Tag: TD Direct Investing

TD Direct Investing

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Discount Brokerage Weekly Roundup – October 11, 2021

If there’s one thing that Thanksgiving is famous for, it’s making a little extra room for treats. And, fortunately, it seems like online brokerages on both sides of the border were dishing out a healthy portion of good news heading into the Canadian long weekend.

In this edition of the Roundup, we kick things off with some bite-sized updates on new pricing and new naming from a couple of popular online brokerages. Next, we dial into the main course – a deep dive on the latest big feature from Robinhood: phone customer service. And finally, you’ll want to save room for dessert, which consists of some sweet chatter from the online investor forums.

Appetizing Canadian Online Brokerage Updates

BMO adviceDirect Lowers Fees to Attract New Clients

In the ramp up to RSP season, we expect to see a flood of new features and pricing announcements come through from Canadian online brokerages. This past week, BMO InvestorLine announced some interesting enhancements to their adviceDirect service that made it more accessible and enticing to investors with lower portfolio balances looking to trial out this service.

The biggest change is the reduction in the required minimum to open an adviceDirect account, from $50,000 down to $10,000. Of course, in an era of zero-commission trading, there were also some free trades (15, to be exact) thrown in for good measure for accounts with deposits of between $10,000 and $50,000.

One of the biggest challenges for consumers, especially those looking at the cost of “advice” on their portfolio, is paying fees. The minimum annual fee for adviceDirect has also been lowered from $750 to 0.75% on billable assets, with a maximum annual advisory fee of $3,750. For the entry point investor (i.e. someone with $10,000) the annual cost for the service would be $75.

While many online investors are aware of BMO InvestorLine, there are many who don’t know about adviceDirect, and given how long adviceDirect has been around, there are many online investors in DIY circles who’ve simply viewed this option as pricey. So, the move to lower the balance requirement as well as the fee structure is a great opportunity to introduce the new cohort of investors to this product. The challenge, however, will be in changing the narrative and conversation around adviceDirect, which is something that has been heavily shaped by the many years of discussion about it. As such, we expect that going into the RSP season, there will not only be greater advertising of adviceDirect, but more effort into repositioning this solution with the kinds of investors who would value having additional support and advice when making investing decisions.

Another interesting angle to this offering is that adviceDirect standard commissions per trade are $7.75 whereas BMO InvestorLine commission rates are $9.95. The disparity between the two presumably is a result of additional revenues from clients paying an annual fee for services. This, of course, naturally raises a couple of questions around how much BMO InvestorLine would be willing to lower their commission rates to in order to secure minimum activity thresholds.

Peer firms, such as RBC Direct Investing or TD Direct Investing offer discounted commission rates for active traders, but BMO InvestorLine does not. Instead, BMO InvestorLine offers up access to additional features (such as their advanced trading platform) for clients who trade more actively. If BMO InvestorLine were to lower their commissions to zero to match other brokerages, like National Bank Direct Brokerage, then it also could impact the pricing structure for adviceDirect.

Digging deeper into the pricing at this entry point tier, if a new client is being charged $75 for the service and 15 trades, that works out to $5 per trade – far lower than the current $9.95 for the self-directed investing service and the $7.75 for the adviceDirect standard commission.

For now, it’s clear that based on the pricing and the free trades for the new tier created for adviceDirect that BMO InvestorLine is very interested in attracting in new clients to give this service a try. As RSP season heats up, this latest move from BMO InvestorLine signals that there is likely more to come in terms of either features, pricing, or promotions to entice the self-directed investor segment. And, if BMO InvestorLine is any indicator, the other bank-owned online brokerages won’t be too far behind with something big.

Virtual Brokers Now CI Direct Trading

It may have taken some time, but the Virtual Brokers brand has finally seen its sunset. After Virtual Brokers was acquired by CI Financial in 2017, it was unclear as to how the Virtual Brokers brand would co-exist among the other brands managed by CI Financial. Then, in early 2020, there was some clarification that the many brands owned by CI Financial, while strong in their own right, were not building the CI brand directly, and as a result, they were all brought under the umbrella of the “CI Financial” name.

As of the publication of this edition of the Roundup, Virtual Brokers is now CI Direct Trading. It was unclear once CI Direct Investing was created whether Virtual Brokers would fall under that brand or another, especially given how crowded the “direct investing” name has become.

Qtrade, RBC, and TD all have “Direct Investing” in their name, so the “Direct Trading” brand does help them stand out but with the “direct” in the name, they also must contend with CG Direct – something that will almost certainly cause confusion, especially if CG Direct decides to ramp up their marketing to make more investors aware of their offering.

One of the biggest challenges facing CI Direct Trading, however, will be managing the transition from such a well-known name. For example, although the website has changed names, the current site structure and design are still the same. Also, the mobile app links still point to the existing Virtual Brokers mobile app page and naming.

The roll out of a new brand, especially as big of a change as a name, reveals the complexity of an online brokerage in terms of moving parts. Qtrade Direct Investing did an effective job managing their rebrand earlier this year, and when they went live, they also initiated a new marketing campaign to carry the new brand forward with the energy and momentum required to build excitement with their existing stakeholders.

If there are any clues as to where things go for CI Direct Trading, there might be some in the CI Direct Investing user experience. The shift from WealthBar to CI Direct Investing set a high bar for user experience and design for the CI Financial family. So, if the transformation for Virtual Brokers is anything like the look and feel for CI Direct Investing, it seems like Canadian self-directed investors are in for a pleasant surprise.

Robinhood Launches 24/7 Phone Support

One of the biggest stories out of the US online brokerage space this past week was from Robinhood, who announced on their blog that they have rolled out 24/7 phone support. The mixed reaction (or lack thereof) to the news is a unique reflection of where this feature fits into their business and the continued overhang of negative sentiment towards Robinhood from very vocal users online.

Historically, phone service was never really a priority at Robinhood – it was simply too expensive a feature that a zero-commission online brokerage couldn’t effectively support. Instead, for much of its existence, Robinhood fielded customer enquiries digitally, through email and chat and eventually with some limited phone support. In contrast, many peers of Robinhood, such as Schwab, Ameritrade and Interactive Brokers, have robust phone customer service infrastructure, including coverage 24 hours a day for the business week, if not for the whole week.

So, why is rolling out 24/7 phone customer service such a big deal at Robinhood?

For starters, launching a point of contact that is available all day, every day is a signal that Robinhood is trying to improve the customer experience. Events over the past 18 months, in particular the crush of volume of new accounts and the meme stock rush, uncovered issues with how customers of Robinhood dealt with things like outages, trading restrictions, account hacks/breaches, and more. Ultimately, these high stakes situations required many customers to reach out to the Robinhood customer support team.

Thus, 24/7 phone service – while a standard feature amongst other large online brokerages – provides a measure of comfort to clients who want or need to get in touch with a human to help sort through an issue.

A bigger reason why the phone service access matters, however, is because Robinhood also supports cryptocurrency trading – a market that never closes. While there was very little chatter among online investors on the stock trading side about this feature at Robinhood, the crypto community was abuzz with this innovation. There simply is no analogue for customer service at that level from crypto exchanges.

Scaling up to meet the needs of their 22+ million customers won’t be easy – or smooth. Their initial approach to providing phone support will require clients to use the app to request contact from a Robinhood agent. According to an article published in TechCrunch, there are no “guaranteed” wait times, however, the targeted call back time is within half an hour. To meet that commitment, Robinhood will employ in-house customer service reps, as well as contracted outsourced agents. Clients can therefore expect some heavy triaging of calls to ensure that resources be allocated efficiently. Of course, one of the quirks of dealing with individuals in finance is that interactions can’t seem “too rushed” otherwise the experience becomes less enjoyable. As a result, Robinhood customer service will be subject to the same forces that tend to impact their peers when the markets get extremely volatile: longer wait times on the phone.  

As important as this as a development for Robinhood, they are not the only US online brokerage to be shoring up their customer service and customer experience. Interactive Brokers, another brand for which customer support has been a lower priority, had mentioned earlier this year that they are working on something exciting for their customer support experience.

Here in Canada, 24/7 customer service at an online brokerage is a very rare feature. In fact, there is no online brokerage that offers this, but there are two that come close: HSBC InvestDirect and Interactive Brokers. The rest of the online brokerages phone service channels typically operate around business hours on Eastern Time, which is a frustrating thing for clients in Western Canada.

HSBC InvestDirect’s phone customer service hours are 24 hours a day from Monday through Thursday, and from 12am to 8pm ET on Friday. Agents resume phone coverage again on Sunday evening starting at 6pm ET. Interactive Brokers has phone service coverage 24hrs a day, five days a week. Interactive Broker’s phone customer service hours are 24 hours a day, Monday through Friday. For Interactive Brokers, however, the Canadian service operation runs from 8am to 8:30pm ET and outside of these hours calls are answered by an international affiliate of Interactive Brokers.

Perhaps unsurprisingly, Canadian online brokerages have some work to do to provide a cutting-edge phone customer service experience. To begin with, coverage for Canadian online brokerages is largely limited to business hours, with several big named brokerages only offering coverage during business hours in the Eastern time zone. Then, there are simple features, like call back (instead of waiting on hold) to letting clients know where they are in a call queue with an estimated wait time, which are still not in place at many online brokerages.

What the latest move by Robinhood demonstrates, however, is that eventually customer service and customer experience do matter and that even at a commission-free online brokerage, clients still expect to be able to connect to a human being to solve complicated or urgent issues. It is also instructive to note that any online brokerage that currently deals with a “market that never closes” like cryptocurrency (such as Wealthsimple Trade) or international trading is going to have to support customers with a phone channel at extended hours.

The silver lining for Canadian online brokerages and self-directed investors is that phone support is an area that has been an important focal point for improvement after the mega-delays experienced during the pandemic surge last year. Firms such as BMO InvestorLine and Questrade have been very public about their investments in increasing call centre resources to keep wait times low. Impressively, BMO InvestorLine also publishes wait time numbers on their customer login pages so clients can see how long wait times are.

Despite Robinhood’s launch of the new 24/7 phone support system, cynicism among clients and observers remains high.

