Tag: Wealthsimple Trade

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Discount Brokerage Weekly Roundup – August 24, 2020

It’s funny that gravity is often associated with apples falling. This week, we’re seeing Apple as the symbol of defying gravity. Of course, the iconic tech brand isn’t the only one defying gravity with markets hitting new highs – and apparently, some online brokers are too.

In this edition of the Roundup, we review some interesting news related to an increasingly popular online brokerage that has decided to flex their recently growing muscles against their competitors. From there, we highlight an interesting online investor education event for options enthusiasts who might just find an extra reason to show up to class in September. As always, we cap things off with some colourful commentary from DIY investors on Twitter and in the investor forums.

Robinhood Finds Riches with Latest Raise

Of the many twists that nobody really saw coming in the online brokerage space in 2020, having the most financially successful year (possibly ever) would not have been one of them. And, yet, here we are.

With just a few more months left in the year, it is hard to characterize 2020 as anything but a runaway success for many online brokerages in Canada and the US, especially for Robinhood – who has firmly locked in their status as the breakout star of the online brokerage world.

This month, Robinhood, which is not publicly traded (yet), decided to flex by reporting its June trading metrics. Robinhood customers racked up a staggering 4.3 million trades per day during June – higher than all of the major existing online brokerages and, in some cases, by a lot. TD Ameritrade, which came in second behind Robinhood in terms of DARTs, saw clients place 3.84 million trades per day; Interactive Brokers and Schwab both clocked in at 1.8 million trades and E*Trade at 1.1 million trades.

Why Robinhood chose to release these figures now is a bit of a mystery. However, they may be laying the groundwork for their eventual plans to IPO and what better way to demonstrate value to the marketplace than with the core metric that many online brokerages are evaluated against. Perhaps not coincidentally either, Robinhood also successfully closed another round of financing (series g) this year, raising 200 million dollars and vaulting their company valuation to 11.2 billion dollars from 8.6 billion just a few months ago.

What does this mean for the industry as a whole and for Canadian discount brokerages in particular?

First, it reinforces the notion that the path to success in the online brokerage industry points in one clear direction: scale. Without it, the machinery of the online brokerage business model simply cannot achieve the level of activity required to generate profitability. Relevancy is measured in how many accounts you have, the assets under management and how much trading activity takes place on your platform. Other metrics, however, which were also released by Robinhood on social media, point to the strength of their content infrastructure which puts them well beyond the reach of any of their peers.

Second, user experience is a big picture concept – pricing has to match the platform. Robinhood was built around and for a defined audience. It was built mobile first. It was built for younger investors first. The kinds of services and experiences these younger investors found more appealing were the areas in which they focused. Perhaps more impressive than their rise in numbers has been the fact they managed to create a powerful brand. The recent purchases of TD Ameritrade ($26 billion) and E*Trade ($13 billion) reflect a price that includes the value of the brand. The most recent valuation of Robinhood reflects a brand that has room to run. And, with a brand, it enables a premium to be paid to belong to the ‘club’ that is Robinhood.

Third, there is a clear disconnect in the online brokerage industry around the “zero commission” brokerages like Robinhood (and in Canada, Wealthsimple Trade) and whether they can be considered peers/competitors to online brokerages.

This past week, for example, financial information publisher Kiplinger released its online brokerage rankings in the US and surprisingly, despite the numbers of users on the platform, Robinhood was left off the list of online brokerages in the US that were considered for part of the review. The reason Robinhood was not included was “the mobile-first brokerage doesn’t offer trading of bonds or mutual funds—key investment vehicles for many of our readers.” A similar tone appeared in reference to Wealthsimple Trade in the latest Moneysense online brokerage rankings of Canadian discount brokers. According to the Moneysense review, “Wealthsimple Trade, which has been wrongly labelled by many as an online brokerage firm as it only offers a mobile application with limited functionality, resources, account types, product, market information and services expected of a Canadian discount brokerage firm.”

The view that the ‘mobile first’ approach or limited feature set are not as “traditional” may be true but it is precisely why they are as popular as they are. Further, if these firms are not ‘discount’ brokerages in the truest sense when the commission rates per trade are now as low as possible, then it begs the question – what are they?

Popular media, for better or worse, has already decided these trading apps belong to the same category of financial service as an online brokerage. Clearly, consumers are not shying away from the limited feature set either. Valuations, media mentions, metrics and consumer sentiment are all pointing in the same direction with what Robinhood has produced thus far. For any existing online brokerage or ranking to exclude firms like Robinhood or Wealthsimple Trade from their planning, seems like they do so at their own peril.

Options Education Day Goes Virtual

With September just around the corner, so too is chatter of back-to-school. While the annual ritual of heading back to class is mired in controversy because of COVID-19, there exists a pretty clear alternative to meeting in person for educational activities.

For those looking to learn about options trading, the good news is that the Montreal Exchange is taking their one-day Options Education Day workshop into an online format for the second time this year. Filled with interesting content for beginners and intermediate investors, Options Education Day is typically a great way to learn about options and interact with other like-minded investors. Another standard feature of the event is the opportunity to interact with the sponsors, who in this case, are largely made up of Canadian discount brokerages.

