Tag: Wealthsimple Trade

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Discount Brokerage Weekly Roundup – July 5, 2021

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

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

Online Brokerage Deals Get Creative

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Robinhood IPO in Motion

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

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

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

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

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

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

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

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

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

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

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

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

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

From the Forums

Day Trading Up

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

In-formed Opinion

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

Into the Close

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

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Discount Brokerage Deals & Promotions – July 2021

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

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

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

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

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

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

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

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

Expired Deals

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

Extended Deals

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

New Deals

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

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

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Discount Brokerage Weekly Roundup – June 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 – June 7, 2021

With warmer weather around the corner, it looks like the Leafs may actually have some fans this summer after all. Couldn’t resist. Fortunately, it’s still spring and the theme of new beginnings and growth are very much in focus among Canadian online brokerages.

In this edition of the Roundup, new is en vogue. First, we take a look at the newest online brokerage deals and promotions, including an interesting development at one already popular online broker that’s sure to spur others into action. Next, we highlight the latest new blockbuster feature being launched by an online brokerage this season. To cap things off, we provide chatter from the investor forums reacting to scary glitches and instant deposits.

New Month, New Deals

And just like that, summer is only a few weeks away. June is now upon us, and with the start of a new month comes a chance to check in on the status of the deals and promotions being offered at Canada’s online brokerages.

This month, it’s a good news, bad news story for DIY investors on the hunt for a promotional bump. The good news is that there wasn’t a drop in the number of promotions, and there are signs that one of Canada’s increasingly popular online brokerages isn’t afraid to commit to promotions as a way to attract the attention of new clients. The not-so-great news for online investors is that after June, there are a pair of promotions that are scheduled to expire, which means that even though there is a good chance more deals are on their way, the exact timing isn’t clear.

Starting first with a quick scan of the current promotional picture, BMO InvestorLine had a new cash back promotion that launched on June 2nd to replace its outgoing cash back offer that expired on June 1st.

The new cash back promotion from BMO InvestorLine is very similar to the one that it replaced in that it’s a tiered promotion that offers increasing amounts of cash back bonuses as the amount deposited increases. The important difference with the new offer is that minimum deposit required to qualify for this promotion dropped from $25,000 to $15,000, a significantly lower amount.

The latest BMO InvestorLine promotion runs until August 31st and features cash back amounts ranging from $50 (for deposits of $15,000 to $49,999) to $2,000 (for deposits of $1M+).

Although not new this month, Wealthsimple Trade is now also part of the deals and promotions mix in a major way. In May they launched a “free stock” promotion for new cash account clients to receive a cash bonus in the equivalent amount of a stock chosen at random from a selection of eligible stocks.

Marketed to online investors as a “free stock” promo, this offer has garnered quite a bit of attention online. It also appears that this promotional offer has been so successful through several trial runs that a recent note from Wealthsimple Trade about its referral promotion indicates that it too will be switching to a “free stock” compensation model.

With Wealthsimple Trade joining in the deals and promotions pool at a time when most online brokerages are electing to stand on the sidelines, it appears to be open field for the newcomer online brokerage at a time when meme stock excitement has resurfaced.

Contextually, this poses a challenge for two other online brokerages with commission-free trading offers that expire at the end of the month.

National Bank Direct Brokerage’s massive 100 commission-free trade offer and HSBC InvestDirect’s 60 commission-free trade promotion are both set to expire by the end of June. National Bank Direct Brokerage has seen a boost to its publicity across Canada as it scored first place in a recent Surviscor ranking of online brokerages, as well as scoring first place in the J.D. Power Investor Satisfaction Study. Also, National Bank Direct Brokerage just launched their annual “Biggest Winner” ETF competition at the end of May, putting yet another spotlight onto this online broker.

The challenge posed by the entry of Wealthsimple Trade into the deals and promotion mix is that those brokerages with existing commission-free trade offers may want to consider extending them, or replacing them with even more competitive cash back bonuses.

Unlike the Big Five bank-owned online brokerages, National Bank Direct Brokerage and HSBC InvestDirect do not have the level of awareness or scale that their larger bank-owned brokerage competitors enjoy, despite being “bank owned.” Conversely, neither of these two bank-owned online brokerages are as well known as some of the “independent” brokerages known for lower cost trading – such as Questrade and Wealthsimple Trade.

Thus, if promotional offers are a low-cost tool used to boost awareness, either extending or launching new offers may be a way to stay relevant and competitive across the summer. With meme stocks and cryptocurrency trading still bubbling away, younger investors are continuing to take note. And while that is generally good for all online brokerages, those online brokers with highly competitive offers will undoubtedly find themselves being considered and recommended for deep value for growth-minded investors.  