The outages and trading restrictions are still fresh in the minds of many online investors who have weighed in on the Robinhood announcement, so getting it right on phone support will be key. The real test will come during times of market volatility, which have benefited them in the past, but going forward, will expose what they haven’t yet thought about as far as customer service.

From the Forums

Zeroing in on Commissions at Questrade

Heavy is the head that wears the crown. For the Canadian online brokerage that long held the title of the lowest-cost online Canadian brokerage, recent developments around zero-commission trading have raised questions from clients as to when Questrade will follow suit. Threads like this one on reddit are reflective of a growing chorus of investors looking for more value in a highly competitive market.

Not So Simple After All

Cryptocurrency trading – the direct way – seems to continue to present opportunity and controversy at one Canadian online brokerage. Wealthsimple Trade, which initially launched under the mantra of supporting “getting rich slowly” announced a recent development regarding cryptocurrency transfers that got online investors buzzing in this reddit post. The pivot for Wealthsimple towards cryptocurrency did not go unnoticed, and was the focus of this article in the Globe and Mail which also had a lot of people weighing in.

Into the Close

That’s a wrap on this holiday edition of the Roundup. There’s a lot that we didn’t get to this week (but that’s what leftovers are for right?), including a shout-out to World Investor Week. For Canadian self-directed investors, it might be a short week ahead but there’s no shortage of new developments on the radar (including a few generated by us!). However, between Squid Game, football, new movies starting to trickle out, and the unemployment rate dropping to pre-pandemic levels, it’s going to be quite the battle for attention regardless of what screen you’re watching from.

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Discount Brokerage Weekly Roundup – September 27, 2021

Now that the Canadian federal election is (finally) behind us, there’s little to distract us from the fact that the RSP season ramp up is just around the corner. If there is one thing that is synonymous with elections, however, it’s constant polling – something that has interestingly become a focal point in the online brokerage space as well.

In this edition of the Roundup, we review the launch of a new investor sentiment index developed by one of Canada’s largest online brokerages and explore where the upside of sentiment tracking may lie. Next, we take a look at some important updates on the zero-commission trading file, including a big name entering the US and an update to what’s unfolding here in Canada. Finally, there’s lots of new-feature buzz in the forums – from crypto to new mobile apps.

Tracking the Pulse of Investors: TD Direct Investing Index

Regular readers of SparxTrading.com know that we’re bullish about bulls and bears – and measuring self-directed investor sentiment. So, we were delighted to see one of Canada’s largest online brokerages, TD Direct Investing, announce this past week, the official launch of a new tool that measures investor sentiment.

The TD Direct Investing Index is a compilation of metrics that reflect the optimism (bullish) or pessimism (bearish) of self-directed investors based on trading behaviour from the prior month. The four key areas that comprise the index measure whether investors were:

  • Buying or selling more
  • Buying (or selling) more on a rising market
  • Buying more at the top of a market
  • Retreating to less risky investments

Like all indices, however, the details on the underlying methodology matter.

The specific definitions of these parameters are detailed on the TD Direct Investing Index help page as is information on the frequency of publication of this data (monthly) and information that is on the index web page.

There is lots of interesting data for self-directed investors to poke around, most notably historical data on the overall sentiment score. Historic data exploration comes in two views: the past 13 months or the previous two years. What is especially appealing to the data enthusiasts is the filter function which enables users to analyze age, regional, trading style, and sector data in fairly granular fashion. Data can be filtered across stocks being bought, sold, or held.

Ultimately, how useful this index is will come down to what individuals can do with this information. For example, will DIY investors make decisions about investing based on what they’re seeing other investors do, especially given the lag time? Will it help them (reliably) identify a good time to buy or sell? Potentially identify names of interest to invest in? Or is it just “nice to know” information that will add to the noise of numbers and stats to sift through?

Regardless of the usefulness this tool ends up having for self-directed investors, for TD Direct Investing, the creation of a sentiment index provides a rich source of content to be able to talk about.

The TD Direct Investing Index web page contains a lot of data and is coupled with a video segment that reviews that data as well. While this tool takes things to a new level of depth and complexity, TD Direct Investing is not alone in reporting the activity of their user base for a source of content.

Among Canadian online brokerages, Wealthsimple Trade, Questrade and RBC Direct Investing, for example, all have reported on what investors on their respective platforms have traded. None, however, have taken it to level that TD Direct Investing has. And, in the US, there are several examples of online brokerages taking a similar approach to reporting. TD Ameritrade has its Investor Movement Index and E*TRADE regularly reports data on investor sentiment as well.  

Robinhood was infamously the source of investor trading data. That data was available via API and sites, such as Robintrack, reported on the trading activity of Robinhood investors, which, in turn, enabled other investors to trade alongside (or against) that activity (before Robinhood shut down their API in August 2020).

The amount of work put into the TD Direct Investing Index is sizeable, which also means that it is likely going to take considerable effort to maintain. So, while other online brokerages might be able to put something like the index or another sentiment-like indicator together, sustaining it will require considerable resources.

For now, it seems like return on investment for the TD Direct Investing Index will be in marketing value. The fact that the index data is available on the public facing website (versus being made available only to existing clients) offers a reason to keep coming back to that site for anyone interested in the data it contains.

Ironically, the complexity and detail that make the index useful for analysis might also be its biggest limitation.

There is a clear trend in design among online brokerages and fintech firms towards simplicity and reducing information. The TD Direct Investing Index, however, has so much data that only investors who are highly invested (pun intended) in learning about DIY investor sentiment would really keep coming back to this tool on a regular basis. Despite the strong pun game and occasional Drake lyric references in the write-ups (shout out to the compliance folks for letting the mullet references through), there’s a lot of information to process, which might lead some readers to say…I can’t even. (Not us though.)

Zero-Commission Revolut-ion Continues

With zero-commission trading now table stakes among the largest online brokerages in the US, and despite the chatter about clamping down on payment for order flow by the SEC, there are still fintech companies taking a shot at entering the online investing space.

This past week, another big fintech name, Revolut, signalled their intent to offer commission-free stock trading in the US. Last month, PayPal was in the spotlight after they too were reportedly making progress towards launching a stock trading platform, and while it wasn’t specified as to whether or not they too would be a commission-free trading platform, it is almost a given at this point considering rival Square’s Cash App provides commission-free trading.

Despite the extensive regulatory hurdles to entering the Canadian online brokerage market, it seems that Freetrade, the UK-based zero-commission online brokerage we first reported on in August, is continuing to add to its search for Canadian talent to help expand here.

Earlier this month, Mogo Inc, who announced earlier this year that they, too, would be entering the commission-free online trading space, completed the acquisition of Fortification Capital, which is being renamed to MogoTrade Inc. According to the press release, Mogo’s founder and CEO, David Feller stated “The acquisition of Fortification represents an important milestone towards the launch of our new commission-free stock trading platform, providing necessary components on the regulatory and technology side to complement our existing capabilities.”

After the launch of commission-free trading by National Bank Direct Brokerage, there has been a lot of discussion among Canadian self-directed investors, as well as online brokers, as to what will happen next. While we’re generally reluctant to report on rumours, there is chatter of a large bank-owned online brokerage prepared to roll out commission-free buying of stocks and ETFs, which if true, would almost certainly trigger others to match. Rumours are also swirling about a “digital” bank in Canada also.

Internationally, it appears that zero-commission trading is continuing to gain traction, so it’s now a matter of when, and perhaps how, not if Canadian online brokerages follow suit. The trend emerging is that fintech firms view stock trading as one of series of financial services that they can offer, which sounds like a familiar value proposition to the traditional message pitched by big bank-owned brokerages.

That said, even in the case of Revolut stepping into commission-free stock trading in the US required a significant runway (almost a year) of discussion with regulators before getting the green light to proceed. For firms looking to enter Canada, that runway could be substantially longer and barring any big name jumping into the Canadian space (like a certain well-known US financial institution), the existing online brokerage providers have a bit of time to position themselves accordingly.

From the Forums

App Quest

Fall leaves aren’t the only things changing colours this season. Big changes are coming soon at Questrade, as mentioned in this post on reddit. Find out the reactions from self-directed investors to recent news of a new mobile trading app and changes to the web interface.

Tales from the Crypto

It appears the crypto trading experiment at Wealthsimple Trade is gaining traction. In this post on reddit, investors weigh in on the pros and cons of being able to deposit more crypto into their Wealthsimple trading accounts.

Into the Close

With the end of September now almost here, it is important to recognize a couple of important upcoming events. First, the National Day for Truth and Reconciliation offers a chance for all Canadians to learn about, reflect, and engage in dialogue about the harrowing chapter in our history related to residential schools. September 30th 2021 will also mark the second “Make the World Better Day” at Sparx, where our team will be taking on the challenge of using our time and talents to positively impact the world around us. Anyone curious about the day can follow the Sparx Publishing Group on Instagram for updates.  

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Discount Brokerage Weekly Roundup – September 13, 2021

During the pandemic, it’s understandable to lose track of time. Yet, there are some dates that stand out, such as September 11th, that are forever etched into the minds of those who lived through the terrible tragedies of that day. Despite 20 years going by, it is still a vivid memory for many, and though painful to reflect on, the lessons learned from that day show that hope can ultimately triumph over hate.

In this edition of the Roundup, we kick things off with a look at the new features that launched on SparxTrading.com to help self-directed investors and industry enthusiasts track and research the latest developments in the online brokerage space. Next, we report on the latest zero-commission trading chatter, with a potential big move by one brokerage and another big brokerage potentially not moving. As always, we have some interesting commentary from the forums, including the launch of cryptocurrency trading at one brokerage that rolled out abnormally quietly.

New Features at Sparx Trading

It’s been a big year of changes across the Canadian online brokerage industry as well as at Sparx Trading. In addition to recently crossing the 10-year mark, earlier this year we launched a new website, affectionately named SparxTrading 2.0, given that it had been around pretty much from the time that Sparx launched in 2011.