The next session of the virtual Options Education Day will be taking place online on September 12th from 12pm to 3:30pm ET.

Canadian discount brokerages sponsoring this event include:

While most of these sponsors are fairly regular faces at these events, one relatively surprising online broker on this list is HSBC InvestDirect. For the most part, HSBC InvestDirect has flown under the radar when it comes to a lot of the activities that other brokerages typically do, so while this may be a fairly low-profile event, it is nonetheless interesting to see HSBC InvestDirect stepping forward to participate, in particular, at an event focused on options trading.

Given the high levels of investor interest and volatility in the market, options trading – while complex – represents a very profitable revenue source for many online brokerages in terms of trading commissions, even more so than with trading stocks.

With Options Education Day moving to a virtual format, attendees from across the country will be able to connect simultaneously, so in some ways, it will be an opportunity to connect with a larger audience than would be possible in person. Online brokerages stand to save quite a bit of money in terms of travel expenses and materials.

One underreported perk for attendees of these events is that there can be online broker specials offered for new account sign-ups. While there is no guarantee of a deal showing up, there’s a decent bet that the brokerages sponsoring will want to provide something to entice the attendees.

Check out the Options Education Day registration page for more information.

Discount Brokerage Tweets of the Week

From the Forums

Too Much of a Passive Thing?

A Redditor poses the question of what the impact of the popularization of passive investing might be in this post. Fellow forum users weigh in, discussing what this means for the market and for active traders.

Reimbursting a Bubble

Security is serious business for all Canadian online brokerages. This post on Reddit caught the attention of a lot of readers who were interested to learn about reimbursement fine print at a popular Canadian brokerage.

Into the Close

That’s it for a very heady week in the markets, from markets continuing to push higher and Apple continuing to make trillion-dollar market caps seem normal, to all kinds of showdowns looming on the political front and sports in hyperdrive. Wherever your focus happens to be, here’s hoping you get a better view of where things go next.

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Discount Brokerage Weekly Roundup – August 17, 2020

It’s just past the middle of August and, wow, have things heated up all over the place. From hot weather across Canada to action in the online brokerage market, to new market highs, there’s definitely no shortage of action under way.

In this week’s Roundup, we decided to shake things up a bit and cover several of the smaller stories that have taken place among Canadian and US online brokerages this month. Think of it like the salad bar edition, where the stories are crisp, fresh and offer a healthy dose of interesting insight into the online brokerage market dynamics.

Keep reading for updates about one offer that has snapped the dry spell for online brokerage deals; good news coming for active traders using thinkorswim; how one online brokerage is making waves by launching crypto trading; and how a recent merger will present challenges to staying “on brand” for a popular Canadian discount broker. As always, we’ve collected some of the chatter from DIY investors on Twitter and in the forums.

HSBC InvestDirect Launches New Commission-Free Trade Offer

The long dry spell in the Canadian discount brokerage deals and promotions section is finally over, courtesy of an unlikely source, HSBC InvestDirect.

While this online brokerage does launch promotional offers from time to time, the bigger story here is that nearly all of Canada’s discount brokers have been on the sidelines all summer (and as far back as late spring). As such, seeing a number of larger name online brokerages (such as TD Direct Investing and Scotia iTRADE) start to advertise online lately and now HSBC InvestDirect launching a new offer signals that brokerages are positioning for the annual ramp up in activity that takes place towards the end of the year.

The offer, which officially launched on July 27th and runs until October 30th of this year, is for 60 commission-free trades of North American equities or ETFs. The deadline to use these trades is 60 days from the time of account opening. This deal is open to new and existing clients of HSBC InvestDirect.

Although most Canadian discount brokerages recognize the small market share of HSBC InvestDirect in the online brokerage space, this could work out in HSBC’s favour – at least until other online brokerages start ramping up their own advertising efforts.

For the moment, HSBC InvestDirect only has to share the spotlight with Questrade when it comes to brokerage offers. And, while HSBC InvestDirect’s commission-free trade offer is good, the bigger benefit will be online investors, who are interested in promotional offers, kicking the tires (so to speak) on the HSBC suite of services more broadly.  

Just Keep Swimming

For many, there is no better way to stay cool during the summer than with a nice dip in a pool or lake. For DIY investors who are big fans of the thinkorswim trading platform, the recent acquisition of TD Ameritrade by Charles Schwab raised some questions on what exactly the new user experience would be in the new entity.

With the acquisition now cleared from a regulatory standpoint, many investors will be watching exactly how these two titans in the online brokerage space will integrate. The length of the integration period is forecasted to take between 18 and 36 months. One of the most popular features to active traders and investors, the thinkorswim platform, is being eagerly monitored.

Earlier this month, Schwab released a statement confirming that thinkorswim (and thinkpipes), as well as the accompanying educational offerings for retail investors, will be integrated in the new Schwab experience.

For Canadian investors who like (and use) the platform, this is welcomed news. The thinkorswim platform is currently available to Canadian customers via TD Direct Investing, although approval for a US margin account is required to access it.

