading iPhone app show the symbol of a well-known Canadian bank (TD) instead of using the opportunity to have the publicly-traded CI Financial ticker (CIX) on there.
Even in the app store, the Virtual Brokers legacy association is still visible too, a reminder that all brand touch points need to be considered in the rebrand process. Of greater consequence, however, is that the legacy star ratings for the app experience are likely to impact user impressions on the brand. With a 2.5 star rating on the Apple App Store for CI Direct Trading, there is much work to be done to improve the perception of the mobile app as being an enjoyable way to engage with the service, especially with the mobile-first crowd.
When Virtual Brokers was acquired by CI Financial in 2017, it was unclear what direction the popular online brokerage would go in. Fast forward to today, it is now clearer that the successor to VB, CI Direct Trading is offering many of the same features and pricing as Virtual Brokers but is wrapping itself into the CI Financial ecosystem.
It has been a relatively quiet four years since the integration was first announced but now it seems the real work will begin for CI Direct Trading to be able to tell its story to online investors (traders?) and establish its niche in a very crowded field.
If the new design is a signal they’re looking to court a younger generation of investors, simplifying the website is a step in the right direction. Clearly, though, there is much work to be done in the seasons ahead to evoke the same kind of emotion, curiosity, and enthusiasm that their direct competitors have already managed to successfully achieve.
From the Forums
Moving day is always a chore. When it comes to moving mutual funds, however, it’s a problem that needs more than pizza to solve. One reddit user reaches out to the community of investors in this post for some guidance on how to navigate transferring away from Manulife and into a popular online broker.
Under the Influencer
A big theme among online brokerages heading into this year has been investor education. An interesting discussion emerged in this reddit post about seeking out “education” on investing and trading from a relatively well-known Canadian personal finance influencer.
Into the Close
That’s a wrap on another edition of the Roundup. If news among the online brokerage space is anything like the weather in April, it’s going to be a mixed bag of activity throughout the month. For the loyal readers that have managed to make it this far, we’re also going to be sharing more updates in the weeks ahead on the new special SparxTrading Pro and other tools we’ve been working on, so be sure to tune in for sunnier news coming around the corner. Until then, keep your powder and yourselves dry, you never know what might come up as an interesting buy.
Seasoned traders understand that in volatile situations, sometimes it’s best to sit on your hands. Though that advice would certainly be applicable outside the world of self-directed investing (*cough* Will Smith *cough*), within the world of self-directed investing, activity is tied to profitability, at least for online brokerages. So, it is a fine balance between taking action and being patient.
In this late-in-the-week edition of the Roundup, we check in on an important shift taking place at Canadian online brokerages that will see mutual funds come back into the spotlight for the next several months. Speaking of near term visibility, our next story looks at what one popular US online brokerage is noticing with respect to skepticism on the part of active investors. To close out, we highlight investor chatter about mutual fund commission charges and margin rate questions.
Can’t Fight this Fee-ing Anymore
One of the core tenets of self-directed investing is controlling or minimizing unnecessary costs.
Despite the characterization or popular mythology around self-directed investing as a “fast money” or a high activity endeavour, a significant portion of online investors are not very active and prefer to “take it slow and steady.” For example, a study on retail investors conducted by the Ontario Securities Commission in 2021 found that 43% of investors surveyed make fewer than 10 trades per year and 31% make 11 to 50 trades per year.
While activity is certainly influenced by what is out there to buy, prevailing opinions also suggest that up-front commissions have a part to play in influencing purchase behaviour. The rise and popularity of the zero-commission trading online brokerage Robinhood provided a dramatic example of this in the US, as has the growth of Wealthsimple Trade in Canada.
As most of us have come to learn, though, there is no such thing as a free lunch.
Despite the reluctance to go to zero commission trading on stocks, Canadian online brokerages are not unfamiliar with the practice of zero commission trading on mutual funds. Unfortunately, for many Canadian online investors, this has resulted in a scenario in which self-directed investors have been paying commissions for things that technically they’re not supposed to be paying commissions for from an online brokerage, namely, advice.
Though this story has taken a backseat during the pandemic, the timing of the deadline for online brokerages to transition investors into suitable alternative investments is nearing. As such, the response by some online brokerages to start charging commissions on mutual fund trades is surfacing in the news as is the access to previously unavailable mutual funds.
This month, for example, CIBC Investor’s Edge started to charge their standard commission rate, $6.95, to buy or sell mutual fund units. RBC Direct Investing rolled out new pricing this month as well, charging 1% of the gross trade amount up to a maximum of $50 for purchases of mutual funds. On the other end of the spectrum, it’s business as usual with no charge for mutual fund purchases at TD Direct Investing and BMO InvestorLine.
A side benefit of the new regulatory requirements is expanded choice for some online investors at firms like RBC Direct Investing. Previously, and much to the chagrin of self-directed investors, Mawer mutual funds were not available at RBC Direct Investing. As of this month, however, Mawer Investment Management announced that 13 of their funds are available at RBC Direct Investing.
With new regulations governing trailing commissions set to take effect June 1, there are still pockets of uncertainty relating to charges for mutual fund trades. The structural shift in product lines has been taking place over the past two years against the backdrop of the pandemic. However, with a deadline looming, the flurry of activity and announcements from online brokerages early this year suggests they are cutting it a bit close as far as communicating these changes to their clients. Ultimately, that could prompt a customer service risk, especially if there are any big market shocks that set off a surge of requests for contact centre support.
Although fundamentally different in spirit and appeal than individual equities or ETFs, the fact that mutual funds remain a very popular choice for certain DIY investors who do business with bank-owned online brokerages (say, those who might remember or know that REO Speedwagon hit referenced in this section’s title?) means that how individual banks approach the selection and pricing of mutual funds can be a differentiating factor. That is especially important to consider as online brokerages attempt to provision for an influx of younger investors.
We want people to come for the advice and stay for the performance. So, younger individuals who don’t want to take advice and want to go DIY on their own. Generally speaking, those don’t work out that well, right? That said, we also know that we have sophisticated investors who do want to run their own money as part of managing their overall portfolio, so they may have a relationship with a portfolio manager and run 15% on their own, in our case in an iTRADE account. And we want to support both of those positions.
And I think what you’re going to continue to see, I think, is us introducing more channel options to address the different needs of each of those segments. I would say as a fiduciary, and we are very clear about this with the regulators, we are nervous about the propagation of — you can build your own portfolio and retire 15 years earlier by saving a few dollars on fees. We think it’s a very dangerous message to send to Canadians at a time where they’re very anxious even about their mortgage debt. People should remember, it’s very important for Canadians to get advice on banking, investments, insurance and debt, not just investments. And I think as we begin to see more and more feedback from young Canadians about how are they going to save for a mortgage, save for a house, they have to come in for a conversation on that. They can’t do that on their own around the kitchen table. Historically speaking, it’s not successful.
Another interesting angle to the mutual fund shuffle taking place at online brokerages is that it offers a hint of how commission free trading could be handled at bank-owned online brokerages. A great case in point is TD Easy Trade. The new service allows for 50 commission-free trades of stocks but has limited selection of ETFs to just TD products.
Like “commission free” mutual funds, commission free trading at bank-owned online brokerages is going to have to come with some kind of value capture.
Stepping Aside: Interactive Brokers’ Clients Prefer to Wait and See
One of the strategic places to pay attention to in the online brokerage market is with active investors. In a world of commission-free trading, it is interesting to ask who would actually pay commissions to an online brokerage for trading services. The answer: Interactive Brokers clients would.
In a short interview on CNBC, founder of Interactive Brokers, Thomas Peterffy, shared some interesting details about the status of cash and margin position for Interactive Brokers’ clients that seemed to suggest that they are atypically not borrowing money nor putting cash into positions. Of note, the typical profile of a customer is also something Peterffy shared, since the profile of assets Interactive Brokers customers has is significantly larger than say, Robinhood customers.