Suffice to say, we felt it needed a makeover to keep pace with the new world of online investing. Little did we know at the time, 2021 would also be the year in which so much would change in the world of online investing. It seems like our timing was about right when it came to prepping a new look and feel for a brave new world filled with new trading platform features, zero commission pricing, and new providers (coming soon).

This past week, we rolled out some important updates to the website which we think will help self-directed investors (as well as industry observers who want to keep up with what’s going on in the space) stay on top of the big changes heading into RSP season.

Investor Feedback Added to Online Brokerage Reviews

When it comes to researching online brokerages, one of the biggest questions online investors have is what other online investors have to say. Community is a huge part of the self-directed investor experience, however, navigating the different online sources and forums can be a bit daunting.

To help make accessing user feedback easier, we have now integrated comments made about each online brokerage on channels like reddit and Twitter and directly connected them to each online brokerage review. So, for example, the latest comments made by online investors about Questrade or Wealthsimple Trade on reddit appear at the bottom of each of these respective online brokerage reviews.

Given that some of these brokerages generate a lot of conversation online, we added the ability to filter by channel, so readers can focus on the conversation taking place on reddit or on Twitter. To help combat spam and other nefarious activities, we also have developed a filtering system, so users also don’t have to scan through the questionable materials to find the good stuff.

Finally, to make things easy to verify, we’ve hyperlinked each of the comments so anyone researching investor comments from our website can go directly to the reddit or Twitter post to see what the rest of the conversation contains.

Our system is designed to evolve and learn over time so while it is not perfect at filtering out or capturing all of what we’d like, it’s a great advancement and beats having to sift through everything about a single brokerage manually. It’s something we’re going to continue to tinker with to improve, but we’re really excited to see this feature now in action.

Deals and Promotions Section Gets Reorganized

When we first launched the deals and promotions coverage on SparxTrading.com, we were able to capture most of the information in an “at a glance” format using tables.

Unfortunately, even though our website was responsive (a big deal circa 2011-2015), the tables that powered our comparisons and the deals and promotions were not. Despite that being the case, these tables were really popular because they provided a birds-eye view of the different offers and promotions out there – a great feature for people who were browsing and for online brokerage staff who wanted a handy reference when comparing offers across the industry.

It was a big decision (and a huge amount of work) to completely refactor the deals and promotions section, but we felt it was worth it to deliver a more relevant user experience and make it more accessible to users on mobile devices. In the new format, self-directed investors can efficiently compare online brokerage promotions and offers using filters to pick what attributes are most relevant, whether that be minimum deposit amounts, account types, or offers from specific online brokerages.

In terms of the latest updates, one of the first things users will notice on the deals index page is that we’ve tidied up the design and user experience on the filter to perform more efficiently. Users can filter deals by deposit amount, online broker, account type, and deal type. Those interested in browsing can also view all deals by selecting all.

To keep advertising to a minimum on the website in what is sure to be an increasingly crowded advertising market, we wanted to find an alternative way to feature offers. There are now two spots at the top of the deals index results list for specific deals to be highlighted. These are offers that we might be compensated for either through affiliate revenue and/or via paid placement by online brokerages.

Featured Deals Snapshot

Finally, we’ve adjusted the design of the deals cards themselves to display promotions and essential information more clearly. Data about the deal, such as the minimum deposit, expiry date, and promo code, are readily visible at a glance and the details about an offer are easily expanded when needed.

We anticipate deals and promotions to play an even greater strategic role in how Canadian online brokerages navigate the new reality of a bank-owned online brokerage offering zero commission trading.

Case in point, we’ve seen a big bank competitor to National Bank Direct Brokerage, RBC Direct Investing, offer a 100% increase in the number of commission-free trades and the duration in which to use them compared to their previous offer. Specifically, new accounts at RBC Direct Investing can qualify for 50 commission-free trades for up to two years. Most passive investors will be challenged to use that up within the time frame, so those self-directed investors looking for the features of a bank-owned brokerage like RBC Direct Investing and don’t mind the premium commission price, will find a promo that can be used for up to two years compelling.

Also, there’s a lot that can happen within two years now that commission-free trading is starting to surface (see article below) and innovation among online brokerages is accelerating. Using deals and promotions strategically enables online brokerages in Canada to effectively delay the switch over to full zero-commission trading.

More Zero-Commission Trading Chatter

Another week, another big development in the zero-commission trading [storm] and another week in which other stories get bumped because zero-commission trading in Canada is kind of a big deal.

In a piece published this weekend by the French-language newspaper, Le Devoir, Desjardins Online Brokerage was reported to be waiving commission fees for clients last week. And comments in this reddit thread also seem to corroborate the reporting as well.

While we generally don’t report on rumoured activity, in our in-depth analysis of the launch of commission-free trading by National Bank Direct Brokerage, it was clear that the closest rival to NBDB would not have much choice but to either match the offer or make a substantial cut to pricing to defend its business.

There are few details to report on at this point, however, what has come through online investor chatter has been reports of clients contacting Desjardins Online Brokerage directly and having commission-fees waived. Until a formal announcement is made, there is likely to be a flood of calls and emails from clients requesting the same, which is why we expect to see a definitive (and formal) response rather quickly.

Currently, the standard commission at Desjardins Online Brokerage (aka Disnat) is $6.95 for the “Classic” option and as low as $0.75 per trade for the “Direct” option – typically the choice for active traders (defined as making more than 30 trades per month).

If confirmed to be true, the roll out taking place in this fashion is evidence that Desjardins Online Brokerage is being forced to respond quickly, and likely, reluctantly.

Unlike other online brokerages outside of Quebec, the local competition between National Bank Direct Brokerage and Desjardins Online Brokerage is extremely fierce. National Bank Direct Brokerage has set its sights on expanding nationally, which then justifies its move to zero-commissions because it can win the volume of business required to make commission-free online investing. For Desjardins, however, it does not seem like they have the same growth path in mind. With their stake in Aviso wealth, they can simultaneously cater to their core market in Quebec while continuing to benefit from higher commission pricing being charged by Qtrade Direct Investing outside of Quebec for however long that can be continued.  

Though clearly an important development, Desjardins Online Brokerage potentially being the next online brokerage after National Bank Direct Brokerage to eliminate trading commissions on equities and ETFs is still something the whole landscape of Canadian online brokerages can absorb. TD Direct Investing going to zero, on the other hand, would be a game changer.

This past week at the Scotiabank Financial Summit, comments by outgoing TD CEO, Bharat Masrani, revealed the executive view of going to zero commissions. Below is an excerpt from a discussion with Meny Grauman, Managing Director at Scotiabank, host of the virtual summit.

Meny Grauman

You talked about TD’s Direct Investing business, definitely yes, very topical. So I thought to just touch on that. National Bank and Wealthsimple going to $0 commissions and the question is, will TD match that offer? What’s the competitive response? How do you see this all playing out in the market?

Bharat Masrani

You know, Meny, we’ve been in this business I think we were the first bank in Canada to get into it in the mid ’80s I think. And, we’ve seen price compression come and go. We’ve seen lot of different sort of business models emerge out of it, and we’ve been able to manage it very well. So, is this a shocker? Absolutely not. Ours is a very large business, fully segmented and very integrated to the rest of the TD offerings. In fact, 80% of our direct investing clients have other TD products and TD relationships as well, so tells you how integrated we are.

Secondly, the offerings we have, from a very sophisticated options trading to a offerings for active traders, for offering for long-term investors, so you know there are offerings, there are specialized products available in each of these segments. And is it, I mean, you should, this should not come as a shock, but based on certain types of traders, we have special arrangements based on their needs and their offerings, and what value they need. And so, when we look at our trading commissions are taxed well, the reality is, depending on which segment you’re looking at, it could be less than that.

So I think it’s important to keep that in mind. So we feel very comfortable with our position, the offerings we have integrated with retail, the products that we offer, the services, if you look at thinkorswim platform, there’s nothing like that in the options trading business. And if a client needs that, that’s where they’re going to go.

And finally, I mean, there’s a lot of sort of, write-ups on this, but the overall commissions in this business represents about 1% of total revenues at TD. So we’ve got to keep this in perspective as to what it does to the bank, than to think that oh, my God, this is a major, major, I’m not undermining anything, every part of our business, I love every part of our business and the business model around it. But our job is to adapt to the environment we find ourselves in rather than hoping, wishing and praying that we go back to the good old days, that does not happen. And we have shown consistently that we will adapt, and we will adapt faster than others and I have no doubt that we will do so.

And another point I’d make, we just introduced TD GoalAssist, that’s a new offering there that competes very well, if a client is just requiring vanilla type of trading and services and then not the other value-added services that I just talked about. So important point is event that has occurred don’t want to underestimate as to what it means, but we feel very comfortable with the business model we have and the value proposition we provide to our customers.

There’s clearly lots to unpack from that statement, however, there are three specific data points of interest.

First, 80% of TD Direct Investing clients are also clients of other TD products and services. If this is true for TD, then it is likely comparable at other big-bank-owned online brokerages as well. The notion that Canadian self-directed investors would prefer to have the convenience of keeping all of their financial affairs at one firm is evident in that data point. The move by National Bank Direct Brokerage, therefore, is likely a play to acquire new customers that will then also want to simplify the management of their financial affairs by housing other financial relationships under the same digital roof.

The second point of interest is that revenues from commissions at TD represent about 1% of total revenue. For a finer point, as referenced in their last earnings call, the amount would be 50% of the broker dealer fees and commissions which last year brought in $860 million dollars and year to date have generated $849 million dollars. The “hit” that TD would incur, therefore, would be something that could be absorbed by the bank as a whole. For reference, TD generated $42 billion dollars in revenue in 2020 and almost $32 billion dollars year to date.

Third, and perhaps most instructive to those holding out for the big banks to make a move similar to National Bank Direct Brokerage and potentially Desjardins Online Brokerage, is that TD feels confident enough in their value proposition, in particular with their options trading platform and other elements, that they don’t need to rush to lower their commissions to zero. On this front, they’re happy to let others go first, which likely mirrors what at least one or two of the big bank online brokerages are thinking as well.