Wealthsimple Moves Forward on Crypto Trading

Speaking of pools and making ripples, Wealthsimple, the parent to Wealthsimple Trade, announced earlier in the summer that they were going to enter the crypto trading space and allow clients to trade Bitcoin and Ethereum.

This month, Wealthsimple provided an update on the status of their cryptotrading venture. The Canadian Securities Administrators (CSA) have approved Wealthsimple to join the “regulatory sandbox” which essentially provides a regulator-approved framework to test this new service. There are many interesting details from the Wealthsimple filing, however a few that piqued our interest include:

– how Wealthsimple intends to make money from crypto trading (via the spread)

– whether or not investor assets are protected (assets are not protected by CIPF nor by CDIC)

– how transactions will actually take place (closed loop system)

Timing-wise, it is an interesting move for an online brokerage to pursue trading in cryptocurrencies considering the dramatic pullback in interest compared to 2018. Clearly, the same frenzy does not exist now, but the fact that Wealthsimple Trade will be the first Canadian online brokerage to offer direct trading in cryptocurrencies, like Bitcoin and Ethereum, means that the portion of the DIY investor market that is interested in these cryptocurrencies will now have a venue to do it on.

What is probably most interesting from a competitive standpoint is that many DIY investors who have been on the fence about Wealthsimple Trade might see this as the feature that they cannot access anywhere else. As such, the launch of cryptocurrency trading at Wealthsimple is as much about facilitating a way to trade these financial instruments as it is a way to try and win over new clients from other online brokers.

Given the regulatory framework under which this program is governed, and the nature of the crypto assets being traded, there will be considerable scrutiny on crypto trading at Wealthsimple. While the future of the program itself is uncertain, for the near term, this latest feature will give DIY investors (and other online brokerages) another big reason to pay attention to Wealthsimple Trade.

Staying on Brand: CI Direct Investing Continues to Take Shape

The big brand consolidation taking place at CI Financial took another big step forward this month, with the official announcement that WealthBar has officially transitioned over to CI Direct Investing.

The announcement itself was light on details other than to assure users that the investing experience won’t change. The only changes will include small (important) details, like the new website URL and the mobile app updating to the new branding. With WealthBar now taking on new branding, next on the list will be Virtual Brokers.

As announced in their Q1 2020 earnings call back in May, CI Financial will be looking to consolidate both WealthBar and Virtual Brokers under the CI Direct Investing banner. This could be an interesting moment in the online brokerage space in Canada for a number of reasons. First and foremost, Virtual Brokers, for multiple years, has earned top marks with the coveted Globe and Mail online brokerage rankings. The move to a new name will certainly stir up some degree of confusion among DIY investors; however, more than that, one of the reasons why Virtual Brokers has scored so well on the most influential online brokerage ranking in Canada is because it prioritized features that appealed heavily to younger investors and, of course, it was among the lowest-cost online brokerages in Canada.

With a new parent brand, especially one that has so much more of a premium feel to it, how Virtual Brokers transitions its ‘frugal’ roots to this new home will be interesting to watch. The decision to go with the marketing term of “direct investing”, compared to “discount brokerage” or “online brokerage,” is already a signal that CI Direct Investing would prefer to compete more directly with the bank-owned online brokerages who’ve both silently and overtly started referring to DIY investing as “direct investing.”

Of course, to help ensure that investors know who the CI Financial brand is, there will likely have to be a significant marketing campaign by CI Direct Investing to ensure investors know that this online broker exists and what kind of experience and pricing they can expect. This will be of particular interest to watch heading into the fall season, as this is typically the time of year when many online brokers release important new features.  

Discount Brokerage Tweets of the Week

From the Forums

Exit Strategy

An older forum user asks what the best course of action is for a couple with a remaining 10-year life expectancy in this post. Commenters provide their thoughts on capital preservation for inheritance and offer short-term plans with maximum benefits.

Should I Stay or Should I VGRO?

In this post, a Redditor turns to the forums to get a basic understanding of where to hold an ETF. Fellow forum users engage in a lively discussion on the subject.

Into the Close

If you’re feeling the heat, you’re probably not alone. With temperatures across the country soaring, stock markets reaching all-time highs and what feels like a volatile situation (to say the least) across the border, there are plenty of reasons to break a sweat this week. Fortunately, the heat also means that it’s fair game to find fun ways to stay cool. The big restart taking place in sports appears to have begun – so whether you own a big fan or are one, here’s hoping for an easy, breezy weak ahead. Oh and don’t forget to stay hydrated!

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Discount Brokerage Weekly Roundup – August 10, 2020

There’s nothing quite like being able to stay cool on a hot summer’s day. Whether it’s with a cold beverage, a spot in the shade, or just taking it easy, everyone has their own preference when it comes to handling the heat. One group not sitting around resting this summer, however, is Canadian discount brokerages.  