Why this was of particular interest is that, typically, volatile markets are favoured by active traders.
Ahead of periods of heightened uncertainty, Interactive Brokers has served as an interesting harbinger of near-term behaviour. They are typically agile at tightening margin requirements if they foresee risk to their firm. In this case, the conclusion arrived at by Peterffy is that Interactive Brokers clients aren’t buying in this market because they don’t buy the strength of the rally. They are selling, it seems, into strength.
If interest rates rising are a disincentive for margin trading, however, it would suggest that there is limited upside, at least in the near to medium term. The fact that investors that are both knowledgeable about markets and who are prepared to pay for quality trade execution are not seeing a favourable risk/reward seems to paint a cautionary tale at least to that style of investing activity.
The consequence of activity pulling back for stock trading among the most valuable category of online brokerage clients is something that would be difficult to approximate the impact to among Canadian online brokerages; however, it almost goes without saying that it isn’t ideal.
This active group is likely to play a much more prominent role in the planning for online brokerages going forward since they not only typically trade stocks but also options. And, as data has shown, the small category of very active traders (50+ trades per month) can generate substantial revenue (and are prepared to do so) so long as the trading experience is reliable.
Getting those investors to pay attention to online brokerages against a backdrop where there is skepticism on market direction and rising interest rates will be especially challenging. The limited number of Canadian online brokerages that could cater to these active traders appear to have their work cut out for them.
From the Forums
Take a Hike
The headline news is replete with interest rate chatter. Interesting (no pun intended) then that the pace of those rate changes is also in the spotlight and why one eagle-eyed investor in this post noted a rather sharp increase in the margin rates at a popular bank-owned brokerage.
Chatter around mutual funds at online brokerages is at an unusual high point. Commissions are once again in the spotlight and one question from a Reddit user is certainly indicative of what others are thinking: which online brokerages are now directly charging (or not) for mutual fund purchases and sales.
Into the Close
That’s a wrap on another edition of the Roundup. It’s been a choppy past few days; however, all eyes continue to be fixed on how fast and furious interest rates are going to climb. Whether we can all make the leap to a new normal of interest rates is what everyone is working to figure out.
With Tom Brady seemingly defying the laws of aging by announcing his take back on retiring, it goes to show that age is truly just a number. It’s a fitting theme, especially at online brokerages in Canada and the US, as firms in this space are only just beginning to wrap their heads around the surge in young investors who’ve embraced self-directed investing.
In this edition of the Roundup, we attempt to wade into multiple pools of data about young investors entering into the world of self-directed investing and the impact this group is having on online brokerages in Canada and the US. We cap things off with a quick scan of post-RRSP season commentary from the investor forums.
Young Investors Making Waves
One of the interesting things about tsunamis is that when they first begin, they don’t appear to be very big at all. Over distance and time, however, their size and force are undeniable.
Although not a new story by any means, the “rise of the retail investor” is one whose effects are now gathering in intensity, and impacts are becoming increasingly more visible across the self-directed investing landscape, in particular, at online brokerages.
Tracking this wave has not been easy, especially in Canada, but a slate of recent publications and feature launches from Canadian online brokerages, combined with data and developments from US online brokerages, paint a picture of an industry that is quickly trying to understand and cater to this new generation of investors.
A Sea of Change
Earlier this year, TD made a splash of its own by launching TD Easy Trade, the successor to GoalAssist. There are certainly many interesting things to comment on here; however, at the top of the list of features that got many people talking was the 50 commission-free trades per year that come standard with the platform.
At first blush, it certainly seems like this “mobile-first” trading experience was engineered to supplant Wealthsimple Trade; however, the reality is more nuanced. Yes, Easy Trade and Wealthsimple Trade (even from a branding perspective) are comparable in design and features, but the launch of Easy Trade this year is less likely the result of Wealthsimple Trade per se and more likely because of the seismic shift in self-directed investor demographics during the pandemic. After all, TD Direct Investing is widely cited as having the largest market share in Canada of online brokerage accounts, and as popular as Wealthsimple Trade has become, it is still likely far behind other online brokerages either in terms of number of clients or assets under management, or both. As such, Wealthsimple Trade, now a competitor to be considered was not really a “threat.”
The press release of the TD Easy Trade launch was, perhaps, the most telling. Specifically, the quote by Tony Ierullo, TD Direct Investing’s Vice President, New to Investing and Emerging Investor Solutions. Ierullo stated:
“During the pandemic, we saw a significant increase in demand for online investing, with more people trying DIY investing from home, and for the first time. As a result, trades and new account openings hit record highs. This growth in new accounts and trading volumes was driven largely by new and younger investors, which is why it was important to us to launch an app that is easy-to-use, with low trading fees and available support to ensure investing is accessible to this emerging, fast growing investing segment.”
Rather than competition driving the change, it was customers. And lots of them.
Though TD’s release was short on specifics about this group of new investors, another bank-owned online brokerage, RBC Direct Investing, published the results of a survey they commissioned (no pun intended) to understand young investors.
Their latest survey, however, revealed a more precise figure: nearly half of new clients at RBC Direct Investing that joined during the pandemic were under the age of 35.
Although RBC Direct Investing was the one who published a more concrete number, the reality is that these results are likely typical at most Canadian online brokerages. And, in many ways, this survey offers some very compelling takeaways for all Canadian online brokerages, as well as those watching the industry closely.
One interesting nuance of the data, however, shows just how important the sampling frame – or when the sample was collected – is to the conclusions to be derived from surveys.
In April 2021, just after the meme-stock mania hit a crescendo, the Ontario Securities Commission (OSC) published their survey of self-directed investors in Canada. Though timely, the survey of 2,000 Canadian investors was fielded between November 17 and December 6, 2020. In that survey, only 19% of respondents indicated that they had an account opened for a year or less. In contrast, in the RBC Direct Investing poll, 1,530 investors were surveyed between October 26 and November 5, 2021, with 900 of those being DIY investors and 630 “interested in” DIY investing. The figures from the latest RBC Direct Investing research point to a much higher proportion of new investors stepping into the markets in 2021 than was the case in 2020.
To help compete the picture though, another bank-owned online brokerage, BMO InvestorLine, shared numerical data on the numbers of new account in the Canadian online brokerage segment all the way back to 2014. Although the source of the data should be treated with a grain of salt (i.e. unlike data that comes from publicly traded online brokerages in the US, the Canadian data is based on voluntary disclosure, and thus cannot be independently verified), the picture does line up with data from online brokerages in the US. New online brokerage accounts surged to unprecedented levels in early 2021.
Why this matters so much is because when new investors step into a market largely forms a crucial first impression of what constitutes normal.
For an overwhelming majority of new investors, in particular young investors, volatility and opportunity for once-in-a-generation (maybe?) price disruptions were a catalyst to opening new trading accounts and trading stocks online. Meanwhile, older and seasoned investors saw volatility as a reason to seek out safety (or sensibly “do nothing”). And therein lies a crucial difference between the new cohort of investors compared to established investors. New investors are clearly willing to trade – even under circumstances where risk (i.e. volatility) is extreme. And their entry into the world of self-directed investing happened against the contextual backdrop of enormous global disruption and economic distortion.
The places and people that new investors turned to for direction during the pandemic, as well as what they invested in and how they invest, were all very different for younger investors who stepped into the market in the past 18 months compared to the previous almost 18 years.
How Can Online Brokerages Ride the Wave?
There’s lots more than can (and will be) said about the rising influence of younger investors among Canadian online brokerages. Thematically, however, it is immediately clear that focusing on “price and device” underpins the first leg of a strategy for online brokerages.