While TD is clearly stating they are ready to adapt (read: respond) if a sizeable competitor or peer firm moved to reduce their commissions substantially, self-directed investors hoping for a quick response to National Bank Direct Brokerage shouldn’t hold their breath. Movements by Desjardins Online Brokerage and potentially other smaller online brokerages seem to be inevitable in order to preserve market share. TD Direct Investing doesn’t really have to worry about that.

The rate-limiting factor, it seems, is how aggressively National Bank Direct Brokerage is prepared to advertise against competing brokerages while those online brokers maintain high commission rates. With more discussion and conversation on zero-commission trading to be almost a given, National Bank Direct Brokerage will likely be heavily referenced in that discussion, earning them a big discount on the media exposure.

That said, picking a fight with all of the other Canadian online brokerages this far ahead of the RSP season still gives competitor firms a chance to respond. And they will.

Had National Bank Direct Brokerage dropped this news in October or November, other Canadian online brokerages would have been hard-pressed to pivot their campaigns and advertising buys quickly enough.

With a few extra weeks of lead time and a healthy fiscal year performance across the board, there just might be enough capital and circumstance to warrant some pretty interesting fireworks this year. And it seems the best place for that might just be the deals and promotions section. Here’s hoping.  

From the Forums

Interactive Brokers Crypto Trading Launch

After a lot of hype around cryptocurrency trading being available at Interactive Brokers around September of this year, the actual launch of this feature was abnormally quiet. No coverage (yet) on major media but in this reddit post, online investors took notice (and we did too). More to come on this story but check out the early reactions.  

Crunching the Numbers on Motley Fool

As a very visible source of information about different investing opportunities, Motley Fool is a recognizable name among online investors. In this interesting post on reddit, one individual shared their analysis of whether the forecasts from Motley Fool lived up to the reality when it came to portfolio performance.

Into the Close

Apparently, there is lots to say (and still more to come) when it comes to zero-commission trading. There are other fascinating stories unfolding across the online brokerage space, so we look forward to highlighting those as well. At a certain point we can probably defer the reporting to a DJ Khaled meme. Until then, however, there’s lots going on between the launch of football (NFL) and the final stretch of the Canadian federal election (where people toss political footballs and, occasionally, pebbles). Whatever you’re focusing on this week, we hope you find some reasons to stay positive!

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Discount Brokerage Weekly Roundup – August 30, 2021

Truth be told, it was supposed to be a vacation edition of the Weekly Roundup. However, National Bank Direct Brokerage’s big news this week managed to make a lot of folks in the online brokerage industry in Canada put any plans for taking time off on hold (including mine).

It’s fitting that this special edition of the Roundup focuses on just one big story: the move to zero commission trading by National Bank Direct Brokerage. We’ll return with more stories next week (there were actually other things that happened too!) as well as more investor forum chatter.

Caveat: We were going to keep this initial coverage of the price movement short (well at least as short as we could). After poring over 1,000 user comments, as well as different news reports, articles, and forum posts, there’s lots to say here, but in the interest of keeping things manageable, we’ll focus on some of the initial developments and implications. Not to worry though, there’s lots more to unpack, so stay tuned.

National Bank Direct Brokerage Eliminates Trading Commissions

In case you missed it on the news, social media, and in the investor forums, National Bank Direct Brokerage made history this past week by dropping standard commissions for equity and ETF trading to zero. That’s right, the first big bank-owned online brokerage in Canada chose the “nuclear” option on pricing by eliminating trading commissions.

While it is still early days, saying this is a game changer would be an understatement.

Change, however, is unlikely to come as swift as it did in the US during their zero-commission wave in 2019, but the latest move by National Bank Direct Brokerage is sure to put pressure on all Canadian online brokers to seriously consider taking drastic measures to respond.

A History of Making Pricing Moves

Commission price drops have been a part of the trends at National Bank Direct Brokerage over the past several years, and even earlier this year. And yet, in looking at the roll-out of the new commission reality, one gets the sense that this decision was both a long time coming and pushed forward quickly to come to market this year.

For a bit of a history lesson, the zero-commission trading conversation at National Bank Direct Brokerage has been happening for longer than most online investors would think. In a bit of a personal anecdote, I recollect having a meeting with a senior executive at National Bank Direct Brokerage (NBDB) back in the spring of 2017 in which commission-free trading at Robinhood came up. At that time, it wasn’t seen as something that would gain traction with the industry, however, later that summer, NBDB launched zero-commission ETF trading on all Canadian and US ETFs. Prior to that, there were only short stints at NBDB where commission-free trading of ETFs were offered as a promotion, probably as a means to analyze the impact and popularity of this feature.

In October 2019, they dropped the pricing from $9.95 to $6.95 for National Bank clients, offered young investors (aged 18 to 30) commission rates at $4.95, and gave active investors an even lower rate of $0.95 per trade for 100+ trades per quarter. Earlier this year, in March, we also reported on a commission fee drop from National Bank Direct Brokerage in which the regular commission fee was lowered to $6.95 per trade for everyone. Incidentally, October 2019 was also the point in time when US online brokerages also embraced zero-commission online trading more broadly.

If there is a pattern emerging, it is that National Bank Direct Brokerage has been quietly gathering data on the zero-commission thesis over the past few years. It is a bold move to be “the first” one to make the move to zero, however, they clearly had a lot of information on which to place this bet.

While the timing is a bit of a mystery, the reality is that it was going to be a matter of when, rather than if, online brokerages moved to zero-commission in Canada. And, as a brand that wanted to expand its footprint across Canada, as well as its position in the hierarchy of online brokerages in Canada, going to zero commissions provided much more upside to NBDB relative to the downside.

Being the first one to do it, gave NBDB the spotlight and enabled them to set the pace of change. Case in point, everyone in the online investing community weighed in on the move.

Having covered this space for almost a decade, there are few moments in the Canadian online brokerage industry that have garnered as much interest from news outlets, social media, and investor forums alike. In fact, the news also made it to several bank earnings calls which happened to fall in the same week as the announcement. It’s safe to say that has never happened before here in Canada.

Not Everything is Free

Despite eliminating the commission charges for stocks and ETFs, National Bank Direct Brokerage did not entirely eliminate commission fees on trading options or inactivity fees.

In terms of options commission, the fixed commission cost component to the options trading commission trade has been eliminated, however, there is still a minimum charge of $6.95 per options trade and pricing per contract remains at $1.25.

That said, it is worth reviewing the revenue segmentation for Robinhood’s earnings which we covered last week, where it clearly shows that when it comes to commission-free trading, the product mix tends to favour options trading over purely stock trading. Options trading is also a lot more profitable for online brokerages than stock trading is, so there is some economic utility to keeping charges for that product intact. Although NBDB does not have all the bells and whistles or order types available on options trading that other brokerages support, the reality is that for simple strategies the functionality is there.

There are also still account maintenance fees. The annual fee of $100 for balances that are less than $20,000 still applies, as does the conditions in place to have them waived. Users can have the inactivity fee waived if they make five stock, ETF, or options trades in a year (between June 1 and May 31 of each calendar year). One source of confusion online initially was when the term “commissionable” was left in one of the conditions (it has since been updated).

Getting used to the realities of zero commission trading also means changes to the old way of doing things. One casualty is promotional offers. The 100 commission-free trade deal is no longer relevant (it was set to expire at the end of September anyway), and while it can’t be ruled out altogether, there is a low probability that cash back offers at NBDB are showing up anytime soon given the surge in interest from self-directed investors curious and relieved at this new option.

What Does This Mean for Self-Directed Investors?

Speaking of self-directed investors, the launch of a full commission-free trading experience with no limits or special conditions on US stocks or specific trading requirements is huge. The chatter online exploded as the news broke early last week, offering a rare glimpse at the various attitudes of many different types of investors all at once.

It is of little surprise to see how much interest there was online, especially in forums on reddit and RedFlagDeals.com that a bank-owned brokerage is offering zero-commission trading. What was surprising, even seasoned veterans, like Glenn LaCoste of Surviscor, was that a bank-owned brokerage that led with this change rather than a smaller competitor.

In fact, it is almost hard to put into words just how explosive the reaction was from retail investors to the news. While it is difficult to summarize all of the fascinating points raised by self-directed investors online, it is incredible to see that even with zero commissions, there are other features that Canadian investors value, something that could turn out to be an Achilles’ heel for broader adoption of commission-free trading at other online brokerages.

Nonetheless, in the weeks ahead, NBDB will likely be tested with a crush of new account opens. From transfers to new accounts outright, the wave of interest is more like a tsunami that will only continue to gather strength as news ripples through investor forums. It is especially attractive to younger investors (under 30) who are not subject to the minimum account balance requirements, and, thus, have almost no downside of opening an account to try out NBDB.

For very active investors and traders, the economics of this make far too much sense to pass up as well.

Granted, options traders and those using margin will still put Interactive Brokers high on their list, however, no other online brokerage in Canada is offering the competitive offer that National Bank Direct Brokerage currently is. Again, this is a major coup for NBDB across almost all segments of investors, including those fed up with paying lots of commissions for what they consider to be an “average” digital experience.

The two most fascinating angles (it is hard to narrow this down to only two), however, have been online investor reactions and the real-time test of how important mobile apps are to investors.

With well over one thousand investor comments and counting, the conversation around NBDB’s price drop contains many themes. High up on that list is the reaction that many online investors had were they contacted their existing online brokerage to ask whether those brokerages had any plans whatsoever to offer similar pricing.

That so many online investors did this was interesting for two reasons.

First, it revealed the different answers from online brokerages around this issue, ranging from “we’re thinking about it” to “nope” (paraphrasing a bit here). In some instances, online brokerages that offer lower commission prices were willing to lower the commission rates generally reserved for active traders to non-active users. In other words, online investors at certain online brokerages are apparently able to request a discount and get one.

The second reason it was so fascinating is because it revealed a nuance about the Canadian online investor which is that here (perhaps unlike in the US), investors are willing to ask questions first then make a move, rather than move quickly based on price alone. Underpinning the “ask first” approach is likely the hassle of having to move accounts, which online investors are apparently willing to endure depending on what they hear back. It was really interesting to see online investors publicly offer up “ultimatum” dates to their online broker to get zero commission trading announced by a certain date otherwise they would move altogether.