In this summertime edition of the Roundup, we take a look at the most recent Canadian online brokerage rankings – who won and what interesting stories emerged from the rankings data. Also on the pool deck, a small but interesting development in the investor-education arena that may be a signal of things to come this fall. As always, the fan favourites of forum chatter and DIY investor comments from Twitter will help close things out.

Diving into the 2020 MoneySense Online Brokerage Rankings

This past week, MoneySense’s 2020 online brokerage ratings were in the spotlight courtesy of a press release from Qtrade Investor, the winner of the best online brokerage title in this year’s ranking. Although the results were published in mid-July, and there were mentions of the accolade on social media, the official press release provided additional context around the results and the win for Qtrade Investor.

This is yet another major recognition for Qtrade Investor in terms of rankings awards in the 2020 season. Earlier this year, Qtrade Investor took top spot in the coveted Globe and Mail online brokerage rankings, and in December of last year, Qtrade also earned first place in the Surviscor online brokerage experience rankings. Suffice to say, Qtrade has found itself atop (or close to the top of) many of the most important online brokerage rankings for the better part of a decade.

As with previous rankings, the data from this year’s MoneySense Canadian online brokerage review was generated by financial services research firm Surviscor, which also conducts its own set of reviews for the Canadian online brokerage industry. Data underlying the review comes from the synthesis of an extensive questionnaire, assessments of the platforms themselves, and tests of “service interactions” over the span of a year. Firms are scored across seven different sections, and the total score assigned is based on weightings in each category.

Though rankings are a staple presence in how online investors make decisions about online brokerages, their greatest appeal is also one of their biggest limitations. At the heart of the issue is that most online broker rankings simplify the analysis across a number of features, and many of the features being analyzed are highly subjective and therefore subject to interpretation. Also, different online brokerage rankings measure success differently. The methodologies are different, and what is being measured is often also different enough (and online brokerages themselves close enough) that small variations in how online brokers are scored can present differing results. Case in point, the fact that Qtrade Investor can appear first in three high-profile rankings (The Globe and Mail, MoneySense, and Surviscor) but not at all in the J.D. Power 2020 Canada Self-Directed Investor Satisfaction Study suggests that online investors turning to rankings do need to ask (or rankings creators need to report on) what the rankings measure and why all Canadian online brokerages are not included.

Although the headline of Qtrade Investor taking top spot in the most recent rankings is important, what also stood out as interesting about this year’s MoneySense rankings were the categories that were reported on. Specifically, the following:

Best online broker for feesDesjardins Online BrokerageNational Bank Direct Brokerage
Best online broker for user experienceQtrade InvestorQuestrade
Best online broker for ETFsQtrade InvestorNational Bank Direct Brokerage
Best online broker for market dataTD Direct InvestingQtrade Investor
Best online broker for mobile experienceQuestradeBMO InvestorLine
Best online broker for initial impressionsQuestradeTD Direct Investing + National Bank Direct Brokerage
Best online broker for customer serviceQuestradeQtrade Investor

One of the most highly prized categories for the discount brokerage space is, without question, commission fees. As such, the biggest surprise was in the fees category that saw two close online rivals, Desjardins Online Brokerage and National Bank Direct Brokerage, place first and second, respectively. Despite their strong showing in this category, their absence from the top spot in the overall ranking illustrates that, clearly, low fees are not the only factor at play in determining the rankings.

Another interesting observation in the latest MoneySense discount brokerage rankings is that the closest rivalry brewing among online brokerages isn’t at the bank-owned brokerage level but between Questrade and Qtrade Investor. Even though Qtrade Investor did take first place this year, they reclaimed the title from Questrade, who took top spot last year. Also, there were two important categories that these two firms competed closely in: user experience and customer service.

Interestingly, Questrade also took top spot for best initial impression and best mobile experience, which are key features for younger investors. In the current COVID-19-influenced market, these features are especially important to the new wave of active and engaged investors and traders participating in the stock market.

The third, and perhaps most controversial, point of interest is the decision on the firms not included in this year’s rankings: Interactive Brokers and WealthSimple Trade.

While the MoneySense rankings do target the “average” investor, the reality for the online investing marketplace in Canada is that these two firms are popular with DIY investors. And, given the firms’ popularity, one of the features of the rankings that would help clarify why these two firms didn’t fit the bill is some further explanation on what the “average investor” experience is characterized by.

The reasons cited for not including Interactive Brokers were that “it is not designed for an average investor and it simply has not fully Canadianized its offering.”  

To be fair, in the case of Interactive Brokers, founder and former CEO Thomas Peterffy has often characterized the Interactive Brokers retail client as typically more sophisticated than the “average investor” in terms of their knowledge about the markets and investing, as well as in the kinds of products traded and the volume of those trades. That said, the components that helped the brokerages in the coveted category of fees referenced options trading, a product that is more likely/appropriate for sophisticated investors. Further, of the five investor profiles used in the analysis, trading frequency would also (presumably) include a very active category. On those two points, it seems like decisions were made outside of what would be the “average investor.” Further (and as seen below, too, with Wealthsimple Trade), investors are hungry to trade US markets as much as they are Canadian ones. Without more information on what being “Canadianized” refers to, it is harder to understand the rationale for excluding them.