Summer Blockbusters are Back

Grab a meme stock and some free popcorn, because it looks like the summer of blockbuster announcements from online brokerages is here.

After a frothy start to markets this year, it seems that Canadian online brokerages are now the ones that are going to be in the spotlight when it comes to making big announcements.

In April and May, there were some significant new features launched by RBC Direct Investing and Wealthsimple Trade. Two weeks ago, BMO InvestorLine announced it was launching commission-free ETF trading on a selection of more than 80 ETFs. 

This past week it was Questrade’s turn.

In what seems like a direct shot across the bow to Wealthsimple Trade’s account funding time, Questrade announced, courtesy of a partnership with fintech startup Zum, that clients can now fund their accounts instantly using Visa Debit, with up to $3,500. By comparison, Wealthsimple Trade enables users to deposit only $250 instantly, or for those willing to pay $3 per month for Wealthsimple Trade premium, the amount rises to $1,000.

The blockbuster features haven’t been limited to Canada either. In the US online brokerage space, Robinhood announced in late May that it is launching a new feature enabling investors to participate in IPOs at the IPO price, rather than having to wait to purchase the security once it hits the open market. This is a huge development for retail investors who have typically been unable to tap into the massive gains that certain IPOs experience, because the investors were not connected to institutional investors or perhaps not wealthy enough to be given early access.

The US online brokerage market is an important proxy for what the world of DIY investing looks like when commission rates all but fall to zero.

What has been clear at online brokerages such as Robinhood, Schwab/Ameritrade, and others is that features and user experience tend to become areas of focus and innovation. Granted, how US online brokerages can monetize zero-commission trading is different than it is here in Canada. However, the likelihood that commissions stay at $9.95 as the standard price for much longer is low. In addition, even those online brokerages with lower commissions can’t stand still when it comes to innovation – they have to keep delivering better experiences to investors because other online brokerages will. (And new online brokerages are still coming to Canada, to boot.)

We’ve already witnessed a number of online brokerages concede ground on charging commissions for trading ETFs, either in part or entirely. As the Globe and Mail’s Rob Carrick put it in a recent article, “We now have some real momentum in getting rid of ETF trading commissions… There are now at least eight online brokers and trading apps that have at least partly eliminated the cost of buying and selling ETFs.” Given how popular ETFs are with online investors, the writing is on the wall at the remaining online brokerages that do not at least match if not beat this new ETF pricing paradigm.

And, as popular as ETFs are, Questrade’s launch of instant account funding clearly strikes at a nerve for DIY investors who want to be able to enjoy instantly jumping into opportunities. Friction, not change, is the new dirty word in technology conversations among financial services providers, and especially incumbent players in the online brokerage world. Instant account opening and funding are frontiers where too many Canadian online brokerages still fall short in the eyes of online investors. Based on Questrade’s latest push to enable instant funding of up to $3,500, they won’t be the last online broker to launch this feature. Several business days is an eternity when meme stock movements strike.

The merits and wisdom of trading fast-moving stocks aside, the reality is that investor behaviour during COVID-19 has shown that certain categories of investors have a very different risk appetite for trading volatility. Online brokerages who can reduce the friction between getting started and participating in exciting stories are themselves going to become the exciting stories that online investors talk about. And that conversation is now worth its weight in digital gold.

From the Forums

Care to Share?

It almost seems trivial, but expecting your online brokerage account view to display the correct information should be a given. Many clients of Wealthsimple Trade found out the hard way, however, that when it comes to online investing, just about anything can go wrong – including what should be the basic stuff. Check out what redditors had to say here and here about technical glitches that left clients scratching their heads at the data they were seeing in their account summaries.

Instant Gratification

One of the biggest stories to get online investors chatting this month (so far) was the launch of instant deposits at Questrade. Interestingly (and is usually the case), the discussions deviated from the new feature to cover issues with existing features, challenges other brokerages might face, and investor preferences when it comes to trading online. Read through the reactions here and here.

Into the Close

That’s a wrap on another semi-short week courtesy of a long weekend in the US. Of course, for Leafs fans it certainly felt a lot longer. Again, couldn’t resist. There’s still lots on the radar for online investors that we didn’t get a chance to dive into, so stay tuned for more updates on the DIY investor data-palooza coming next week, and updates on more new features we didn’t have a chance to discuss this go-around. With stock markets at or near new all time highs, meme stocks making a comeback, and crypto now in the doge-house with investors, there’s almost certainly a plot twist in the making coming soon. Have a profitable week ahead!