In the device category, as recently as this past week, Interactive Brokers announced the launch of their new trading app IBKR GlobalTrader, a simplified version of their trading experience tailored specifically towards newer investors. It happens to be a mobile app, with fewer features (i.e. less complexity) than the typical Trader Workstation, and thus is expected to be easier to use.
The fact that bank-owned online brokerages as well as active-trader-focused brokerages are looking at gaining market share of the same segment of users is indicative of the importance of winning market share with newer investors.
In the price category, in addition to lower standard commission prices, making the process of regular investing behaviour frictionless would be appealing.
Features like fractional shares or commission-free ETFs (like the ones that people want, not just the ones that brokerages are willing to make available) have curb appeal for newer investors. It’s no accident that Amazon decided to split their stock recently which then made the stock seemingly more accessible to stock and options traders.
Other than prices and devices, however, Canadian online brokerages appear to be leaning hard into investor-oriented content. From magazines to videos to podcasts, there is a growing ecosystem of content that online brokerages are making available to self-directed investors that is partly educational and partly contextual. With so much information about investing available online, however, it will be a challenge for online brokerages to balance providing a “streamlined” user experience and a wealth of content around investing topics.
New investors are reshaping the online brokerage industry the world over. For many online brokerages, navigating this new normal is a serious exercise in rapid adaptation.
The sudden surge in self-directed investors overwhelmed existing systems because those systems were designed around “traditional” thinking, and the past two years have shown that, going forward, online brokerages need to rethink what investing online could look like.
As the wave of change continues to evolve, one of the biggest challenges to face online brokerages won’t be getting new online investors to pay attention, it will be to keep it.
From the Forums
Fee-ling’s Not Mutual
Although there is a lot of conversation among self-directed investors about ETFs and stocks, mutual funds are still a very popular vehicle used by Canadians to build wealth. In this post from Reddit, however, one investor is re-thinking using mutual funds because of a recent fee change at one big bank-owned online broker.
Savvy vs Saasy
Subscriptions are all the rage, especially with tech companies. But will paying a monthly fee for services pan out for self-directed investors? One Canadian online brokerage seems to think so as they explore a monthly fee for more premium features. Investors in this post on Reddit, however, beg to differ.
Into the Close
That’s a wrap on another in-the-middle-of-the-week edition of the Roundup. Perhaps the only upside to Daylight Savings is that St. Patrick’s Day shows up an hour earlier. Here’s to channeling lots of green in stock charts and tree branches, as well as a cheers to new beginnings and signs of spring. We definitely need all of it.
Let’s call a spade a spade: things are in a terrible state. While we continue to watch from afar and hope that peace comes quickly to Ukraine, markets and investors closer to home are trying to digest world events having local consequences. And right now, we could all use something uplifting.
Fortunately, there are a few bright spots in this edition of the Weekly Roundup. To begin, we review the latest online brokerage deals and promotions, with a detailed look at how developments during the RRSP season portend what DIY investors can expect through the rest of the year. From there, we dive into a master class in continued growth by Interactive Brokers, whose latest metrics reveal that they’ve successfully navigated the new normal. Finally, tune into chatter from the investor forums to see what self-directed investors were focused on (other than oil prices).
Deals and Promotions: Rise of the Hybrids
While the holiday season is typically the time of year for gifts, it seems this year it was the RRSP season that gave self-directed investors the gift that keeps on giving: online brokerage deal extensions.
Things around the Canadian online brokerage industry are a bit unusual these days (see next story for more). Prior to the pandemic, there was a trend of online brokerages offering incentives and promotions that would typically start in November and last until the RRSP contribution deadline at the beginning of March the following year.
While last year was characterized by a tsunami of new investors clamoring to open online brokerage accounts, this year traffic is comparably quieter and thankfully more measured. And, despite crowd sizes returning to more manageable levels for online brokerages, the deals and promotions offered around RRSP season reflect a massive step change in the promotional landscape, driven in large part by increased competition and a whole new set of investors that are looking at trading online.
Before diving into the analysis of March’s deals and promotions reveal about the current competitive landscape, let’s begin with a recap of who’s in and who’s out.
What is interesting, however, is that on a year-over-year basis, the profile of the offer from CIBC Investor’s Edge was about the same, whereas for TD Direct Investing the minimum deposit requirement dropped 90%, from $15,000 to $1,500. Across multiple deposit tiers, TD Direct Investing also offered the highest (or was tied for highest) cash back amounts.
As small as this sample size is, it is illustrative of how Canadian online brokerages appeared to approach RRSP season this year.
On the one hand, there are firms that chose to stick to the traditional script, and on the other, firms that took a dramatically different route. Based on the numbers, it is clear that TD Direct Investing employed a different playbook, whereas CIBC Investor’s Edge stuck to their familiar game plan.
That said, as the RRSP season went on, we witnessed three exceptional developments that suggest the current competitive landscape among Canadian online brokerages has shifted in a direction we believe is bullish for self-directed investors looking for a promotion when opening an online trading account.
A series of fortunate events
The first big shift in tactic came from Qtrade Direct Investing. At the outset of the RRSP season, Qtrade launched a cash back offer that looked like past offers. That is, they weren’t trying to be “first” when it came to cash back amounts.
That all changed in late January when Qtrade Direct Investing revised their cash back offering upwards and lowered the threshold to qualify for the promotions as well. They lowered their minimum deposit requirement from $15,000 to $5,000 and raised their minimum deposit bonus from $50 to $100. On a year over year basis, the revised Qtrade promotion was 80% lower for the minimum deposit threshold (from $25,000 down to $5,000) and two times higher in terms of minimum bonus. And it didn’t stop there.
Qtrade Direct Investing also raised their cash back amounts across numerous deposit tiers, matching the top bonus amounts in almost all of them. The only range where Qtrade Direct Investing was not tied for the highest cash back amount was in the $25,000 to $50,000 tier.
And this brings us to the second big development during the RRSP season, which is promotion extensions.
Historically, the expiry date of most online brokerage promotions would coincide with the end of the RRSP contribution season. This year, however, we saw expiry dates stretch out well beyond that point into March and April. And, as the RRSP season drew to a close, we started to notice deal extensions further into the calendar year.
For example, Qtrade’s cash back promotion now expires at the end of May (moved from an original expiry at the end of March). The RBC Direct Investing promotion, a fascinating development in its own right because of the number of commission-free trades (100) and term over which they can be used (two years), was originally scheduled to expire at the end of April and is now set to expire at the end of October. Joining this list of extensions is BMO InvestorLine, which has now extended its RRSP season cash back promotional offer into the end of May. Scotia iTrade has not extended their current offer (yet?), however, that is set to expire at the beginning of April.
Finally, another telling development during RRSP season this year was the launch of Easy Trade by TD. This new trading platform (which is separate from TD Direct Investing) offers 50 commission-free trades per year to its users. There is no doubt that when one of the largest banks in Canada launches a product that promises 50 commission-free trades per year, that self-directed investors (and other online brokerages) are going to pay attention. And, just in case they weren’t paying attention, TD heavily advertised the launch of Easy Trade during the Super Bowl and is continuing to advertise on social media as well.
Collectively, these developments are bullish for self-directed investors looking for better value (on commission pricing) and suggest that deals and promotions are going to fare more strategically into the approaches of online brokerages in the near term. In particular, those online brokerages that don’t want to drop their standard commission prices can, instead, launch a competitive commission-free trading promotion (as was the case with RBC Direct Investing). The events over this RRSP season also may serve as a harbinger of commission-free trading finally gaining widespread adoption in Canada.