In the case of Wealthsimple, it also seems to be a controversial decision not to include them as a competitor online brokerage to incumbent discount brokerages because of limitations to certain features. Specifically, the article stated: “we do not see why a novice investor would even consider the platform as the cost savings of dollars per trade, in our opinion, is not worth the lack of guidance, education and market depth, to name a few, required by a novice or average DIY investor.”

As a mobile-first platform, they would arguably provide a strong mobile user experience (something that incumbent firms would be weak on by comparison) but rank poorly when it came to the non-existent desktop platform. Further, simply because other firms offer features that Wealthsimple Trade does not, it doesn’t mean the features being offered are done well.

It was the last portion of the sentence in reference to Wealthsimple Trade that really stood out, in which the article stated that the online brokerage did not provide what was “expected of a Canadian discount brokerage firm.” By some measures, the data would disagree.

The surge in new accounts opened at Wealthsimple Trade this year suggests that, perhaps, what the market of online investors expects from a discount brokerage is changing. And, therein lie the limitations of the online brokerage rankings: these rankings often contain built-in expectations of who can/should participate, based on eligibility criteria. The authors believe (and state) that, in their opinion, Wealthsimple Trade “is not worth the lack of guidance, education and market depth, to name a few, required by a novice or average DIY investor.” The counter-argument could certainly be that even if those features were present, if they were poorly designed, they would confer no advantage to an investor and therefore not justify the cost of inflated commissions.

At a zero-commission level, investors are savvy enough to know there is clearly a trade-off – and one that the market of online investors in the US has been happy to make. Here in Canada, though the numbers are small, they are worth taking seriously. Wealthsimple Trade has grown to about 180,000 users, for example.

Perhaps the most compelling challenge to the reasons for being excluded is found in the Wealthsimple Trade feature requests section. While desktop access is the most requested feature, nowhere on the requested list of features is “education” or “guidance” or “market depth.” The fact that actual customers have spoken and not mentioned most of the features that disqualified Wealthsimple Trade from being included in this ranking is important.

Finally, and perhaps most ironically, Wealthsimple hasn’t “Americanized” enough (according to features requested by their clients). So, the fact that Interactive Brokers hasn’t “Canadianized” enough seems to run contrary to what an important segment of the market is demanding, which is US trading access. The fact that Interactive Brokers does this extremely well – even for their Canadian clients – means that it is probably worth explaining further what “Canadianized” really means and whether it is grounds for exclusion.

National Bank Direct Brokerage Gets Back to Investing Basics

One of the interesting developments to surface this past week has been in the investor-content space – specifically as it relates to investor education. During COVID-19, National Bank, which is parent bank to National Bank Direct Brokerage, has significantly ramped up their investor content online, in particular doing video updates on the state of the economy and addressing questions about investing and personal finance.

While the majority of this content featured senior analysts, economists, or executives from National Bank, something new emerged this week on video as National Bank Direct Brokerage launched what seems to be a new series on the basics of investing on YouTube featuring the popular investing personality Larry Berman (featured guest of BNN’s Berman’s Call).

There aren’t too many Canadian investing “personalities,” but Larry Berman is certainly one of them. For many years, Berman has held his famous roadshows across Canada and was sponsored by Scotia iTrade and BMO ETFs. This latest development, in which he is offering exclusive content for National Bank Direct Brokerage, will undoubtedly leverage his recognizable and trusted presence in the online investing world on BNN in a new medium. What will be interesting to watch, however, is whether he will connect with younger audiences the way that he has typically connected with older investors who were the mainstays of his roadshows and who often call in to his BNN show.

With this latest development, it seems like investor content will once again become a place for Canadian online brokerages to come back to. The COVID-19 pandemic has likely changed the demand prospects for online trading. As such, appropriate content for investors will be more important and influential to finding and engaging online investors.

Discount Brokerage Tweets of the Week

From the Forums

Time Out

In this post, an investor turns to the forums to determine if they should sell now, particularly with gold at an all-time high, or wait a while to minimize their time off the market.

Dividend and Conquer

A DIY Investor wonders if it may be wise to focus on ETFs with high dividends. Fellow Redditors break down the mathematics and recommend instead focusing on total return in this post.

Into the Close

That’s a wrap on another week. The temperature isn’t the only thing starting to heat up – it looks like feature and promotion action at Canadian online brokerages is also starting to come back online after several months on pause. Suffice to say there are now even more things to tune in to, which is going to make justifying watching all the wonderful pet-driven content and dance videos that much harder. Stay cool!

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Discount Brokerage Weekly Roundup – July 27, 2020

For anyone keeping score at home – July is almost over. The strange pace of time that COVID-19 has imparted on the world is equaled only by the strange behaviour in stock markets that, because of COVID-19, have seen major indices fall off a cliff then sharply rise close to the edge they fell from. For online brokerages, waves have taken on a different meaning this summer, and in looking down the track to the end of 2020 (thank goodness), preparation should be on the list of important summer activities.