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Discount Brokerage Deals & Promotions – June 2021

We’re officially in the home stretch to start of summer and like temperatures, we believe that online brokerage deals activity is slated to rise as the month progresses. For the moment, however, most Canadian online brokerages continue to take it easy.

Just because we’re not seeing a flood of online brokerage deals coming to market yet, however, does not mean that activity isn’t taking place behind the scenes.

In a world where unusual is the new normal, signals abound that the wave of investor enthusiasm that started the year (and that has characterized the past 12 months) is continuing to recede taking with it the volume of activity of new account opening at Canadian online brokerages. This is a net-positive for deal-seeking online investors because as investor supply decreases, online brokerages will necessarily look to new promotions as an option to attract new customers.

Another unusual development heading into the new month is deals activity at one of Canada’s newer online brokers – Wealthsimple Trade.

Having garnered a massive early interest based on zero-dollar commissions, this rapidly growing online broker has dialed up its affiliate promotion structure as well as using free stock and cash back offers (see below for more details). The result is armies of affiliate-revenue seeking amplifying Wealthsimple Trade to the broader public at a fraction of the cost that the competitors to Wealthsimple Trade are paying.

Thus, the costs of standing still on the deals and promotions front are not only starting add up for those online brokerages without some kind of campaign in place, they’re actually beginning to compound.

As we launch into a new month, it is worth pointing out that two promotions are set to expire at the end of June. National Bank Direct Brokerage’s huge commission-free trade offer as well as a commission-free trade promo by HSBC InvestDirect are both scheduled to conclude by month’s end.

Head over to the deals and promotions section to review the latest online brokerage offers and as always if there are any promotions for DIY investors that we’ve missed, let us know and we can update our deals section.

Expired Deals

As of the publication of the deals update, the only promotion that had technically expired was the spring cash back promotion from BMO InvestorLine. While it is often the case that BMO InvestorLine has offers for new accounts running throughout the year, they also just launched a slate of commission-free ETFs that is only beginning to be advertised. We’ll keep watching for updates to their promotional offers for any new offers that show up.

Extended Deals

No deal extensions to mention at this time

New Deals

Wealthsimple Trade added a “free stock” bonus promo to new users of the platform. This offer randomly selects stocks valued between $5 and $4,500 and new users are eligible to receive a cash bonus equal to the value of the stock from the pool of eligible stocks when they open a new non-registered account. According to the terms and conditions of the offer, about 90% of new clients receive a cash bonus offer worth less $50. There is no expiry date stated for this promotion.

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Discount Brokerage Weekly Roundup – May 31, 2021

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

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

BMO InvestorLine Launches Commission-Free ETF Trading

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Latest Canadian Online Rankings Point to Underwhelming Experiences for DIY Investors

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

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

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

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

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

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

What are the rankings about – what do they measure?

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

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

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

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

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

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

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

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

What are the findings from this year’s results?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Takeaways

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

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

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

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

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

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

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

From the Forums

Riding the Commission-Free Waive

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

BMO InvestorLine Now Offering Commission Free ETFs (reddit)

Zero Commission ETFs (Financial Wisdom Forum)

Commission Free ETFs at BMO Investorline (Red Flag Deals)

Commission-Free at Last

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

Into the Close

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

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Discount Brokerage Weekly Roundup – May 17, 2021

With the weather starting to warm up, flowers aren’t the only thing springing up at every turn. This month, it seems like DIY investing data continues to bloom, offering some very colourful perspectives on the current online trading landscape.

In this edition of the Roundup, we dig into yet another treasure trove of online brokerage and DIY investor data and find out why measuring the similarities between online brokers is challenging. Also, we’ve got reactions by DIY investors to interesting survey results and more in the forum chatter.

Reviewing Online Brokerage Pricing: Latest Rankings Challenge Perceptions of Low-Cost Online Trading

Another week, another big online investing data report to talk about.

This past week, fees at Canadian online brokerages were under the microscope, as Canadian financial services research firm Surviscor published a significant analysis of the fee structures at 15 Canadian online brokers and found some surprising – and at times controversial – results.

If there’s been any recurring theme to the coverage of the reports we’ve analyzed over the past few weeks, it’s that context matters. In particular, while it is tempting to focus on the headline results, it is often crucial to understand the methodology underpinning a study to properly understand the outcomes.

In the case of this latest analysis by Surviscor, this is especially true, because question at the heart of this study is “Who is Canada’s lowest cost online brokerage?” As any long-time reader of the Weekly Roundup will know, however, the answer is usually “it depends.”

So, before diving into the results, we’ll start by looking at the methodology and process information provided about this study which will better enable readers to understand how the results were ultimately arrived at.