Prior to the launch of full zero-commission trading at National Bank Direct Brokerage, this bank-owned brokerage offered 100 commission-free trades which were good for one year. Eventually, that promotion was superseded by the new pricing scheme. But in taking a measured approach towards zero-commission trading, it stands to reason that they could have reviewed the data associated with that promotion to decide about the impact of going to zero.
As TD showed with Easy Trade, zero-commission trading doesn’t necessarily mean full access to the suite of tools and capabilities that their TD Direct Investing online brokerage platform has.
It’s certainly a salient metaphor these days, but the “hybrid” option (aka unbundling) introduced by TD of paying for some trades or features and not for others could be how other online brokerages who currently charge for commissions approach the new world of zero-commission trading.
If other online brokerages follow suit, then just like at the pump, DIY investors looking for premium will be prepared to pay up. For everyone else, however, getting started with investing appears to be getting a lot cheaper.
Interactive Brokers: Numbers Reveal a Winning Formula
As we near the two-year anniversary of the official declaration of a global pandemic by the World Health Organization (March 11, 2020), the true impact of this once in a generation (hopefully) event is starting to become clearer. Although COVID is by no means behind us, almost anyone in the online brokerage industry can attest to how exceptionally different things are now than in the “before times.”
One area that probably doesn’t get much attention, however, is benchmarking. Specifically, how do you compare what’s taken place over the past two years to anything?
As it relates to online brokerages, be they Canadian or US, data from the past two years is showing that the changes to the industry have been profound. In many ways, not only is there a “new normal,” but new approaches are required and many of these are largely going to be written on the fly.
Earlier this month, as per usual, Interactive Brokers released their monthly performance metrics (for February 2022). Contextualizing these numbers, however, is particularly challenging because of how dramatically different the performance figures were in January and February of this year compared to last year. Though it may not be news that 2020 and 2021 were busy times – even by historic standards – what is particularly noteworthy is what you can see when net new account growth is plotted out back to 2019.
Because a picture is worth a thousand words, take a look at this graph of data of net new accounts at Interactive Brokers from 2019 to 2022.
Among the many things that jump out, it is striking to see the step change in interest in trading online that coincides with the start of the pandemic. Even more imposing is the surge in net new accounts in the first three months of 2021. Against that backdrop, the latest account growth figures reported by Interactive Brokers could be good, excellent, or terrible. Thankfully, context matters, and as such even though just under 39 thousand net new accounts represents a month over month decline in February of almost 22%, this still puts the strength of new account growth several times above where things were pre-pandemic.
Surges in interest aside, the longer-term picture points to a sustained interest – at least for Interactive Brokers – in trading online as indicated by net new account opens.
Prior to the pandemic, the average number of net new accounts in a month in 2019 was about 7.6 thousand. Excluding the period between January and March of 2021, the average between March 2020 and February 2022, the average number of net new accounts at Interactive Brokers has climbed to just shy of 38 thousand per month, a whopping 5x increase.
Focusing in on a more recent timeframe, it appears that the launch of cryptocurrency trading at Interactive Brokers in the late summer of last year helped to provide renewed enthusiasm for new account growth. Net new accounts opened in November 2021 (almost 55 thousand) reached the highest level seen since the end of the meme-stock craze in March.
Interactive Brokers’ continued account growth serves as a remarkable example of what is clearly a winning combination for active investors/traders.
Granted, some of the growth in their numbers is from acquisition. However, most new accounts have come through organic growth. Even more fascinating is that a material portion of their new clients have come to Interactive Brokers because of recommendations and referrals from existing clients.
Perhaps most remarkable of all, though, is that this data shows that growth can happen at an online brokerage that has a core business that charges commissions per trade, and against a backdrop where commission-free trading is the norm at many peer firms.
When comparing account growth figures across Interactive Brokers, Schwab, and Robinhood for 2021, it was revealing to see how poorly Robinhood fared against its peer firms in the back half of year – especially in the category of account openings. In contrast, Robinhood, which blew the doors off account growth in early 2021, saw a precipitous drop in account growth once meme-stock momentum faded.
As mentioned above, the truly exceptional nature of what happened in 2021 to the world of online investing makes comparing subsequent time periods against those first few months somewhat futile. The open question for online brokerages is whether the new entrants into the world of online investing are here to stay or simply a temporary phenomenon.
What the longer-term account data provided by Interactive Brokers suggests, however, there is more permanence to new users and continued interest in sophisticated platforms. Robinhood’s latest performance data has shown that especially when it comes to trading stocks, the new cohort of investors and traders were not nearly as interested in that asset class as they were in options or cryptocurrency trading.
Interactive Brokers has clearly figured out a winning formula to attracting new clients. Their platform and user experience, however, appeal to a narrower segment of users than something like Schwab or even Robinhood. What is undeniable, is that by creating a best-in-class product, maintaining a reputation for low-cost pricing and catering to the most influential user group in active trading, Interactive Brokers has shown that new clients will come.
Perhaps less obvious, Interactive Brokers has been playing a long game strategy.
Though they could not have foreseen a global pandemic tilting interest in their favour, their platform was nonetheless equipped to scale and did so when needed. They stuck to their strategy of focusing on their core segment (active traders) while recognizing the need to innovate (cryptocurrency, ESG investing, commission-free trading) to adapt to changing investor demands.
While it is difficult to extrapolate directly onto the Canadian online brokerage market, the key themes emerging from the latest Interactive Brokerage results, as well as the longer-term picture on account opening data across the big publicly traded online brokerages in the US, reaffirms that simply going commission-free doesn’t guarantee new account growth, nor does it guarantee loyalty.
That said, the pricing at Canadian online brokerages, for the most part, is very disconnected from the value offered.
Unless incumbent online brokerages are prepared to dramatically shift their development focus on delighting influential segments of self-directed investors, they should be prepared to significantly lower their commission pricing (or offer substantial sign-up bonuses).
When the new crop of online brokerages launches in Canada, COVID will be a fading memory and the conversation for most investors will be focused squarely on pricing and ease of use. As Interactive Brokers has shown, staying relevant is the best way to ensure you remain in the conversation, no matter where events in the world turn.
From the Forums
When trusting an online brokerage with something as valuable as a nest egg, it’s important to know exactly what kind of assurances there are in place in case of a default. In this post from the investor forum on RedFlagDeals.com, one investor compares coverage available at two popular online brokerages and how vastly different the terms are.
Point of View
One of the latest features to emerge from Wealthsimple is a small but convenient improvement – a singular view of Wealthsimple Invest and Wealthsimple Trade accounts in one place. In this post revealing the new feature, users weigh in on the new view.
Into the Close
That’s a wrap on this edition of the Roundup. It was a bit delayed in going live, but perhaps we can chalk this one up to a chip shortage, the potato kind not the silicon kind (thanks Frito Lay). Besides, it seemed like there was more than enough to digest this week with market volatility keeping investors on edge. Here’s hoping for calmer waters and heads prevailing.
Unusual times are upon us. In the world of online brokerages, the beginning of March has historically been a turning point where RSP promotional offers expire, and the industry collectively takes a breath after their busiest stretch in the year. But this year, things are a bit different.
What unusual things that we’ve witness take place are an increase in cash back amounts from Qtrade Direct Investing coupled with extensions, again from Qtrade as well as RBC Direct Investing. And perhaps it is a sign of exactly how intense competition has become, but the RBC Direct Investing and Qtrade Direct Investing promos are at historic high levels. Another, for good measure, are longer deadlines for offers.
So, while we don’t have any new offers (yet) to report on, the extensions of offers from big names, like RBC Direct Investing and Qtrade Direct Investing, and longer durations of offers from Scotia iTRADE, would (or should) compel brokerages without an active promotion to consider launching an offer for the spring or through the summer.