In this edition of the Roundup, we look at one story with several important facets. The latest earnings from US online brokerages are in, but the real story appears to be not where we’ve been but rather where things go from here for online investors. Also on the docket, interesting chatter from DIY investors on Twitter and from the forums.

Breaking Fad: Is the Retail Investor Frenzy About to Expire?

The story on the meteoric rise in trading by “retail investors” over the course of the COVID-19 pandemic continues to gather steam. Ironically, while we’ve been covering this news since March of this year, the fact that it is now hitting the “major” news outlets could be a signal that the retail frenzy is about to lose considerable steam.

This past week, there were several major US online brokerages that reported their quarterly earnings. TD Ameritrade, E*Trade, and Interactive Brokers all showcased record-breaking performances in terms of trading activity as well as in terms of account openings and earnings. In contrast, although the largest online brokerage in the US, Charles Schwab, experienced similarly large volumes of activity, revenues and earnings missed estimates. All told, however, it was another eye-popping quarter filled with people coming in droves to trade stocks.

Not to dismiss the earnings and performance metrics, but much of this data is looking in the rear-view mirror at what’s already happened. At a time when so much news is happening so quickly, it’s important to stay on top of what’s actually taking place.

Beyond the numbers, however, the bigger stories emerging from the narrative around online investing appear to be in how different, and influential, stakeholders are covering the online brokerage space, and what that means for the near-term future for the industry in the US as well as in Canada.

The first interesting angle on the coverage of the retail-trading frenzy came from one of the most influential voices for investing and trading in North America, CNBC. And what stood out was as much what was said as what wasn’t.

Last week, online brokerage Robinhood was casually referenced as one of “the major online brokers” in an article by CNBC, and Interactive Brokers was not. Though this might have been just an omission (Interactive Brokers and Robinhood were mentioned as major online brokers in another article by the same author), the fact that Robinhood is now being counted among the “major” publicly traded online brokerages (even though it is not yet publicly traded) arguably reflects a step change in who they are as a firm and in the influence their clients have on market direction.

Whatever the calculus was, Robinhood’s vaulting to the status of “peer” of the much larger incumbents means that growth is happening much faster than anyone had planned for. Perhaps this is behind the decision to delay Robinhood expanding to the UK (for now).

Two important facts stand out as important context: First, despite the best account-opening numbers from any of the publicly traded online brokerages in the first six months of 2020, Robinhood handily beat them by adding over 3 million accounts. Second, Robinhood did this despite peer firms taking commissions to zero, meaning that consumer preference likely played a decisive factor in online investors picking Robinhood over Schwab or Ameritrade or E*Trade.

For US online brokerages, it should be abundantly clear that the rise of Robinhood signals that they cannot afford to discount “millennial” (or future) investors anymore and that platform adoption is going to be heavily influenced by user experience – in particular on mobile. While this shouldn’t be news to anyone in the online brokerage industry by now, the fact that so many online brokerages have seen their market share erode or be captured by Robinhood, especially in the millennial segment, means that other online brokerages are going to be playing catch-up.

Overlaying what’s unfolding in the US online brokerage market with the situation in the Canadian online brokerage space, it’s interesting to see which Canadian discount brokerages are putting a priority on design and user experience ahead of other long-standing “standard” features. Arguably, it’s a short list.

Both Wealthsimple Trade and Questrade have managed, from a feature and accessibility standpoint, to successfully reach and appeal to younger investors, and the former is clearly taking many of its cues from Robinhood. Like Robinhood in the US (but without the same degree of scale of impact), Wealthsimple (and especially Wealthsimple Trade) is being talked about in the media as it relates to investing online. Other Canadian online brokerages: crickets.

Perhaps the question that incumbent online brokerages on either side of the 49th Parallel need to wrestle with is given Robinhood’s gains with the millennial segment, how hard will it be for them to appeal to the older or more mature investor segment? Can existing online brokerages move down market faster than Robinhood can move up? Does the same hold true for Wealthsimple Trade, even though they still have lots to develop to compare fully with online brokers in Canada? Sounds a bit like an innovator’s dilemma if ever there was one.

The second interesting angle relating to the coverage and response to the retail-investor market comes from assembling the fragments of highly seasoned and influential voices in the online investing market. In particular, it was the notes of concern expressed by the head of the NYSE, the founder of Interactive Brokers, as well as a slide from the deck of Schwab’s business update showing sentiment among investors that paint a curiously grim picture just as the S&P 500 is within spitting distance of its all-time high.

Consider the following:

In a recent interview with CNBC, the president of the NYSE, Stacey Cunningham, stated: “I am excited to see the retail investor engaging in the market, but I’m also concerned if they’re not doing it with information and also not understanding the risks associated with it, because you certainly don’t want to see retail investors get hurt because they didn’t understand that markets can go in both directions and they can go pretty quickly.”

In an interview with CNBC regarding earnings, Thomas Peterffy, founder of Interactive Brokers, labelled the action in the current market environment as “crazy” and characterized trading levels as unsustainable over the near term.

According to the latest business update from Schwab, investor sentiment continues to track lower despite markets’ substantially rebounding from their lows.