Method Matters

One of the most interesting features of the Surviscor online brokerage fee analysis is sheer number of different factors that it considers. Like anything, however, the devil is in the details.

At a high level, the following six cost categories were measured:

  1. Equity trades
  2. Options trading commissions
  3. ETF commissions
  4. Data costs
  5. Account interest rates
  6. General account fees
Stock commissions

When it comes to equity trades, over 12,600 simulated equity orders were analyzed. Specifically, 6,300 buy and sell orders for Canadian and US equities, respectively, were measured. The prices and volumes of securities varied and ECN fees were applied where applicable.

Options commissions

Treated as a sub-category, options commissions on a total of 340 option orders, split into 170 Canadian and US buy and sell orders (of various price and contract levels), were measured.

ETF commissions

Over 350 ETF orders consisting of over 175 Canadian and US buy and sell orders were analyzed, each order consisting of 700 shares per order.

Data costs

Market data fees were examined in this category, and consist of the fees charged by firms to provide real-time quotes, streaming quotes, trading dashboards, and “enhanced” research and tools.

Account interest

This category measured debit and credit interest for both non-registered and registered accounts in Canadian and US accounts.

General account fees

Fees included and measured in this category refer to inactivity fees, non-registered and registered account annual fees, charges to transfer assets, confirmation fees, closure fees, and account investigation fees.

Another important methodological point to understand is that profiles of traders/investors were broken into the following five categories based on the number of trades made per month:

  1. 0-4 trades
  2. 5-9 trades
  3. 10-33 trades
  4. 34-49 trades
  5. 50+ trades

Results & Analysis

The table below shows the rankings of all the Canadian online brokerages measured as part of this study.

RankOnline BrokerageScore
1National Bank Direct Brokerage93%
2*Wealthsimple Trade86%
3Desjardins Online Brokerage83%
4HSBC InvestDirect77%
5CIBC Investor’s Edge76%
6Qtrade Investor (now Qtrade Direct Investing)61%
T-7RBC Direct Investing54%
T-7Scotia iTRADE54%
T-7Laurentian Bank Discount Brokerage54%
T-10TD Direct Investing53%
T-10BMO InvestorLine53%
12Virtual Brokers50%
13Questrade45%
14Canaccord Genuity Direct42%
15Interactive Brokers22%

The online brokerage that took the top spot in this edition of the online broker cost ranking was as much of a surprise as two of the bottom three rankings.

Starting from the top of the podium, National Bank Direct Brokerage came out on top in this study with the highest score of 93%.

Although it was not entirely clear based on the methodology what the percentage refers to exactly, on a relative basis it is clear that this bank-owned online brokerage managed to outrank its competitors because of lower standard commission pricing (which impacts equities and commissions trading), as well as the fact that it offers commission-free ETF buying and selling when at least 100 ETF units are either bought or sold.

Taking second place with 86% was a name that many newer investors and much of the popular press on online investing has characterized as the lowest cost online brokerage: Wealthsimple Trade. There was a heavily telegraphed caveat to the results of this study (the elephant-sized asterisk) when it came to Wealthsimple Trade, which, for several reasons to be covered below, makes them a very controversial pick for second place overall in this ranking.

In third place was Desjardins Online Brokerage – the direct rival to National Bank Direct Brokerage – who scored 83%. Desjardins Online Brokerage was the winner of this ranking last year, and depending on whether or not to include Wealthsimple Trade’s limitations, this online broker might have ended up in second place overall.

Aside from Wealthsimple Trade, what is noteworthy about two of the top three online brokerages in the fees ranking is that they are both heavily focused on the Quebec market. Not that many Canadian online investors outside of that province are likely to know about these two providers.

The fact that both of these brands compete aggressively with one another means that there is pricing available for active traders at each of these firms that is unheard of at other online brokerages across Canada. Desjardins Online Brokerage, for example, charges $0.75 per trade if more than 30 trades per month are made. By comparison, National Bank Direct Brokerage charges $0.95 per trade for clients who make 100 trades per quarter.

Looking at the top five ranked firms in this latest study, it shows that having a low standard commission price significantly improves the ranking position. Again, excluding Wealthsimple Trade, four of the top five online brokerages in this latest ranking have a standard commission rate that ranges from $6.88 to $6.95 per trade. Also worth noting is that the only big-five bank-owned online brokerage to appear in the top five is CIBC Investor’s Edge, however, both National Bank Direct Brokerage and HSBC InvestDirect (which placed fourth overall) are bank-owned online brokerages.

Thus, one of the biggest findings that this study helps put into focus is that value-conscious online investors can find competitive pricing and convenience with banking products, all in one online brokerage.