In part, incumbent online brokerages – and especially bank-owned online brokerages – now need to factor into their promotional mix a world in which zero-commission trading from firms like National Bank Direct Brokerage (as well as Desjardins Online Brokerage) are gaining ground, and TD Easy Trade now exists. The new self-directed investor service from TD offers 50 commission-free trades per year to clients, and our recent in-depth analysis of TD Easy Trade shows why it is of immediate concern to competing brokerages.
Again, typically this would be a quieter time for all but a handful of perpetually active online brokers, but there’s a clear signal that in many ways these are not usual times, especially in the realm of self-directed investing. One possible reason: younger investors.
This new and materially relevant group of investors has started to drive all manner of change among online brokerages in Canada, which could mean that there are a few more interesting touchpoints in the calendar year where we see promotional campaigns surface.
For the time being, we’ll keep an eye out for new deals and promotions, but if you don’t see one on our list of online brokerage deals, let us know!
CIBC Investor’s Edge cash back promotion officially wrapped up on March 1st, as did the ultra-competitive cash back offer from TD Direct Investing. For reference, check out February’s deals and promotions post for a comparison of cash back promotions from the 2022 RRSP season.
Extended Online Brokerage Deals
RBC Direct Investing made a huge move this RRSP season by offering 100 commission-free trades which are good for up to two years. Originally slated to expire at the end of March, this RBC Direct Investing free trade promotion has now been extended to the end of November.
Another important extension was from Qtrade Direct Investing. In addition to revising the cash back bonus amounts upwards (and applying rewards retroactively to people who signed up under the original bonus), they also extended this offer until the end of April.
What a difference a few days makes. It’s hard not to pay attention to or be thinking about the tragic events unfolding in Ukraine. Despite there being many important turning points with the arrival of March, the one the world is focused on is the end of the conflict in Europe.
For online investors, this war has also shed light on the role that finance plays in the conduct of nations, including during conflicts. In particular, the steady drumbeats of war over the past few weeks have reintroduced uncertainty and volatility back into stock markets – something that could once again challenge online brokerage systems heading into the RRSP deadline.
In this edition of the Roundup, we put commission-free trading into the spotlight, in particular, the launch of a commission-free trading platform by TD. Also, we’re rebooting investor comments, which this week reflect the perennial question around low cost trading and the spillover of politics into choosing an online brokerage.
Easing into Commission-free Trading in Canada – TD Easy Trade
It’s no secret that Canadian self-directed investors are betting on the widespread deployment of commission-free trading among Canada’s discount brokerages. What investors may not have bargained for is what form that commission-free trading experience will take.
Just over a month ago, TD made an interesting move into the commission-free trading world by launching their “Easy Trade” app and offering up 50 commission-free trades per year on that platform. This new investing service replaces the TD GoalAssist platform (launched in 2019) and now offers yet another platform by TD for investors to execute trades on – albeit with limits.
With all the attention that commission-free trading has received, courtesy of its widespread adoption in the US online brokerage market, the launch of Wealthsimple Trade, and the launch of commission free trading at National Bank Direct Brokerage and Desjardins Online Brokerage, it seemed a given that when a larger player moved to provide commission-free trading that others would quickly follow suit and investors would rejoice.
The fact that neither of those seem to have happened yet point to commission-free trading taking a different turn here in Canada.
If a Commission Falls
For some context, let’s rewind to 2014. Commission prices for trading at Canadian discount brokerages (as they were still called) were routinely just shy of $30 per trade ($29+ at TD Direct Investing) when RBC Direct Investing lowered their standard commission pricing to $9.95 per trade. The shockwave was immediate. And it wasn’t very long before most other Canadian online brokers – but especially the bank-owned online brokerage peers – followed suit by lowering their commissions to about the same price (except for Scotia iTRADE which waited until February 2019 to drop from $24.99 to $9.99 per trade).
The reason was clear: when a big player on the field does something material, expectations change.
Against this backdrop, the latest moves to lower commission pricing by a big name like TD – while clearly garnering attention – haven’t prompted the kind of response that we saw in 2014.
But since then, we haven’t seen much activity or appetite to lower standard commissions to zero by any other online brokerages, let alone bank-owned brokerages, despite the surge in interest and recommendations by self-directed investors towards National Bank Direct Brokerage and Desjardins Online Brokerage.
Instead, what we have witnessed is Canada’s online brokerages taking a “wait and see” approach to commission-free trading during the RRSP season, offering up a concession, rather than a capitulation.
Heading into this RRSP season, for example, RBC Direct Investing offered up 100 commission-free trades which are good for two years. Both the duration and the magnitude of this offer is higher than in years past. And to boot, this promotion is set to expire at the end of March, well after the deadline for RRSP contributions. In contrast, many other online brokerage promotions are timed to expire at the beginning of March.
Unlike in 2014, the response to TD’s latest move, according to many (many) self-directed investor forum posts and user comments, has been lukewarm. While there is clearly praise for providing a “commission-free” choice for up to 50 trades, there are a number of sticking points – including gripes from some of TD Direct Investing’s very large customer base.
Even though TD Easy Trade is clearly a multipronged response to the challenge of commission-free trading, as well as the “mobile first” mindset of Wealthsimple Trade, the expectations that come with such a successful and financially flush brand as TD are significantly higher.
Early Reactions to TD Easy Trade
Now over a month into the new service, the early response from across the investor forums paints a mixed picture of self-directed investors welcoming the price point but feeling constrained by the limitations of the app (especially around ETF purchases) and inconvenienced by having to separate the TD Direct Investing online brokerage experience from the TD Easy Trade experience.
An area where a bank-owned brokerage cannot be seen to fall short, however, is with convenience. That is the pillar of the value proposition of going with a bank-owned brokerage, and it is one feature younger and older investors agree upon.
In reviewing hundreds of forum, social media, and user comments on TD Easy Trade, aside from the points mentioned above, it was fascinating to see which online brokerages were (and were not) mentioned as alternatives to the new app.
National Bank Direct Brokerage was by far the most frequent alternative (followed by Desjardins Online Brokerage) cited to TD Easy Trade, despite a lack of a “mobile app” experience from National Bank Direct Brokerage (for now). This seems to suggest that investors are still very much conscious of the commission pricing. And although TD’s offering isn’t “unlimited,” many commenters concede that 50 commission-free trades should suffice for most passive investors.
Wealthsimple Trade, while also a part of the discussion, did not fare as high as it likely should considering it is the closest in feature and user experience to TD Easy Trade. Along with commission pricing, access to ETFs was also mentioned. User interface was a part of this discussion; however, the mobile experience – including biometric login – was a pain point for users contemplating on using TD Easy Trade
The “kicker” it seems is the restriction on ETFs – since TD Easy Trade only allows for commission-free trading of TD ETFs. That constraint seemed to open up other brokerages into the discussion, such as BMO InvestorLine as well as Scotia iTRADE.
Names that weren’t mentioned as often, however, were also a sign of shift in value perception among self-directed investors. One name that did not receive as much mention as it typically has prior to the zero commission launch by National Bank Direct Brokerage was Questrade.
This is an important development since Questrade has long been perceived as a low-cost leader. They have also been actively campaigning (including mass media buys) to win over the same clients as Wealthsimple Trade. Based on the conversation, however, Questrade appears to have lost ground to both the commission-free brokerages and is now facing pressure from TD Easy Trade.
And on the topic of campaigning, anyone watching the Super Bowl from Canada also likely saw the barrage of commercials from TD Easy Trade, a move that is a change in tactic from the big bank. Typically content to watch from the sidelines, the big sporting event advertising has been a mainstay of Questrade’s awareness campaigns, but this year TD Easy Trade came out swinging, dwarfing commercial presence of Questrade and BMO.