Another big point of interest is whether or not a mobile app matters more than low cost to the online investing experience. National Bank Direct Brokerage has web-based trading interface that works on mobile but does not have a dedicated mobile trading app, something that younger investors have – up until this point – been insistent is the marker of a great online investing experience.

It also important to note that the most active (and vocal and influential) online investors use their desktops or laptops when trading online. Users need or want multiple monitors when trading, especially for charting and scanning lots of news. Phones don’t do that nearly as well, so the traders that influence opinions for investors online are going to be driven by the web or desktop experience rather than the mobile one.

As the old adage says, money talks. And while NBDB is not in the same league as Wealthsimple Trade for mobile trading app user experience, the reality is that the mobile experience for NBDB (especially for the price) is “good enough.”

Again, for the sake of brevity, there is a lot to the investor reaction we aren’t reporting here, but suffice to say that all bank-owned online brokerages have likely seen a flood of questions from their clients asking about matching, as well as online brokerages in general receiving account transfer requests from clients looking to move their business to National Bank Direct Brokerage. Online investors are no longer caught between having to choose either low prices or bank-owned brokerage convenience; they can now have both.

What Does This Mean for the Canadian Online Brokerage Industry?

We’ve said it a few times, but it is worth underscoring that the commission price drop by NBDB is a game changer. Who it impacts and how immediately, however, is something we’ll be watching with intense interest.

The first online broker that lots of users have mentioned as being impacted by this decision from National Bank Direct Brokerage is Wealthsimple Trade.

Wealthsimple Trade

Though Wealthsimple Trade has tried to build its brand as the zero-commission online brokerage, the reality for their model is that trading in the US comes with some punishing forex transaction fees. This latest move by NBDB has earned accolades for being able to offer the full list of securities on the major US exchanges as well as the Canadian ones rather than have them subject to restrictions set by the broker. Already, however, sentiment among self-directed investors has put NBDB ahead of Wealthsimple Trade in a number of cost-sensitive categories.

Big Bank-owned Online Brokerages

If there’s any group that could defy gravity on commission pricing just a bit longer in Canada, it is the big five bank-owned online brokerages.

Arguably, the two biggest players, TD Direct Investing and RBC Direct Investing are in the best position to not have to go zero commissions right away given their strong set of features and platforms. Responses from frontline reps, as well as from senior TD and RBC executives on earnings calls, seem to support this view.

Remarks from Teri Currie, TD’s Group Head of Canadian Personal Banking, reveal a rough estimate of what the cost might be if TD went the route of full commission-free trading, as well as what the current sentiment is on them moving price.

It is worth pointing out that the last time that the Canadian online brokerage industry saw a major repricing was in 2014, however, Scotia iTRADE managed to hold onto its 19.99+ and higher commission structure until 2019, which is a long five years for many investors.

After just launching commission-free ETFs, BMO InvestorLine might also take a wait and see approach to the commission drop rather than be the next to dive into the pool, or it might, like National Bank Direct Brokerage did, elect to start dropping prices gradually or with a really compelling promotion to buy some time heading into RSP season.

Of the big five bank-owned brokerages, CIBC Investor’s Edge, already a low-cost option, could arguably have to concede to a lower price point per trade first because it does not have the same depth of features or platforms that are currently being offered by its competitors.

Questrade

Speaking of low-cost leaders, Questrade has emerged as a popular option for value-conscious online investors, so the latest move by National Bank Direct Brokerage to eliminate trading commissions is definitely a blow to the title for Questrade.

There are scenarios in which Questrade might be able to delay dropping commission pricing, however, in all likelihood, despite having a compelling brand, Questrade has sought to be a low-cost option and doing nothing doesn’t seem like an option nor does trying to reposition itself as a technology or platform leader. It has invested substantial resources in marketing themselves as a low-cost provider – if not THE lowest cost provider – so for fee-conscious online investors, they will likely be looking to Questrade to move quickly otherwise it will be investors who will do the moving.

Everyone Else

With the exception of Interactive Brokers, all other online brokerages in Canada will have to seriously reevaluate their pricing heading into the fall and 2022. There aren’t that many other online brokerages in this category, but the strength of brand, convenience, or features just isn’t there the same way it is for other online brokers.

What’s Next?

Where things go from here is somewhat safe to say; when, however, is a different story. The story is still unfolding but anyone who’s made it this far can attest to, there’s lots to unpack here.

The likely scenario we see playing out for now is that online investors will be adding National Bank Direct Brokerage to their short list of online brokerages to consider. There is quite the uphill battle NBDB faces in terms of building awareness of its platform, so it would be safe to assume there’s some big marketing pushes coming in the next few months. Even with the huge surge in online investor interest, National Bank Direct Brokerage is just not well known enough to have online investors immediately jump ship from their existing providers.

The early adopters of NBDB will serve as important points of influence to the curious, however, the good news for NBDB is that there is likely a high enough surge in new account openings that some portion of those individuals will be writing about their experiences.

As for the rest of the online brokerage industry, given where we are in the calendar year, the existing marketing plans that have been devised heading into the end of the year are going to have to be rewritten. While several online brokerages have probably got a “playbook” on how to respond to a zero-commission offering, the next few weeks and months will reveal how extensive that playbook is.

Although it has come as a surprise that National Bank Direct Brokerage was the first big bank-owned online broker to reduce equity and ETF trading commissions to zero, the reality is they’re well-rehearsed in making pricing moves while continuing to improve their service offering. By going first, they have certainly earned the attention they are now getting, however, they are also fighting the pull off some powerful forces among consumer behaviour to stay with their existing online brokerage firm.

Despite the forecast for other brokerages to adopt zero-commission pricing, one thing is clear: the longer other brokerages wait to go to zero, the more impatient online investors will get. Unlike the world before last week, Canadians have now woken up to a new option for trading online and no longer have to wait to take advantage of it.

Into the Close

Thanks for tuning in all the way! There’s still more to this story so be sure to tune into what is likely going to be a wild ride through the end of the year and into next. For now, try and recharge as quickly as you can; it seems the forecast is for activity at Canadian online brokerages to surge, thanks to the move by NBDB.

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Discount Brokerage Weekly Roundup – August 16, 2021

The dog days of summer are here, but rather than find some shade to curl up and relax in, it appears that those Canadian online brokerages who want to get a head start on the busy upcoming fall season have been working themselves to the bone.

In this edition of the Roundup, we look at one Canadian online brokerage that has been busy dropping new features like they’re hot (bonus points for the Dogg reference) in the lead up to September. Feature dropping is also the focus of a quick update at another popular brokerage, and we report on an elusive new promotion that was spotted briefly in the wild. As always, we peek at what DIY investors were bantering about in the online investor forums.

Qtrade Direct Investing Ramps Up New Feature Activity

With fall just around the corner (check Costco if you’re skeptical), Qtrade Direct Investing has been busy preparing by launching a flurry of updates and enhancements to various features and offerings. This month, we’ve spotted a new commission-free promotion, updates to their commission-free ETF program, and new faster account opening options. And it’s only halfway through August.

Following their big rebrand to Qtrade Direct Investing earlier this year, it appears that this popular online brokerage has accelerated the pace of new features heading into the second half of 2021. Across the online brokerage space in Canada, we’ve noted several online brokerages start to launch new features in what is gearing up to be an intense stretch this RRSP season.

Qtrade’s Commission-free ETFs Get Upgraded

For almost 10 years, Qtrade has been one of a small number of Canadian online brokerages to offer completely commission-free trading on a select number of ETFs.

We dug into the SparxTrading.com archives and found a profile comparing commission-free ETFs at four Canadian discount brokerages in 2013, and at that time, Qtrade had a selection of 60 ETFs available to investors.

Over the years, Qtrade Direct Investing eventually expanded the list to over 100 ETFs (105 as of publication of this article), so the current offering shuffles the deck on the names of ETFs included on the commission-free list. Among the popular Canadian listed offerings for online investors: iShares Core Equity ETF Portfolio (XEQT), iShares Core Growth ETF Portfolio (XGRO), and iShares Core Balanced ETF Portfolio (XBAL) to name a few.

The most important change to come to this program, however, is that Qtrade Direct Investing no longer requires a minimum purchase value amount of $1,000 to qualify for commission-free status. Although investors will have to be signed up for eDocuments and hold their purchases for at least one business day to qualify for commission-free status, for non- day traders, the Qtrade selection of commission-free ETFs offers a competitive list for investors to consider.

The combination of new, highly sought-after ETFs and the lower threshold to be able to trade them is a potent one and has already caught the attention of self-directed investor chatter (see forum post below). Interestingly, what stood out in the conversation among online investors is that a number of comments included references to online investors having multiple brokerage accounts for different purposes. In many cases, online investors are building a portfolio of online brokerages to keep their trading costs for certain types of accounts or styles of investing under control.

Now that there are more Canadian online brokerages, such as BMO InvestorLine or TD Direct Investing through their GoalAssist, offering some kind of commission-free ETF, self-directed investors have a lot more choice and can decide whether or not this is a feature to switch brokerages for or simply open up a new account.

Account Opening Gets a Facelift

Speaking of opening up a new account, one of the biggest pain points for online investors during the huge volatility of stock markets in 2020 and the meme-stock action in 2021 was quickly opening up an online investing account.

Strange as it may seem in 2021 to be talking about innovation in opening up online accounts, the reality for Canadian self-directed investors is that there are still lots of hurdles to opening and funding an online trading account quickly.

At Qtrade Direct Investing, however, at least one of these hurdles has been cleared with their new account opening feature that enables users to open accounts online and use face verification to confirm identity during the process. The consequence: faster account opening.

Although market volatility has markedly decreased compared to earlier this year, there is clearly something different about the way in which stocks are trading. The first week of trading at Robinhood is evidence enough of that.

If there was one great lesson across the past 18 months of investing online, it was that Canadian online brokerages need to be ready to scale up the responsiveness of all of their systems to meet investor demand. When a major event happens – be it an IPO, market crash, or meme-stock frenzy – online investors will seek out whichever online brokerage enables them to trade the fastest and most cost effectively (generally in that order).