Another interesting set of results emerged with the three online brokerages tied for seventh place and two that tied for tenth. The scores for online brokerages that ranked seventh were 54%, while the scores for tenth place were 53% – a razor thin margin. While it seems strange to be focusing on this middle-of-the-pack group, four of Canada’s biggest five banks have an online brokerage that appeared in either seventh or tenth place when it came to fees. Perhaps the most shocking or surprising finding is that relative unknown Laurentian Bank Discount Brokerage was tied with RBC Direct Investing and Scotia iTRADE, and it managed to do better from a cost perspective than TD Direct Investing and BMO InvestorLine.

That so many of the biggest bank-owned online brokerages in Canada performed so closely to one another is a signal that when it comes to fees, these brokerages are virtually indistinguishable. This result likely reinforces the perception that there is no real difference when it comes to commission or trading price for big-bank-owned online brokerages. The differentiators will come in features or service elements.

While the bottom ranked online brokerages typically don’t get much attention in online brokerage reviews, this time seems different. Specifically, three big names often associated with low cost of trading online managed to make up three of the bottom four spots. Virtual Brokers, Questrade and Interactive Brokers, ranked 12, 13 and 15, respectively.

One feature that each of these three online brokerages have in common when it comes to pricing is that they have a variable component to how they charge for trading stocks. Virtual Brokers and Questrade, for example, charge $0.01 per share with a minimum trade cost and maximum trade cost. Similarly, Interactive Brokers charges $0.01 per share with the maximum charge being 0.5% of the trade value.  

Arguably, aside from the variable pricing, there are also ECN fees which factor into the total commission cost for trading with Virtual Brokers, Questrade, and Interactive Brokers. So depending on the type of order placed (e.g. limit order versus market order), the cost of executing a trade can be far higher than just the commission price.

Method Determines Measures

Why it was so important to start this exploration of the Surviscor report by highlighting the methodology is because the way in which certain components were measured influenced the overall ranking outcome.

One example that stands out is with respect to ETFs. Recall that according to the ETF component of the cost evaluation, 700 “shares,” or units, was used as the standard buy or sell amount. It is difficult to say what the “average” or even the weighted average number of ETF units would be during a typical transaction. However, for many investors, that could represent a significant dollar purchase.

Consider, for example, the cost for purchasing 700 units of one of the most popular ETFs among Canadian online investors – VBAL. The last price for this ETF was $29.15 so an order to buy 700 units would cost $20,405 before commissions.

This transaction would be commission-free at National Bank Direct Brokerage, Wealthsimple Trade, Questrade, and Virtual Brokers. If, however, the number of units purchased was lower, say 50 units, then the commissions for the transaction (buy and sell) would see Wealthsimple Trade come out on top with zero commissions, followed by Virtual Brokers and Questrade, while the transaction at National Bank Direct Brokerage would cost $13.90 ($6.95 for each of the buy and the sell).

That picture changes dramatically, however, if the transaction was for a US-listed ETF. For an ETF like VTI, which had a closing price (at the time of publication) of $215.54 US, 700 units before commission would cost $150,878 US. The commission prices for National Bank Direct Brokerage, Questrade. and Virtual Brokers would be zero. However, at Wealthsimple Trade the foreign exchange fee would be 1.5% times the corporate foreign exchange rate (which at the time of publication was $1.21070). In this example, that means the rate of $1.2289 would apply, which means that instead of costing $182,668 CAD, the forex conversion cost would work out to $185,408 CAD, and would mean a difference in cost of $2,740.

It is for that dramatic difference in potential cost to consumers that, as part of this cost analysis, Wealthsimple Trade comes with a very substantial asterisk. Certainly, there are some situations, such as trading Canadian securities, where Wealthsimple Trade could come out ahead in terms of cost relative to other Canadian discount brokerages. However, any substantial transactions taking place for US-listed securities would be significantly more expensive.

Given that Wealthsimple Trade also has restrictions on the securities and markets that DIY investors can trade on, whereas many other online brokerages do not, it becomes harder to rank Wealthsimple Trade on an apples-to-apples basis.

It is unclear how Wealthsimple Trade was graded for the US-listed securities that would have been traded (700 shares/units of US ETFs and which US stocks) as part of the testing framework, as well as how Wealthsimple Trade was graded for options trading and margin lending (which are not currently offered by Wealthsimple Trade).

Without knowing which securities were used in the test and which order types, it is harder to pinpoint why Wealthsimple Trade ranked as highly as it did, despite limitations for currency conversion and trading certain securities that other online brokerages would have no issues with. Similarly, this could potentially have an impact on other online brokerages such as Questrade or Virtual Brokers, where buying ETFs is commission-free, or for Qtrade Direct Investing and Scotia iTRADE, where there are certain ETFs which are completely commission-free to trade.