Early adopters of the National Bank Direct Brokerage experience have shown that despite some delays in getting accounts open and funded, overall, the feedback has been positive, especially when people have been posting their savings on commissions per trade. That kind of social proof is compelling, and when done at scale, can carry substantial influence among communities of investors who rely on the experiences of others when making decisions around potential online brokerages to use.
Given the size and prominence of bank-owned online brokerages, however, the expectations to get things right is also higher. There are simply fewer missteps or shortcomings that consumers are prepared to tolerate when Canadian banks are earning record profits.
Anything short of a best-in-class online trading experience begets a wave of complaints. And for a firm like TD, with two million online brokerage account holders, creating a parallel product to TD Direct Investing that has a considerably lower price point definitely ruffled some feathers. So while Canadian online investors may not leave a particular brokerage right away, they are clearly open to exploring other options and giving new entrants the opportunity to win business.
The takeaway for self-directed investors is that there isn’t really one Canadian online brokerage that is hitting all the marks when it comes to the trading experience and commission structures.
In terms of the balance of features and value, our analysis of the most influential Canadian online brokerage rankings shows that according to the reviews, there is more than just price to consider when choosing an online brokerage. And despite commission price clearly playing a role, consumer sentiment in the reaction to TD Easy Trade confirms that features such as commission-free ETFs and convenience weigh heavily. What this likely amounts to for Canadian self-directed investors is multiple accounts with multiple online brokerages.
For online brokerages, the lesson is also clear. Offering zero-commission trading is no guarantee to success; however, it does provide mass market visibility when it comes to being considered. Key features, and, in particular, the feeling of convenience are potentially more highly prized than commission pricing alone.
With our everyday lives increasingly dominated by apps that remove so much friction from the user experience, financial services, and online investing in particular, online brokerages have yet to perfect the delicate balance between keeping things functional and reliable with making the process of managing wealth as easy as possible. Hence, though the naming of the platform was a deft move, Easy Trade has set the bar high for themselves to make the process of managing wealth as a DIY investor – including the entry point investor – feel easy.
From the Forums
Which Online Brokerage is Cheapest?
Although it is a perennial question, whenever the topic of which online brokerage has the lowest cost comes up, it is fascinating to see which online brokerages are mentioned (and those that aren’t). In this recent reddit post, the conversation about low cost brokerages highlights who is top of mind for self-directed investors.
In Case of Emergency Act
Take your pick of political news having economic fallout. With the war in the Ukraine now dominating the headlines, the previous few weeks also showed that when Canada enacted the Emergency Act to deal with “freedom protestors”, financial firms and assets were also in the crosshairs to restore order. In this reddit post, one user wanted to know which online brokerage(s) better aligned with their personal political beliefs.
Into the Close
That’s a wrap on another “catch-up” edition of the Roundup. Suffice to say there is a lot on deck now that we’re at the official start of March and the official end to RRSP season for 2022. In the fullness of time, this seasons results will come to light but in the meantime, like everyone else, we’re watching what’s unfolding in the Ukraine and hoping that peace comes as soon as possible.
This year more than most, February is a month that embodies competition. From the Super Bowl to the Winter Olympics to the final stretch of RRSP season, there’s no shortage of high drama, stats, scores, and podium finishes. And while there might not be any formal winner declared to RRSP season, the reality is that Canadian online brokerages are battling hard to lock in new clients and assets ahead of the RRSP contribution deadline.
In this reboot to the Weekly Roundup, we took our cues from the biggest sporting events in the world to bring an exceptional edition filled with high degrees of difficulty to compare one of the most influential touchpoints of DIY investors making decisions on which online brokerage to choose: Canadian online brokerage rankings. Grab some snacks (maybe a coffee too), this is going to be a good one – but if you don’t have time, check out the key takeaways below.
It is increasingly more difficult to distinguish between Canadian online brokerages, let alone to find out which online brokerage is best
Different online brokerage rankings (Globe and Mail and Surviscor) ended up with very similar opinions about Canadian online brokerages this year, despite measuring them differently
When comparing online brokerage rankings, consistency between rankings provides greater confidence, whereas, inconsistency is a warning that experiences may be variable (aka YMMV)
Most online brokerages in Canada are generally OK to meet the needs of most self-directed investors; however, ranking as a best online brokerage means hitting important feature metrics, not just having the lowest commission pricing
Which Online Brokerage is Best? Comparing Online Brokerage Rankings to Find Out
The 2022 RRSP season is on the cusp of wrapping up, and, as in previous years, there has been a predictable surge among self-directed investors to find a new Canadian online brokerage. Unlike in past years, however, this year it seems that competition between Canadian brokerages is even more heated than ever before. And despite that competition (or perhaps a result of it), it is becoming increasingly more challenging to distinguish Canadian online brokerages from one another.
While commission price has historically been a key distinguishing feature for value-conscious self-directed investors to base their decisions on, zero-commission pricing has now gained a foothold among Canadian online brokerages.
The fact that there is more than Wealthsimple Trade – which was the sole zero-commission option for several years – to choose from since the start of this year’s RRSP season also heavily impacted an important touchpoint for the online brokerage industry and consumers alike: Canadian online brokerage rankings.
Online Brokerage Rankings Launch Ahead of RRSP Season
Earlier this month, the 2022 edition of the Globe and Mail’s online brokerage rankings was released, just in time for the peak of the wave of investor interest in online brokerage account opening. Now in its 23rd year, Rob Carrick’s long-running review is hands down one of the most influential online brokerage reviews with Canadian self-directed investors. And in late December 2021, the other big name in online brokerage rankings, Surviscor, released their 2021 online brokerage experience rankings, a comprehensive ranking of online brokerages in Canada based on detailed criteria about the online investing experience.
While it comes as no surprise that in the lead up to the 2022 RRSP contribution deadline two very important Canadian online brokerage reviews have been released, it was surprising to see the degree to which both rankings ended up agreeing with each other.
At Sparx Trading, we don’t rank online brokerages, but we do have a long history reviewing online brokerage reviews. We’ve continuously held the perspective that “the best” online brokerage for Canadian investors is one that suits their particular needs as a self-directed investor.
That said, for self-directed investors who turn to third party reviews for guidance and perspective on which online brokerages are leaders or laggards (or to find out “which online brokerage is best?”), our recommended approach would be to see what different brokerage rankings have to say.
The challenge, however, is that each of these reviews take very different approaches to defining and measuring which online brokerages in Canada are the best, and so it is important to understand what each of these online brokerage reviews measure and how they measure it. But comparing online brokerage rankings is not easy.
From a consumer perspective, there is quite a bit of analysis and more homework/guesswork than most are willing to do, which is why we’ve tried to simplify this in our online brokerage review pages by providing ranking data from different sources alongside information about the brokerages themselves below.
An important trend that we’ve observed with online brokerage rankings in Canada is that the difference between online brokerage ranking scores has been shrinking.
For the past two decades, online brokerage reviews from third party sites and sources have played an important role in helping Canadian self-directed investors understand how to choose an online brokerage, as well as provide recommendations on which Canadian online brokerage is best. That said, the spread between the top and bottom ranked firms has been closing across different reviews, a signal that it is becoming increasingly more difficult to distinguish between online brokerage firms.
While the appeal of these online brokerage rankings is that they offer a quick point of reference for investors to be able to determine which online brokerage(s) are the segment leaders and which are the laggards, there hasn’t been an easy way to compare Canadian online brokerage rankings – until now.
To address this analysis gap and to highlight the trend towards homogenization among online brokerages (i.e. that it is harder to tell online brokerages apart from one another) we wanted to put the latest online brokerage rankings from the Globe and Mail and Surviscor into a format where they could be compared side by side. By doing this, a much clearer picture emerges of where there is consensus from subject matter experts on which Canadian online brokerages are leaders and which are lagging their peers.