The latest move by Qtrade Direct Investing to improve their online account opening experience is an important one, especially when trying to connect to younger investors. Being able to complete the account open process end-to-end on with a smartphone rather than have to fuss over printing anything is going to inevitably be something investors talk to one another about. And with several notable online brokerages already enabled to open accounts digitally, the race is on for other online brokerages to catch up before the next big thing comes to market.

Online Brokerage Quick Scan

Wealthsimple Trade Auto Deposits

Hardly a week goes by (or so it seems) that Wealthsimple Trade isn’t making waves by launching new features. If part of the culture to look and feel like a tech company is to constantly be launching new functionality, then Wealthsimple certainly fits the part.

Earlier this month, Wealthsimple quietly rolled out auto-deposits to enable users to automatically schedule contributing money into their accounts. While it may not seem revolutionary or even a feature that many investors are clamouring for, it nonetheless is strategically an important one for Wealthsimple Trade to reduce the friction on getting assets to flow towards them instead of to somewhere else.

What was interesting, however, was not the feature itself but that the rollout was done quietly then ramped up quite significantly to appear in ads across various digital channels. This is a signal that Wealthsimple wants users to be aware of this feature. Also curious was the extent of discussion of this feature among self-directed investors.

Again, it warrants stating that scheduled deposits aren’t high on the shiny features that online investors (especially the vocal ones on social media channels) are trying to push for, which is what makes the response and conversation about the feature seem disproportionate.

Buried in the investor commentary, however, is a fascinating insight: there are a number of platform users that were able to take small amounts to get started investing with, and through disciplined behaviour, accumulate something they felt was substantial enough to want to continue to grow.

If there are any financial planners or online brokerages reading this, there should be a few bells ringing. The notion that all millennials are fiscally irresponsible and blowing their discretionary money on avocado toast or longshot “investments” is simply untrue. There are clearly segments of this demographic (at least that take to reddit forums) that are keen to put themselves on track financially and want the barriers to participating in that financial growth removed.  

Though the math might be challenging to do, the positive impact of users recommending an online brokerage to their friends/family or anyone who’ll listen is clearly important. Wealthsimple Trade’s latest feature drop shows that they are winning the PR battle with other online brokerages, and by reducing barriers to participating in markets, actually enabling online investors to become established enough financially to want to invest more.

While incumbent Canadian online brokerages may choose to look past the “start small” segment, as it turns out, there are a lot of younger investors who are prepared to pace themselves when it comes to getting wealthier, and they will remember who helped get them there.

RBC Direct Investing’s Elusive New Promotion  

Another interesting highlight for regular readers of the Weekly Roundup is a new offer from RBC Direct Investing that was spotted in the wild. Unfortunately, it has not resurfaced from the first time it crossed our radar, but we did manage to snag a couple of screenshots of the new commission-free promotion.

This elusive deal, which runs until September 30, featured 50 commission-free trades from RBC Direct Investing, something more than what we’ve seen them offer in the past. Also, and this was particularly important, the commission-free trades were good for up to two years. The longest we have seen to date has been commission-free trades be good for one year.

Commission-free anything is all the rage as new online brokerages encircle the Canadian space and are awaiting their turn to bring zero-commission trading to the mainstream self-directed investor. For the moment, Canadian online brokerages who do not want to take commission rates to zero can offer alternatives, like commission-free trade promotions or commission-free ETFs.

Whether or not this deal resurfaces, it is clearly a signal that online brokerages – especially bigger players in the space – are pushing the envelope on competing promotional incentives. This bodes well for online investors heading into the end of the year when the ramp up to RSP season begins.

As we’ve seen this year, there have been lots of new features launched and it is likely that trend will continue. In order to get attention from online investors about these new features and enhancements, however, the likely scenario we’ll see unfold is a lot of effort spent on marketing, promotion, and new incentives.

From the Forums

Asking for a Friend

When it comes to order execution and routing, the vast majority of Canadian online investors don’t pay much attention. There are, however, a vocal and influential minority of investors on social media channels that do care, and in this post from reddit, it is fascinating to see the number and intensity of responses from online investors who want their trades to be able to be routed to famous “speed bump” exchange, IEX.

Qtrade Adding ETFs

If there’s one thing that investors in online forums enjoy, it’s a good ETF discussion. In this post from reddit, investors were smiling at the recent update to Qtrade Direct Investing’s commission-free ETF offer. Tune in to read more about their reaction to the launch and for some revealing habits of online investors wanting to keep their trading costs under control.

Into the Close

That’s a wrap on another week. If you think you’ve had a wild week, it’s worth having a read about the largest hack of cryptocurrency ever and then the subsequent return of almost all of it. Didn’t see that coming. Of course, as this (and last) year have shown, anything can happen when it comes to trading online. Here’s hoping for another interesting week ahead!

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Discount Brokerage Weekly Roundup – July 12, 2021

Seems like soccer and hockey players aren’t the only ones working overtime this summer – online brokerages are keeping themselves (and their competitors) very busy. While there might not be any big trophies or awkward press conferences, it seems like there is no shortage of things for online investors to be cheering about this summer.

In this edition of the Roundup, we highlight the biggest small development: the arrival of fractional stock trading in Canada. Next, we dive into a fee drop announcement that appears to be a much bigger deal than it seems. As always, we wrap up with DIY investor chatter from the forums.

Fractional Shares Now Available at Wealthsimple Trade

Thirteen isn’t usually considered a lucky number, but for Canadian DIY investors, it just became one.

This past week, Wealthsimple Trade launched fractional share trading in Canada (albeit on a limited basis), and as result, the landscape of online trading appears to be poised for yet another big change.

Although the list of stocks eligible for fractional stock trading is small, by introducing fractional share trading to mainstream investors in Canada, Wealthsimple Trade has managed to take yet another highly sought-after feature from the US online brokerage space and make it a reality for Canadian DIY investors.

Ever since fractional share trading became commonplace among mainstream US online brokerages, such as Schwab’s “Stock Slices” and Robinhood’s fractional share trading program in late 2019, Canadian DIY investors have been vocal about wanting this kind of feature to be launched by Canadian online brokerages.

This launch is yet another example of Wealthsimple Trade following the lead of US online brokerage Robinhood in delivering online brokerage services in a commission-free way. It also comes at a time in the Canadian online brokerage market when new features and value-added offerings are flooding the market. Given how popular this latest release will be, however, other features being released by brokerages are now going to have to compete even harder for user attention.

There’s lots to unpack with this latest announcement by Wealthsimple Trade, perhaps the most significant being that the die has been cast for fractional share trading here in Canada.

To tease out how the rest of the online brokerage field might respond, it is valuable to look at some context around fractional share trading, especially focusing on who this feature is most appealing to.

To level set, fractional share trading is when online investors can purchase a fraction of a share instead of a whole share. In some dividend reinvestment schemes, investors have been able to do this with dividends but never when buying a stock that doesn’t offer a dividend.

The primary appeal of fractional share trading is that investors with limited assets can still participate directly in purchasing shares of companies whose stock prices might be quite high. For example, one of the names on the list of eligible stocks, Shopify, is currently trading at almost $1,863 per share (closing price at the time of writing), which would require an investor to pony up at least this amount to purchase one whole share. With fractional share trading, investors can now own the amount of a stock that they can afford to buy.

Clearly, fractional share trading is not something that ultra-high net worth clients might be interested in as much as DIY investors who are just starting out, or who have modest investable assets. And that, it seems, is a key driver behind why we’re seeing fractional share trading at Wealthsimple Trade before we’re seeing it elsewhere – they’re deliberately launching features that would appeal to their core customer demographic base. Although the target audience for Wealthsimple Trade is younger and therefore not flush with a large amount of investible assets (yet), the reality is there is a very large target audience to who this applies, which provides the scale required for a program like this to be economical for Wealthsimple Trade.

Another interesting angle to this launch is that Wealthsimple Trade opted to have only four Canadian securities and nine US-listed securities to start. Of the four Canadian stocks, Shopify seems like a shoe-in based on its price and trading volume, but the remaining three choices seemed somewhat arbitrary. Even if Royal Bank and Canadian National Railway could be attributed to the combination of relatively high price and high liquidity, TD Bank – which at last check was trading at $84.70 – is lower in price than say BMO or CIBC, so it is curious as to why the one bank was included in the first list and not several others. It was also curious to see why only four names made the starting grid in Canada, but twice as many in the US.

Based on the business model of Wealthsimple Trade, offering up more choices for investing in fractional shares in US-listed stocks makes sense. Not only are there more “high priced” stocks to choose from to be a part of this program, but Wealthsimple Trade stands to make more money per trade (1.5% foreign exchange fee) for US-listed stocks.

And therein lies the fly in Wealthsimple Trade’s “low cost” ointment.

There is a growing “awakening” taking place among online investor communities that while Wealthsimple Trade’s zero commission pricing is a good deal for Canadian investments, it can actually be more expensive than a traditional online brokerage for US-listed stocks. The fractional share trading model unfortunately does nothing to alleviate that situation for smaller investors, and gives them the unenviable choice to pay a premium to participate on a fractional basis, or to use an ETF to obtain fractional exposure (potentially at another online broker).

There is no doubt more buzz to come around fractional share trading at Wealthsimple Trade. Competitor Canadian online brokerages are almost certainly going to have to follow suit in much the same way that several US online brokers did when fractional share trading went live in the US. That said, until Wealthsimple Trade changes their business model to allow for more competitive pricing to trade or invest in US-listed securities, incumbent Canadian online brokerages have a narrow window of opportunity to highlight their own cost efficiency in this regard and bring to market the ability to trade fractional shares.

We don’t anticipate Wealthsimple Trade’s list of eligible stocks for fractional share trading will stay at 13, however, the longer they keep their pricing for US-listed securities in place, the unluckier they may become.

Interactive Brokers Eliminates Inactivity Fees

If there’s one thing that online investors collectively enjoy hearing about, it’s a fee drop. Interactive Brokers announced this past week that effective July 1, 2021, they are no longer charging the $10 per month of inactivity fees to their clients. News of this move made a big splash.