Takeaway

With so much data being analyzed, it is no small feat to be able to organize and score all of Canada’s online brokerages even on something as quantifiable as cost.

Surviscor’s latest evaluation of online brokerage costs reveal the challenge of trying to deconstruct a lot of intentional differentiation effort on the part of Canadian online brokerages. If it is not easy for the professionals to do it, it is certainly a lot harder for DIY investors to run these kinds of deep analysis exercises to find the cheapest (or best value) online brokerage.

There are other variables, such as age of the investor, or what ticker symbols or the amounts of stock/securities being transacted, that can influence what kinds of costs a DIY investor pays for commissions or account fees.

One of the most interesting consequences of Surviscor’s latest analysis, however, is that the low pricing structures of online brokerages such as National Bank Direct Brokerage, Desjardins Online Brokerage, and HSBC InvestDirect are going to pique the curiosity of more and more investors.

Despite having a major focus on the Quebec market of DIY investors, based on the exposure this latest evaluation is getting online, National Bank Direct Brokerage will benefit from the attention. By implication, the bigger bank-owned online brokerages and traditionally viewed “low cost” providers will have to adjust course to compete even more aggressively with brokerages who are able to provide the convenience and confidence of a bank with a price point that, as yet, cannot be beaten by most online brokerages.

From the Forums

Price of Fame

Continuing on the theme of low cost online brokerages, reddit was abuzz discussing the findings of the latest Surviscor report. Check out posts here and here for users commenting on National Bank Direct Brokerage’s latest win and what DIY investors think about commission pricing at Canada’s online brokerages.

Flipping the Switch

Moving between RRSP providers can be nerve wracking. In this post, one redditor looks for community guidance in choosing between two very popular online brokerages.

Into the Close

That’s a wrap on another data-filled episode of the Roundup. Admittedly it was hard not to drop a doge reference into the whole article so what better way to channel “long” energy than by signing off on a meme-filled ending ahead of the long weekend! Be safe!

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Discount Brokerage Weekly Roundup – May 10, 2021

Spring is in the air. And coinciding with the appearance of new leaves, flowers, and Elon Musk on SNL is another seasonal feature: data on DIY investors.

In this edition of the Roundup, we continue to explore data on self-directed investors from the US and beyond that has sprouted up over the past few weeks, and how that data can help to inform where Canadian online brokerages need to prepare to head next. Also, forum chatter around the big Wealthsimple investment, as well as online brokerage service, find their way into the spotlight this week.

Self-directed Investor Snapshot: Two Different Studies Highlight Emerging DIY Investor Needs

Last week, we dug deep into a significant report on self-directed investors that the Ontario Securities Commission (OSC) released in April. This week, we explore two more online investor studies that crossed our radar recently – one from Refinitiv which looked at DIY investors across the world, and another from J.D. Power, which released findings from their US edition of the Investor Satisfaction Study.

Before diving into the key findings and takeaways from each of these different data sources, it is important to reflect on the details in the methodology of each of these resources. Often times, there are some fairly important claims that are made about online investors from research reports that can heavily influence what we think (and then do) about online investing.

Who These Reports Studied

The Refinitiv report, entitled “The Digital Wealth Agenda: Advancing the Self-Directed Investor Experience” explored the perspectives of just over 600 self-directed investors from 9 countries: Australia, Canada, China, Hong Kong, Japan, Singapore, Switzerland, the UK, and the US.

While there was no formal “methodology” section provided in the Refinitiv report (which was 12 pages long, including title and back covers), there were a few different figures and references that enabled a breakdown of the demographic data to be compiled.

Table 1: Regional Breakdown of Refinitiv Study Respondents

RegionCount% of Total
APAC26945%
Europe Region12621%
North America19833%

Table 2: Age Breakdown of Refinitiv Study Respondents

Age BracketCount% of Total
Millennials9816%
Gen X17629%
Over 5532754%

By comparison, the latest Investor Satisfaction Study from J.D. Power references data collected from surveying 4,895 investors in the US between December 2020 and February 2021, who “make all their investment decisions without the counsel of a full-service dedicated financial advisor.”