Specifically, the most important thing (we think) to pay attention to when comparing online brokerage rankings is where there is agreement and the extent of that agreement, because it demonstrates increased confidence in the experience that self-directed investors can expect from a particular Canadian online brokerage.
How We Compared Canadian Online Brokerage Rankings
Before diving into a comparison of the two different online brokerage rankings, it is important to provide some context as to how these numbers were generated.
The scoring criteria for the 2022 Globe and Mail online brokerage rankings uses letter grades in combination with +/- components. (For those who wish to take an in-depth look at how the grading system changed over time, you can check out one of our original articles explaining how the Globe and Mail online brokerage rankings evolved from 2002 to 2012.) As in the past, there are multiple criteria that Canadian online brokerages are evaluated on with a final letter grade assigned based on a combination of scoring and impression of the online brokerage (from the perspective of the “average” online investor).
In contrast, Surviscor reports a numerical percentage for their Canadian online brokerage experience rankings. The methodology for their analysis takes a criteria-based approach and measures features that online brokerages do (or do not) have. This year’s online brokerage experience review audited Canadian online brokerages during October and November 2021 and analyzed over 400 criteria in six categories and 27 subcategories.
To enable a fair comparison, we decided to convert the letter grade ranking system used by the most recent Globe and Mail online brokerage rankings, into a numerical system that is used by Surviscor.
Interactive Brokers Canada was analyzed as part of the Globe and Mail’s 2022 online brokerage rankings, whereas Surviscor’s brokerage ranking did not include them. Conversely, Wealthsimple Trade was rated by both firms; however, they were only scored in the Surviscor rankings. In the Globe and Mail online brokerage rankings, Wealthsimple Trade was given an “I” for “incomplete.” As such, both Interactive Brokers and Wealthsimple Trade are not directly comparable in the two different rankings.
The table below contains the raw rankings from both online brokerage reviews. As mentioned above, the online brokerage rankings from the Globe and Mail are reported in the form of letter grades, whereas the rankings of online brokerage experience from Surviscor are reported in percentages:
Also, for ease of comparison, we’ve calculated the average score between the two sets of online brokerage rankings, as well as the difference between the scores (in percentage points) to highlight the degree of agreement (or disagreement) between the two different rankings’ results.
What We Found When Comparing Canadian Online Brokerage Rankings
Again, in the interest of a fair comparison, it is important to reiterate that we are comparing two different Canadian online brokerage rankings that measure different aspects of trading online via a Canadian online brokerage.
The Globe and Mail’s online brokerage rankings take the perspective of what the “average” Canadian self-directed investor would typically need or want. By comparison, Surviscor’s rankings measure the “online brokerage experience,” which reflects what their perception of a leading online brokerage experience could look like.
One of the first things that jumps out from the results of this year’s rankings is that averages from the Globe and Mail (75%) are lower than those from Surviscor (81%). Moreover (and for the stats nerds), the standard deviation – or measure of variance of the average – for each set of scores show much more consistency for the Globe and Mail’s online brokerage ranking than for Surviscor’s (7.31% vs 8.88%). It is important to note that the scores for Wealthsimple Trade on Surviscor’s rating (20%) were not included because they were so far below everyone else’s that it would have significantly skewed the analysis.
What these averages and standard deviations point to is that the perception of the overall online brokerage offering for Canadian self-directed investors is generally not bad.
Aside from a couple of outliers – in particular Wealthsimple Trade – an online investor could pick just about any Canadian online brokerage and be OK. Thus, choosing a Canadian online brokerage in 2022 for most individual investors is not a decision to fret over – especially if their needs are fairly straightforward or basic.
Importantly, a low number on these rankings doesn’t necessarily imply a “bad” or poor online brokerage, but rather one that doesn’t meet a full spectrum of user needs based on what else is out there. As such, not all investors will end up wanting or needing all features that are available elsewhere, which might be just fine for those investors.
Another interesting observation right off the bat is that the average score for Canadian online brokerages is lower in the Globe and Mail ranking than it is in the Surviscor ranking. One interpretation is that Rob Carrick is a tougher grader than Surviscor, something that is somewhat of a surprise given the qualitative data and commentary on the online brokerages coming from each ranking. While it is clear what Surviscor’s position is on firms like Wealthsimple Trade, other than that, according to Surviscor’s scores, most Canadian online brokerage firms appear to be faring well (in a relative sense) when it comes to features.
One of the unique features of analyzing the Canadian online brokerage rankings this way is that it is possible to combine the scores into an average score between the two different rankings. In doing so, not only does this enable readers to more easily compare Canadian online brokerages based on the average alone, but it also highlights where these rankings agree and the extent to which they do.
To be fair and consistent for the analysis on combined scores, Interactive Brokers (which was analyzed only in the Globe and Mail) and Wealthsimple Trade (which was not graded in the Globe and Mail and was a severe outlier in the Surviscor analysis) were not included.
The table below shows the combined average scores from each Canadian online brokerage, as well as the difference (in percentage points) between the two rankings. Firms that had the same average score but lower difference between rankings were rated higher in this analysis, thus it is possible to have a lower average score but place higher because there is greater confidence associated with a particular average.
The scores for the combined rankings ranged from a high of 90% (Qtrade Direct Investing) to a low of 62% (HSBC InvestDirect) with the overall average of the group coming in at 78% and a standard deviation of 7.7%.
With these numbers in mind, the results of the best ranked online brokerages (as well as the worst) take on greater meaning.
In particular, based on the average values and the range of scores alone, Qtrade’s performance is very close to being significantly better than the other firms ranked, falling just three percentage points shy of being two standard deviations better than the average. Conversely, HSBC InvestDirect’s ranking does (barely) cross the threshold into being significantly lower than its peers.
As for the rest of the field, which is essentially every other online brokerage, the experience is generally OK. This could explain the observation that many Canadian self-directed investors don’t feel compelled to switch online brokerages, even in the face of low or zero commission alternatives. Even if costs may be somewhat higher, things are not so materially bad to induce a change. It’s only likely after a negative service interaction (or feature shortcoming) or some significant convenience boost (e.g. consolidating other financial services or very cool feature) that would form the catalyst to change brokerages.
Areas of Agreement
What became clear in comparing these online brokerage rankings is that there were clearly some instances where both sets of reviews arrived at similar conclusions about the performance of a particular online brokerage.
The range of agreement was between 4 and 16.5; however, the latter score (the result of the difference in scoring for Scotia iTRADE) was certainly an outlier. Excluding that from the analysis, the average difference between the Globe and Mail rankings and Surviscor ratings was about 7.15 percentage points with a standard deviation of 2.24.
When including a “confidence” measure, which is really a consistency between rankings measure, the most consistent conclusions were about BMO InvestorLine (average combined score of 80%) and CIBC Investor’s Edge (average combined score of 73%). Rankings for both of these firms were within four percentage points of each other, suggesting that both Surviscor and the Globe and Mail analyses arrived at a similar conclusion about what self-directed investors can expect. In this case, when comparing BMO InvestorLine versus CIBC Investor’s Edge, according to the rankings, BMO InvestorLine would provider higher probability of a better outcome for investors.
Where the confidence measure really impacts the average scoring and ultimate ranking of online brokerages is when the difference between online brokerage rankings is considered high. In this case difference scores of 8 or higher were considered to be an indicator of a “YMMV” (your mileage may vary) for investors in terms of what their own experiences with an online brokerage may be. Several firms fell into this cluster including (in descending order of disagreement):
The most extreme example of disagreement between online brokerage rankings was for Scotia iTRADE, which had a 16.5 percentage point difference. The Globe and Mail’s online brokerage rankings rated Scotia iTRADE at 74.5%, a score that put it in the middle of the pack in terms of grading; however, in the Surviscor rating, Scotia iTRADE earned a 91% rating. According to Rob Carrick’s commentary, the website interface came across as dated but in the Surviscor ranking, the overall online experience was close to exceptional. In short, this is a good example of a firm where consumer experience is likely somewhere between good or excellent, depending on the user.