While inactivity fees are sometimes a deal breaker for beginner or less active investors, at Interactive Brokers, their core customers have usually been highly active investors or day traders. So hitting the $10 per month in commission spend or having more than $100K in assets was not much of an issue.

Data from their most recent monthly metrics reveal, for example, that clients are averaging 500 trades per year for 2021 (estimated from the annualized Daily Average Revenue Trades or DART data per account for the first six months, and then averaged), which works out to about 2 trades per day – a threshold that would handily get most clients past the $10 per month in commission fees generated. As such, inactivity fees are likely not a material source of revenue for Interactive Brokers – although the impact of this move will be something we’re looking out for on their next earnings release.

Despite the $10 fee per month not necessarily being relevant to active investors, for passive or less active investors, the fee was a point of contention. It was interesting to note that coverage of the fee drop made it to Barron’s magazine, and among Canadian online investors, there was significant chatter about the decision to drop the monthly fee.

It is helpful to note that among online investors in DIY investor forums, Interactive Brokers is (and has been for many years) a very popular recommendation among active and value-conscious investors. With low commission charges and incredibly low margin rates compared to peer firms, one of the few things that kept coming up among online investors as a strike against Interactive Brokers was the inactivity fee. Thus, while it is not surprising to see some level of discussion take place about this latest development, it is remarkable that there is THIS much discussion about it.

As it happens, there’s a good reason for Canadian online investors to be extra happy about the inactivity fee drop.

Inactivity fees are one place that TFSAs are susceptible to being charged. Given the contribution limits and the caution against over trading in a TFSA account (lest one catch the ire of the CRA), it seems only natural that this account type at Interactive Brokers would attract inactivity fees (a similar case could be made for RRSPs as well for many investors). As such, inactivity fees served as a major deterrent to investors being able to consolidate accounts with Interactive Brokers until now.

Although it might be a function of the demographic that both trades online and who frequents reddit, the names that continuously came up in forum threads alongside Interactive Brokers were Questrade and TD Direct Investing.

Like Interactive Brokers, Questrade and TD Direct Investing also allow for options trading, which is typically associated with active investing. One of the quirks that characterizes Canadian DIY investors is that they often have more than one online brokerage account – with different accounts at different providers serving different purposes.

With this latest announcement from Interactive Brokers, it is likely that both Questrade and TD Direct Investing are going to see existing clients – especially active traders – move some of their other less active registered accounts over to Interactive Brokers. In industry lingo, it means that Interactive Brokers is poised to win a greater share of wallet.

For DIY investors, it won’t necessarily be all upside though.

If online investors aren’t mindful of transfer fees, leaving one brokerage to go to another could incur some non-refundable transfer fees. Unlike most Canadian online brokerages, Interactive Brokers doesn’t cover the transfer fees charged by another online brokerage. As the tweet below shows, it’s because Interactive Brokers doesn’t charge them when clients transfer out, and as such, IB doesn’t believe they should pay for them when other brokers charge them.

Another feature that investors used to the bank-owned online brokerage experience may not factor in is data subscription fees. At some online brokerages in Canada, data fees are included for level one or two quotes. At Interactive Brokers, however, clients must pay extra for snap quotes or real-time data, which drives up the cost for the casual user.

Despite Interactive Brokers’ largely active trader customer base, the elimination of an inactivity fee will likely have a positive impact on those Canadian clients who have multiple types of accounts with Interactive Brokers, or who have until now elected to not have less active accounts.

The fact that something as seemingly benign as the removal of an inactivity fee has generated as much discussion as it has points to there being significant user interest to consolidate some or all eligible accounts into Interactive Brokers.

As is the case in the US, around the world it appears that Interactive Brokers is squaring off against low-cost players that can attract less active or less affluent clientele. By reducing the hurdle to being a client, Interactive Brokers is embarking on an interesting direction to become much more appealing to mainstream investors than a niche trader-focused tool. In Canada specifically, this small but important fee change appears to be enough to trigger a wave of account transfers, and as a result, we expect to see some interesting developments in the active trader segment in response.

From the Forums

Need Some Pace

The innovation game is tough, especially among Canadian online brokerages. In this post, one user laments a perceived lack of innovation at a popular online brokerage once seen as cutting edge.

Storied Service

One thing is true about social media, folks aren’t shy to complain about what is not going well. For that reason, this post on reddit where someone took the time to relay their positive service experience at an online brokerage, stood out as unusual.

Into the Close

That’s a wrap on an especially nail-biting week (at least for sports fans). Of course, heading into earnings season (again) with economic data looking especially bullish and vaccination rates continuing to creep higher, there’s likely no shortage of excitement coming. Here’s hoping you find a fun way to stay cool and take time out to enjoy a treat (or two)!

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Discount Brokerage Weekly Roundup – June 28, 2021

There’s no doubt about it, summer is here. While the prescription for most folks is to take it easy, online brokerages have been doing anything but resting up so far this year.

In this month-end edition of the Roundup, we focus on the launch of a new trading dashboard by a big bank-owned online brokerage who is hoping to make strides with the active DIY investing crowd. More new features abound as we highlight announcements at popular online brokerages and some associated chatter from the DIY investor forums.

RBC Direct Investing Launches New Trading Tools

As any seasoned online investor knows, being adaptable and capable of change is a prerequisite to finding new and interesting opportunities to invest in. That said, when it comes to the platform and interface used to pursue those opportunities, changing things around can often be a stressful affair – especially for those individuals who like to have things “just so” or who are familiar enough with the way things have been for some time. Inertia, it seems, is the enemy of momentum.

This past week, one of Canada’s largest and most recognizable bank-owned online brokerages, RBC Direct Investing, officially announced the launch of yet another new feature this year: a new trading dashboard.

At its core, the trading dashboard is intended to provided active investors with a nimble environment in which to manage and execute trades of stocks and ETFs. Actively trading stocks is more time and opportunity-sensitive than passively trading stocks, and as a result, the features required to make and act upon decisions quickly need to be able to support that.

As popular as RBC Direct Investing may be with investors, one of the areas in which several of their bank-owned peers, such as TD Direct Investing and Scotia iTRADE, have managed to outcompete RBC Direct Investing has been in the active trader segment, specifically because of the trading platform experience.

The existing (and now “Old”) RBC Direct Investing trading dashboard provided some of the essential features of a trading-focused user experience, such as the ability to efficiently place trades, and monitor watchlists and level 2 activities.

In the newest incarnation of the active trading experience, RBC Direct Investing has maintained the purpose of the trading dashboard, which is to provide a streamlined trading experience, but has completely redesigned how users can manage information related to tracking and trading stocks and ETFs.

Of the many changes to the user experience that the new trading dashboard introduced, one of the most striking is that the new dashboard enables significant customization of how information gets organized.

By using floating windows, known as widgets, inside of a “workspace,” a user can organize account information, watchlists, charts, quotes, and more in virtually any layout that best suits them. And with five workspaces that can be easily navigated through, there is enough opportunity to track a respectable amount of information quickly and efficiently.

Another huge improvement to the trading experience is the charting on the new trading dashboard. Although it takes a little getting used to, once over the learning curve, there are multiple chart indicators that users can do research with. And, for active traders, it is nice to be able to look for different kinds of technical setups as well as to create notes on the charts themselves. Being able to annotate things like entry and exit points along with reasons on the chart is a big time-saver.

Ironically, one of the biggest strengths of the new approach to design and rendering of trading-oriented information is that with so many moving parts, finding where things are is going to take some getting used to. While watchlists are at the core of the transition from the old system to the new, not all the information about a security that was available in the old version is available in the new (yet).

On that last point, it is clear that RBC Direct Investing is actively collecting feedback on their new trading platform experience, and will (likely) be continuously working to enhance the offering for DIY investors, so this new platform will still evolve from its current state. The nice thing about the configuration of the design is that it is very modular, so changes and improvements can be made without negatively impacting all clients and new enhancements.

In turning to design and modern interfaces, the new dashboard feels more at home in 2021 than does its predecessor. That said, the new interface also has new jargon for DIY investors to have to learn in order to navigate this platform. For example, labels such as “Hub” and “X-ray” do not clearly convey what those things do, which then requires users to learn and remember this information. If there’s an area in which the dashboard will have to be mindful, it’s focusing on being intuitive while at the same time providing something unique to the brand.

Recognizing that active investors and traders have different, and likely more complex, needs and requirements than novice investors, the new trading dashboard is a step in the right direction for RBC to provide these valuable segments of users with enhanced functionality. By enabling a highly customizable interface, the platform experience can be configured by the user and thus change along with their changing needs and preferences. If there’s one thing that can be counted on, it’s that the world of DIY investing is going to continue to change. The challenge for all Canadian online brokerages is whether or not they can keep up.

More Online Brokerage Features Keep Coming

RBC Direct Investing wasn’t the only Canadian online broker making big feature announcements this past week. Three other online brokerages had new features to showcase, which is a clear signal that the self-directed investing space is going to be incredibly busy heading into the end of the year.

All of the new features will undoubtedly need to be marketed as well, so it seems like even though new items are going live in the summer, they’re going to be around and in the spotlight for quite some time.

Here’s a run-down of some important new developments:

Interactive Brokers Launches Credit Card in Canada

Convenience has always been one area that bank-owned online brokerages in Canada have enjoyed a clear advantage over independent brokerages. Whether it’s Canada Post, tech giants like Apple, or retailers like Walmart, the walls around the banking business are being pursued on a number of fronts. This past week, the credit card landscape in Canada just got a little more crowded, and the online brokerage space a whole lot more interesting, as Interactive Brokers Canada announced the arrival of the prepaid Mastercard for Canadians.

This credit card has been available to Interactive Brokers clients in the US for several years, and offers incredibly low interest rates. The fact that it is now being rolled out into Canada is a signal that this program can be delivered cost effectively and with a high degree of confidence. In short, Interactive Brokers has likely figured out how to position this service to its clients – many of whom are active traders – as a way to deepen the relationship with these clients.