The Investor Satisfaction Study by J.D. Power is in its 19th year, and for this edition the definition of “Investor Satisfaction” was redesigned to be comprised of the following seven factors, listed here in order of importance:

  • trust
  • digital channels
  • ability to manage wealth (how and where I want it)
  • products and services
  • value for fees
  • people
  • problem resolution

From the study of investors, the Investor Satisfaction Study scores the satisfaction with online brokerages measured in the study on a 1,000 point scale. This year, data was shared on the following eight online brokerages:

  • Vanguard
  • Charles Schwab
  • T. Rowe Price
  • Robinhood
  • Fidelity
  • TD Ameritrade
  • E*TRADE
  • Merrill Edge

Caveats and Comments on Methodology

In comparing the two different data sets, it’s important to note that not only do they measure different populations of self-directed investors, but they’re also measuring them differently.

Refinitiv’s report describes statistics about certain facets of the online investing experience, whereas the J.D. Power Investor Satisfaction Study looks at “investor satisfaction” as defined by the components stated above. The definition of what constitutes satisfaction has evolved over time, and so too have the components that it is comprised of as part of the Investor Satisfaction Study.

Why these differences matter is because both reports are measuring self-directed investors, and the way in which those measurements are made matter when accurately stating the findings of these inquiries.

For readers of these reports, it is important to understand that self-directed investors are not a homogenous group. In the case of the Refinitiv report, for example, more than half (54%) of respondents were 55 or older, while only 16% were “Millennials.” This strong demographic skew heavily colours who the findings and insights apply to.

In contrast, detailed data from the J.D. Power Investor Satisfaction Study regarding demographics was not released in their public news release. This means without knowing details about the group of study participants, it is difficult to state which segment of investors the claims about satisfaction most apply to (e.g. younger or older investors).

Finally, it is also worth mentioning something about the commercial intent behind the release of the data.

In the OSC report, for example, a comprehensive set of data was released, in all likelihood because the institution is a public one with a mandate to help educate the public on matters relating to investors. There is clear public good to be served by sharing information about the composition of the Canadian retail investor base surveyed as part of their study.

On the other hand, the study by Refinitiv was part of a lead-capture program in which information about individuals was collected in exchange for access to the findings of the report. This is a common marketing tactic to better understand who is accessing data, and therefore determine whether this a possibility for a commercial relationship.

Similarly, the Investor Satisfaction Study is a proprietary report conducted annually by J.D. Power, and measures the “voice of customer” across multiple online brokerages. By publishing the limited amount of data on the analyzed firms and key findings of the study, the hope is that online brokerages or industry stakeholders will purchase the full report and data set.

Those points stated, it was nonetheless valuable to explore the key findings from each report and situate them against the online brokerage market here in Canada.

Interesting Data About Self-Directed Investors

A key theme of the data in the Refinitiv report centered around how self-directed investors seek out or want to use data as part of their online investing experience.

One of the most important findings from the report was that DIY investors still believe that price for commissions is an important factor. However, there are other components to the online trading experience that online brokerages the world over have to get right in order to retain or delight their clients.

The portrait of the online investor shown in the Refinitiv report is one in which there is little to no loyalty when it comes to staying with specific online brokerages.

In particular, an important finding of this report is that 47% of investors polled had a neutral Net Promoter Score (NPS) and 20% are “Detractors,” which implies that many investors view the relationship with their self-directed brokerage as transactional, and for a minority, as a negative. According to the survey, 33% of respondents would be considered Promoters – or individuals who would actively recommend their online brokerage (platform) to family, friends or associates.

Another interesting observation of the reported data is that different age groups have different needs and preferences when it comes to online investing information sources. In particular, younger investors appear to be more willing than older ones to seek out and use investment information on social media channels and forums.

Four key findings from the J.D. Power Investor Satisfaction Study were shared and included:

  1. Frequent glitches sap customer satisfaction
  2. Robinhood leads in new accounts but struggles to build trust
  3. Investor education remains the best resource, but brokerages not delivering
  4. Meeting clients’ holistic financial needs

There’s a lot to unpack in these four points, however, the first two points highlight that even in the face of record online account openings and customer growth in the US online brokerage space, brokerages have to prioritize stability and market accessibility in order to garner satisfaction (and potentially loyalty) from their clients.

The reality of the stock market is that it tends to work efficiently “most” of the time. However, at times of extreme volatility and emotion, that efficiency breaks down and opportunities for traders to capitalize on that efficiency gap present themselves.

For online investors brave enough to step into the volatility, especially in the US online trading space, it was evidently infuriating to encounter situations where trading platforms were down or trading was interrupted during the trading sessions when stock prices were moving around substantially. Similarly, when GameStop’s share price shot higher, the restrictions placed on trading those shares alienated significant pools of Robinhood’s audience and client base.

Arguably, one of the most interesting developments from the 2021 Investor Satisfaction Study is that the definition of “Investor Satisfaction” has now evolved to place trust at the top of the set of factors that determine whether an experience with an online broker is satisfactory.