Other interesting names on the YMMV list were the two online brokerages with zero commission trading: National Bank Direct Brokerage and Desjardins Online Brokerage.
Despite being a “tougher” judge overall, it was the Globe and Mail ranking for National Bank Direct Brokerage (78%) which was higher than Surviscor (69%). The situation was almost the opposite at Desjardins Online Brokerage, which scored higher on the Surviscor ranking (76%) compared to the Globe and Mail (68%). And despite not being captured in the comparison analysis shown above, Wealthsimple Trade is also a zero commission brokerage that did not score well on the online brokerage rankings.
The shift to this low-cost structure for consumers would almost certainly be considered a win, but as these online brokerage rankings clearly show, pricing is just one of many factors that online brokerages need to get right in order to score well on these brokerage rankings. In fact, it appears that when it comes to Canadian online brokerage rankings, each of these aggregate ratings favour the online brokerage offering features and “frills” rather than the most essential online trading experience. Most “average” investors don’t make a significant amount of online trades in a year, so the “value” of zero commission trading might be minimal compared to other features (such as portfolio tracking) that would be of interest.
Online brokerage reviews and rankings have and will continue to play an important role for self-directed investors who are interested in opening an online brokerage account. For Canadian online brokerages, rankings – especially those from the Globe and Mail and Surviscor (as well as from JD Power) – are a particular point of pride, and demonstrate to investors that these online brokerages can meet certain standards of quality that, in turn, should give investors confidence in doing business with them.
While historically there might have been substantial differences between firms, in 2022 it is clear that most Canadian online brokerages are doing an adequate job of providing self-directed investors with the essential functions of being able to trade and track their portfolios online. The customer service wait times, which became a dominant topic of discussion in 2021, were also part of the conversation this year, but what that data also showed is a) improvements have been achieved in most places year over year, and b) customer service channels are, like pricing, only part of what earns good grades in an online brokerage ranking.
Our conversion of the letter grades used in the Globe and Mail’s online brokerage rankings into percentages is not a perfect one-to-one mapping. For that reason, the percentages that we’ve used are at best, a reasonable approximation of what it takes to conduct an apples-to-apples comparison of the different online brokerage rankings that are highly influential during the current RSP season and throughout the rest of 2022. Despite the limitations, the ability to compare different online brokerage rankings does show that firms like Qtrade Direct Investing and TD Direct Investing have earned their way to the top of the list of firms who are providing broadly appealing features and value to Canadian self-directed investors. The fact that there are both strong averages as well as reasonable agreement can give self-directed investors some degree of confidence when trying to decide on a “good” choice for an online brokerage.
That said, the online brokerage rankings are a line of best fit for the “average” or typical investor. And despite some firms scoring lower, it is important to recognize that a “lower” score doesn’t translate necessarily into a firm that doesn’t please its customers. Different features matter to different investors, and as such, firms that didn’t receive much spotlight in these rankings and analysis, in particular Interactive Brokers and Wealthsimple Trade, have passionate users who genuinely enjoy using these brokerages.
Thus, if there is one big cautionary note in relying on the rankings and ratings generated by both the Globe and Mail and Surviscor, is that these ratings reflect the perspectives of the respective entities that developed the rankings. The rankings do not, unfortunately, factor in customer satisfaction or sentiment, which is a highly prized but very difficult factor to get reliable data on.
Nonetheless, much like the Olympics, the competition between Canadian online brokerages is so intense that the difference between a podium finish and being out of the spotlight is small. The gap between the best online brokerage and the rest is closing. Canadian online brokerages who are agile enough to continuously improve, especially in what kind of features they can bring to market, should continue to do well in the rankings. If there’s one important lesson from the world of sport that holds true for Canadian online brokerages, however, it’s to try and eliminate unforced errors, especially once RRSP season is done. The data now exists in an easier format for Canadian online investors to compare online brokerages, but whether or not they’re driven to look it up after RRSP season is a function of how well each online brokerage can perform.
Into the Close
It’s great “two” be back in the thick of things just in time for sprint to the RRSP finish line at the end of February.
There’s lots that’s happened since our pause so we’re looking forward to digging out from the vacation responder emails, as well as reviewing the latest developments taking place with Canadian self-directed investors and online brokerages.
Of course, anyone who’s also had a newborn knows that sleep is a precious commodity, as is family time. So we thank you for your patience as we get back online and promise that there are even more dad joke puns about to make their way into the Roundup from here on out.
Fingers crossed, it’s going to be a nail-biter of a week in more ways than one.
For most Canadian DIY investors, however, retiring in your early forties after a storied career in the NFL isn’t the typical route to old age. Instead, we’re tasked with figuring out how to choose an online brokerage so that we can manage our own wealth online.
Fortunately, competition among Canadian online brokerages in 2022 is higher than it’s ever been. For self-directed investors, this means more value, either with better pricing or more features (or both!) starting to show up.
One of the interesting places we’ve seen this competition turn into tangible benefits for self-directed investors has been with online brokerage deals and promotions. While there are no new deals to report at the beginning of February per se, there was plenty of action in January to set up a really exciting sprint to the finish of RRSP season at the end of the month.
Case in point: Qtrade’s latest promotion. While it is not unheard of, an online broker adjusting the reward of an already live promotion is exceptionally rare. Qtrade’s decision to revise their offer so substantially (in some cases more than double the previous cash back amounts) and to apply these changes retroactively to anyone who had signed up under the original terms is likely unprecedented.
To see just how drastic the changes are, it is worth putting these changes into perspective with some tables.
The upper table shows the cash back promotions from Canadian online brokerages heading into late January (just prior to the revised Qtrade promotion). In that table it is clear that Qtrade Direct Investing did not stand out with a leading offer across any of the deposit tiers attached to current brokerage promotions.
In contrast, the revised offer table shows that Qtrade Direct Investing is now tied for the top cash back promotion amount at nearly all of the deposit tiers (except for deposits of $25,000 to $49,999), and has the distinct lead of offering $5,000 cash back for deposits of $2M+, an amount more than double any other cash back offer and certainly worthy of the headlines it is sure to grab.
In short, Qtrade Direct Investing’s latest cash back promotion amounts are historically higher than they’ve ever been for Qtrade (at least in recent memory) and they are now competing shoulder to shoulder with the biggest online brokerages in the market.
To help put things into further perspective for readers, looking at the year-over-year change between deals launched in 2020 compared to those launched in 2021 (including the revised Qtrade deal here in 2021 for convenience), it’s clear that minimum deposit requirements have cratered (including at Qtrade with this latest revision) and minimum bonus amounts have surged at three of the five firms compared here, with Scotia iTRADE increasing their bonus amount fourfold at their minimum deposit tier.
The takeaway for Canadian self-directed investors is that this month (February) offers one of the best opportunities to land a significant cash back promotion from an online brokerage for opening a new online trading account.
With zero-commission trading now more likely to become the new normal in the near future (thanks to TD Direct Investing rolling out a zero-commission trading option in January), this might be one of the last times Canadian online brokerages turn to sizeable cash back promotions to win new customers.
The Qtrade Direct Investing promotion revision technically falls into this category because it offers up new cash back bonus amounts. (Kudos to Qtrade for applying the bonus retroactively to people who signed up for the offer already.)
Deposit requirements for the Qtrade promotion now range from a low of $5,000 (for which there is now a $100 bonus) to $2M+ (which nets a $5,000 bonus). Timing of the promotion is still the same, with expiry dates and holding periods remaining identical to the terms when the deal was first launched. Click for more information on the latest Qtrade promo.