While the headline and interest rate will undoubtedly get the attention of financially savvy investors, the details for this card will certainly be a bit of a barrier to adoption. In particular, there are restrictions on the number of point of sale transactions that can be done in a day, as well as limits on withdrawals and purchase amounts.

That limitation in mind, combined with the ultra-low interest rate, suggests that this product offering may represent an alternative to having to tap into a HELOC. With an advertised interest rate of 1.63% (at the time of publication), it will almost certainly raise some eyebrows. In several reddit forums, it has already generated an interesting discussion regarding how and when this kind of card could be useful.

Questrade Bulks Up on Research

This past week, Questrade announced its latest feature category: more robust research. Using “big data” to process multiple input points, the new service for Questrade clients, called TipRanks, aggregates and reports investor data and provides tools for DIY investors to conduct additional research.

While research may not seem like the most popular user feature, in reality it makes a big difference to finding or validating a trading decision. Historically, Questrade has lagged behind its peers in the research component, however, this latest foray into the research pool will be interesting to watch.  

From the Forums

Who Let the Doge Out?

This past week offered Canadian online investors a boost as Wealthsimple added 14 new coins to its suite of cryptocurrencies offered to trade. With so many coins available to be traded now, users on this reddit post weighed in on the expansion of crypto trading at Wealthsimple, and shared what coins they’d love to see become available.

Mass Market

With a clear interest in increasing the accessibility of investing, is it any wonder that marketing would need to be involved? Cue Wealthsimple Trade, who was called out in a (mostly respectful) exchange on reddit. At issue is the saturation of advertising for Wealthsimple Trade and how clients and observers are “not over it.”

Into the Close

Canada Day is just around the corner, and the week ahead will be shorter because of the statutory holiday. Similarly, the US statutory holiday the following week will also slow things down on the trading front for Canadian DIY investors. Wherever you choose to spend this year’s holidays, we hope it is safe and restful.

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Discount Brokerage Weekly Roundup – June 21, 2021

Welcome to the official start of summer. With the weather getting nicer, and folks making plans to get out and about, you might be pondering some big thoughts, like where a cow goes on vacation – it’s to the moovies. Yes, pun intended. Here’s hoping all the dads and father figures enjoyed Father’s Day.

Blockbuster features continue to surface this year, and in this summer-ized version of the Roundup, we review an interview with the founder of Interactive Brokers who talked about meme stocks (like the movie chain AMC) and several new features that are slated to be game changers for this innovation-focused brokerage. Also in the new features column, a potentially big new feature – fractional shares – possibly being tested. Find this and DIY investors encountering trading outages in the stories from the forums.

New Feature Spotlight: Interactive Brokers Reveals Big Features Coming Soon

There’s an old trader’s adage that says don’t fight the tape. Most people understand this in terms of the saying “the customer is always right,” or “listen to what the market wants.” In looking at the online brokerage industry, it seems that catering to what the customer wants might be setting the financial and social infrastructure of the world down a dangerous path – or so one executive at an online broker might have us believe.

Heading into the summer, we’ve already observed a flood of new features being announced at Canadian online brokerages, as well as at their US counterparts. Earlier this month, for example, we’ve noted that, at Canadian online brokers, faster account funding has started to surface as an incremental innovation. In the US online brokerage space, this year we’ve seen some interesting developments come from Robinhood in the form of early access to IPOs (likely as a lead up to their IPO), and just announced this month from Interactive Brokers, the launch of cryptocurrency trading by the end of the summer.

News of the announced rollout was delivered by Thomas Peterffy, the founder of Interactive Brokers, at the most recent Piper Sandler Global Exchange & FinTech Conference on June 9.

The interview itself was very intriguing. Contextually speaking, it was fascinating to hear Peterffy’s pessimism with the global state of affairs and disbelief at people buying digital coins on the one hand, while later announcing the launch of cryptocurrency trading (of those very same coins) on the other.

Although he has formally stepped down as CEO of Interactive Brokers, he is still actively campaigning on behalf of the brand, and his lack of enthusiasm about the cryptocurrency product was evident.

Normally, Peterffy brings a clear passion for all things trading. But in this case, it seemed like capitulation to what customers and the market was asking for that led to the decision to launch a cryptocurrency trading offering. One of the formal challenges he cited was ensuring that the trading of cryptocurrencies would be 100% safe – something he deferred providing details into until the product launch at the end of the summer.

While the news of a new product offering launch is big, Peterffy also dropped a hint of another feature announcement that is “coming soon.”

When asked about the way in which the impact of the global pandemic affected customer service, Peterffy revealed that automation was the key to solving many problems, but it could not solve all of them. His answer to discussing customer service was positioned from the perspective of the business itself, breaking down the need for customers to access speaking to an agent in terms of dollars per hour spent on servicing a client.

In the final analysis, Peterffy’s view was that it should not cost more to service the client than the client is worth to the firm. And, it was at that point that he revealed that Interactive Brokers is working on something interesting related to client service, and potentially something that could bring down the cost of servicing clients.

There were several other really interesting nuggets revealed by Peterffy as to the direction and position of Interactive Brokers on a number of fronts, but the final one to highlight was his response to new account growth and what the future may hold for Interactive Brokers.

Specifically, as we’ve noted in the Roundup last month, there has been a consistent and significant downward trend in the number of new accounts being opened this year at Interactive Brokers since the numbers peaked in January. The graph below illustrates this trend, and based on the numbers from May, this is the fourth consecutive month over month decline in the net new account growth. Although there were just over 26,000 net new accounts opened at Interactive Brokers in May, this represented just shy of a 24% decline compared to the number of new accounts opened in April, and reflects a drop of just about 78% from the number of net new accounts opened in January.

Peterffy’s take on what drives new account growth was especially noteworthy. In his response, he stated that the biggest source of new clients at Interactive Brokers is through referrals – somewhere in the neighbourhood of 33%. Regardless of what channel a new client comes in from, the fascinating thing, according to Peterffy, is that the percentages from the sources remain about the same. So, what ultimately drives online investors into opening an online brokerage account is the “buzz” around what’s hot in the markets, and as it turns out, consumers will choose or consider an online brokerage that they’re familiar with. The implications of this revelations are really important – it suggests that online brokerages would be better off continuously advertising. However, the real advantage for doing so would emerge when a “hot” story drives online investors to market.

Although the interview with Peterffy was relatively short, there was a wealth (pun intended) of insights related to investing online. The pessimism about the global and financial state of affairs for online investors was palpable, and summarized by the following statement he made:

“We’ve completely lost our grounding, we’ve become unhinged, nobody knows what our values are, we are floating and hope we land right side up.”

The context of these comments generally center around what investors today are piling into – such as meme stocks – and that the shortcomings of the regulatory frameworks that are currently in place for investors are being laid bare by online investor “armies” that have shown the ability to push back against larger institutional players. This pessimism is worth paying attention to, however, as the domino effect of losses in the meme stocks has a possibility (and a likely one suggested by Peterffy) to be catastrophic.

In the meanwhile, the big picture takeaway from Peterffy’s comments is that whether or not he likes it, everyone, including online brokerages, will have to confront a brave new world of “investing.” That means preparing technical systems for wild volatility. And for other online brokerages hoping to push their own growth agenda, it means being ever visible in anticipation of when the next big thing hits. Because, when it does, that’s when investors will really start to pay attention.

From the Forums

Wealthsimple Testing Fractional Shares?

Online brokerages continue to push new features out this year, however, some may be dropping hints before they go completely live. If this new feature from Wealthsimple Trade turns out to be true, it is yet another possible game changing feature that will undoubtedly capture the interest of DIY investors. According to this reddit post, Wealthsimple Trade is apparently piloting fractional share trading on select securities. While it may be too early to trade in fractions of a share, the presence of a fractional trading tag is raising more than a few eyebrows among DIY investors. And, if true, it will undoubtedly push other Canadian online brokerages to move even faster to deliver innovative offerings for investors.

Stability Now

It’s been a tough month for system and trading outages at Canadian bank-owned online brokerages. Earlier this month, TD Direct Investing had an outage during market hours, and this past week, CIBC Investor’s Edge users suffered a trading outage during market hours. Angry clients took to social media to vent their frustration and provide a clear picture of what DIY investors think when an online brokerage system goes offline during the trading day. Check out what investors had to say in this reddit post.

Into the Close

This week, we’d like to call special attention to Indigenous People’s Day which recognizes the heritage, diverse cultures, and achievements of First Nations, Inuit and Métis peoples. It is our hope that readers make some time to reflect on the history of the Indigenous peoples in Canada, as hard as it may be, and be an advocate for a building a better future. An important starting point is the Final Report of the Truth and Reconciliation Commission of Canada.

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Discount Brokerage Weekly Roundup – June 14, 2021

Taking a Moment

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

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

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

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

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

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

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

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

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

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

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

Why is this Online Brokerage Ranking Important?

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

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

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

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

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

Methodology

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

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

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

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

1. Online experience

2. Mobile experience

3. Cost of services experience

4. Service experiences

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

1st = 5 points

2nd = 4 points

3rd = 3 points

4th = 2 points

5th = 1 point

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

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

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

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

Strengths & Limitations

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

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

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

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

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

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

Results

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

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

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

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

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

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

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

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

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

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

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

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

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

Methodology, Part Deux

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

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

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

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

Results

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

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

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

Consistency cuts both ways, however.

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

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

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

Takeaways

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

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

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

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

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

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

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

Into the Close

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

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Discount Brokerage Weekly Roundup – May 31, 2021

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

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

BMO InvestorLine Launches Commission-Free ETF Trading

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Latest Canadian Online Rankings Point to Underwhelming Experiences for DIY Investors

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

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

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

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

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

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

What are the rankings about – what do they measure?

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

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

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

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

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

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

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

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

What are the findings from this year’s results?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Takeaways

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

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

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

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

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

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

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

From the Forums

Riding the Commission-Free Waive

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

BMO InvestorLine Now Offering Commission Free ETFs (reddit)

Zero Commission ETFs (Financial Wisdom Forum)

Commission Free ETFs at BMO Investorline (Red Flag Deals)

Commission-Free at Last

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

Into the Close

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