What trust means, however, appears to be driven by accessibility and reliability of trading platforms.

The evolution of the investor satisfaction criteria, in particular the continued drop in prominence of price or value of fees, is fascinating in the context of the US online investing marketplace, where zero-commission trading has become the new normal.

For Canadian online brokerages, there is still a long way to go in terms of price drops before we reach full zero-commission trading, which means expectations for the online investor are likely high. As a result, the consequences of outages, trading interruptions, or anything that impairs accessing market opportunities quickly will be much worse for brokerages charging commissions per trade than those who do not.

People being charged what they believe to be high commissions per trade are going to be wary, if not resentful, of having to pay for trading online. The criteria from the J.D. Power Investor Satisfaction Study make it clear that when price is removed as a factor, service and the brand experience matter much more prominently.

It is on this latter point that both the Refinitiv study and the Investor Satisfaction Study by J.D. Power converge on a common issue: what is really special about an online brokerage?

When brokerages compete with one other on price, it becomes easier for consumers to set them apart on one of the most important metrics (price). But, when commission prices get to zero, it really does beg the question: What are you buying when you sign up for an online brokerage?

Features such as how easy or hard it is to get started, tracking transactions, access to reporting, data on portfolio/trade performance, and so much more than just the ability to place an order all make up important parts of the online investing experience (just ask any DIY investor at tax time).

In the case of the Refinitiv report, it’s also the data for trading ideas and opportunities that matters to investors. And, based on the J.D. Power study, it’s educating investors on the online trading experience.

Regardless of the study, it was fascinating that international investors and those closer to home share a view that most relationships with an online brokerage are “meh.” They are or appear to be transactional (thus their poor NPS ratings), and the online brokerage that has the best pricing or set of features wins.

With zero-commission trading, however, it is abundantly clear that features and client experience rise in prominence and highlight the need for online brokerages to focus on branding and defining what makes them special in the sea of sameness that is online investing.

Important Takeaways

COVID-19 has had a major impact on the online brokerage industry here in Canada as well as around the world. The data generated by several interesting research studies of the online investing space reveal that DIY investors are increasingly seeking out and demanding stronger digital experiences and features that provide either insights about investing or more efficient ways to manage and measure their own investment performance.

There are still a few more data reports set to be released about the Canadian online brokerage marketplace specifically over the next few months. However, this latest set of data about online investors provides great context for an industry in Canada that is seeing consumer sentiment and expectations be shaped by forces out of the US. It appears the same is true around the world, where the zero-commission trading option continues to spread.

When commission price does disappear, however, the lesson emerging from the different data points is for online brokerages to focus on the different components of the online investing experience with an eye towards improving the client journey to an online brokerage account, as well as what it feels like to be a customer.

And, despite some of the unknowns and limitations of the two data sets we examined, these reports provide valuable context and a pulse check on different demographics of DIY investors. This being the season of change, it seems entirely fitting that these reports are helping to understand what changes are starting to appear in the online investing landscape.

From the Forums

Out of Sight, Out of Kind

When it comes to resolving an issue with your online trading account, being seen or heard by your online brokerage is so important. In this post, however, one redditor has the unenviable moment where they have to get creative in order to be noticed by customer service.

Investment in Wealthsimple Attracts Attention

It wasn’t just the mainstream media coverage of the huge investment stake in Wealthsimple that was generating buzz. If ever there was an indicator of the popularity of Wealthsimple with younger, more digitally savvy investors, the buzz this news created on reddit is it.

Having reviewed thousands of online forum posts from DIY investors, seldom has a story generated so much engagement and interest as the news that Wealthsimple received a $750 million investment and valuation of $5 billion dollars. With over 900 upvotes and 400+ comments, there were a lot of opinions about what the investment means for Wealthsimple and in particular, Wealthsimple Trade. And these engagement numbers were on just one of the several posts about this topic that were generated this past week.

Suffice it to say that it wasn’t only online investors chatting about this development, there’s a good chance that many, if not all, online brokerages in Canada were also trying to digest how this massive infusion of capital into Wealthsimple is going to play out. We’ll cover more on this in an upcoming Roundup but for now, the sentiment in this post is telling.

Into the Close

It’s 2021 and things are a different kind of interesting. It’s fair to say that Elon Musk’s act on SNL is harder to follow than his explanation of what Dogecoin is. And yet, by announcing that Dogecoin is simultaneously a hustle and a method of payment for a mission to the moon, well, it seems like only Musk can top (or topple) Musk. For now though, here’s hoping that there’s more positive news on the vaccination front to look forward to this upcoming week. Have a profitable week ahead!