Finally, there’s the growing chorus of experienced market observers, analysts, and influencers who are also increasingly skeptical of markets’ powering higher and the sustainability of that move.

Aside from the latter (typically pundit) view, there is a cause for concern when individuals representing businesses that would directly benefit from more trading state they’re concerned about the levels of trading taking place.

While the pace of retail-investor activity is almost certainly going to decline, when and how rapidly is simply a waiting game. It will be interesting to see whether or not the decline will once again entice investors back into the market the way the first drop did in March or, as the concerned voices seem to suggest, whether retail investors will get badly burned by a contraction. Regardless, any kind of volatile downward move is likely to generate significant trading activity and put pressure on technical as well as service systems across the online trading ecosystem.

There is already discussion of preparing for a second wave of COVID-19 outbreaks here in Canada, and with the current situation in many states of the US unpredictable (or just dire), the risks for continued pandemic-related economic (and health) impacts seem likely. What this directly means for online brokerages in Canada is that their trading systems and customer service delays should be prioritized to be fixed, because there are a lot of nervous investors holding into these rallies.

Indeed, DIY investors must also be prepared for market volatility. The track record for most online brokerages in Canada during March was that there were untimely delays or outages during massive volatility days. Time has passed but investors (as shown in Twitter comments) tend to remember moments when their online brokerage platform or customer service experience let them down.

As much as commission cost and user experience are clearly going to be driving the bus when it comes to DIY investor interest, uptime (aka reliability) and wait time are going to keep clients on the bus, even (and perhaps especially) when the road gets bumpy. If things go awry for online investors in the US, at least they can cite not having to pay commissions, but here in Canada, the expectations for performance and reliability are directly tied to the price. And, in a world where commission price exists (in spite of zero-commission alternatives), there is little room (or patience) for things going wrong.

Discount Brokerage Tweets of the Week

From the Forums

The Grass Is Always Greener

A Redditor asks if there’s a benefit to investing in Canadian versus American ETFs in this post. Commenters break down factors such as commissions, exchange rates, and long-term market patterns to tackle this big question.

A Rare Stake

In this post, a potential investor asks for advice on whether or not they should buy shares in the company they’ve been at for the past two years. Fellow forum users give their perspectives and offer insights into the company’s possible motives.

Into the Close

That’s a wrap on what has been an insightful few weeks in the online brokerage space. While the US market has dominated the headlines, there’s still activity taking place among Canadian brokerages, which will start filtering back into the mix. In the meantime, with gold and bitcoin creeping past key psychological hurdles, and more stimulus money in the works (in the US), it looks like the music is still going for just a bit longer.

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Discount Brokerage Weekly Roundup – July 20, 2020

Elon Musk isn’t just a fan of shorts this summer. He’s also taken a pretty long view on bringing big ideas to fruition. As markets continue to press higher despite what appear to be doom-and-gloom messages about the real economy, it seems like the distant future is being priced in rather than the immediate one. Curiously, the thesis of looking past the current crisis is one that online brokerages appear to be doing, understanding (and hoping) that things will get resolved in due course.

In this edition of the Roundup, we take a look at a curious (but perhaps predictable) development at the largest online brokerage in the US and examine what their latest earnings report portends for the industry in the US and here in Canada. From there we’ll take a look over a different fence, at a popular Canadian robo-advisor that is clearly taking its cues from what’s working in wealth management (and online investing) in the US. As always, we’ve collected stories and reactions from DIY investors in the past week from the forums and on Twitter.

Online Brokerages See Weakening Earnings

There are some things that seem like a good idea, until they don’t.

This past week, the first in an upcoming wave of financial reports from US online brokerages was released, and the financial results were, um, not good.

The largest online broker in the US, Charles Schwab, reported their financial performance for the last quarter, and despite seeing record levels of new account sign-ups and record trading volumes, earnings came in lower than estimated.

This past quarter, Schwab added another 552,000 new accounts (excluding the 1.1 million accounts that came their way via the USAA acquisition), which was just over 9% less than the 609,000 new accounts opened the previous quarter. Nonetheless, a million new accounts in half a year is a staggering number when looked at across the past six months (although Robinhood managed to open 3 million new accounts in half that time). Also incredible was the daily trading volume, which clocked in at 1.62 million daily active trades, an increase over the 1.54 million daily active trades from the previous quarter.

With more clients and more trading, things should be rosy for an online brokerage, except for one small detail: Commissions for trading are now at zero.

What the new reality of operating in a zero-commission world translated into for the largest online broker in the US was that on the top line, Schwab missed on revenue estimates by a little ($40M USD), at $2.45 billion. However, when all was said and done, the bottom-line earnings of 48 cents per share was well short of the forecasted 53 cents per share. While this quarter may be disappointing on its own, when viewed against where Schwab was at last year, revenue is down 9% for the same three-month period, and net income is down a whopping 28%.

Even so, commissions don’t drive most of the earnings at Schwab anymore – instead, fees and interest revenue do. Nonetheless, it appears that structurally Schwab saw an opportunity to deepen its business in the online brokerage market by acquiring TD Ameritrade (and their assets as well as clients). Incidentally, as reported in their financial performance release, the deal to acquire Ameritrade has received regulatory clearance to proceed.

Despite the miss in terms of revenue and earnings, it appears there is a longer game at play, namely to massively scale up.

Schwab’s assets under management are now $4.11 trillion dollars (that’s trillion with a T) and continue to generate substantial revenue at healthy margins. For the time being, Schwab appears to be able to weather the storm of lower interest rates. However, it’s clear that zero-commission trading has challenged Schwab to find new revenue sources. The silver lining: their competition has to, too.

With the latest numbers coming out of the US, the fact that an online brokerage the scale and profile of Schwab is struggling to meet revenue and earnings forecasts suggests that Canadian discount brokerages will likely not be in any more of a rush to lower their commissions, least of all to zero.

A conversation this past week on BNN focused on the US online brokerage market and whether commission-free trading would or could gain traction here in Canada. The key takeaway in this segment is that Canadian online brokerages do not feel the pressure to match, in terms of pricing or offerings, what Schwab or Robinhood are currently doing in the US.

So, despite there being investor appetite and desire to see more commission-free trading here in Canada, there is no catalyst for online brokerages to do so at this time. That said, when investor appetite to wade into the market subsides – which the latest data on account openings suggests is taking place – online brokerages here in Canada are going to have to work especially hard to capture and hold the attention of folks who may have become accustomed to outsize returns in short amounts of time.

The next few weeks will be instructive to the direction for the rest of the year. We’ll be watching what happens with the largest players in the US discount brokerage space for clues on how Canadian discount brokerages will have to respond when/if another drop in commission pricing occurs.

Wealthsimple Makes Token Gesture to Launch into Crypto Trading

There’s no doubt that in the US online brokerage space, Robinhood has made a name for themselves not just for the low cost of trading but also for being agile around releasing new features and reimagining the user experience of an online brokerage account. From the time they launched in 2013 through to this year, Robinhood has grown its customer base from zero to over 12 million users and its valuation to $8.6 billion.

It is perhaps no accident, then, that Robinhood serves as an example of how to successfully connect with a younger audience of investors and why financial services providers in Canada (and the US), especially those in the wealth management/online brokerage space, would want to pay attention to the kinds of features being released by Robinhood.

In Canada, Wealthsimple appears to have followed in the footsteps of the US online brokerage when it comes to focusing on a younger audience and the user experience and attempting to democratize finance by making it “easier” and more accessible for most investors.

One clear parallel between Wealthsimple and Robinhood was the launch by Wealthsimple of their direct investing solution, Wealthsimple Trade, which charges no commission to buy or sell stocks. This past week, yet another parallel between these two firms emerged when Wealthsimple announced they would be exploring the launch of cryptocurrency trading.

Trading in cryptocurrencies was something that Robinhood launched in 2018 – right around the height of the crypto craze – and they have been rolling it out across the US since then. Two years into cryptocurrencies, much of the initial hype has died down, but it’s clearly a value driver for Robinhood clients curious or interested in trading it. Given the recent volatility in both Bitcoin and Ethereum, cryptocurrencies are finding their way back into the spotlight, so it is a good time for Wealthsimple to be launching their new trading platform.

In true Wealthsimple fashion, however, trading in cryptocurrency on their platform isn’t ready just yet, but that has not stopped them from garnering interest ahead of the release. As with their Wealthsimple Trade product, Wealthsimple has created a waitlist for interested parties to sign up for cryptocurrency trading when the trading feature becomes available.

In the highly commoditized environment of discount brokerages (and wealth management more broadly), what makes one brokerage stand out over another is going to become increasingly important. Pricing is still a place where this can happen – specifically commission pricing per trade – however, the other key value driver is in features, which is where Wealthsimple launching a cryptocurrency trading platform significantly differentiates them from their peers.

Perhaps another good piece of news for Wealthsimple is that they have close to two years to study what has happened with Robinhood’s cryptocurrency experience, to hopefully make this as smooth a deployment as possible.  

Whether or not cryptocurrency picks up any time soon, it appears that because they will offer direct trading of cryptocurrenies, Wealthsimple will have ample room to run unchallenged by Canadian online brokerages, a rare situation in a highly competitive landscape.

The combination of a mobile-first mindset, a sound content strategy, low pricing, and a deliberate investment in aesthetic appeal means that Wealthsimple has raised the bar on most, if not all, online brokerages in Canada to step up or risk getting left behind.

Despite joining the crypto-trading party very late, Wealthsimple doesn’t have to be original to be considered innovative in the Canadian online brokerage space. They simply have to move faster than their peers at getting in-demand features up and running, which by this latest announcement it appears they’re managing to do.  

Discount Brokerage Tweets of the Week

From the Forums

The Graduate

A recent graduate turns to the forums for some clarification on the pros and cons of index funds and ETFs in this post. Fellow Redditors explain the advantages and disadvantages of each and offer insights into how timelines can impact one’s investment plans.

The Tortoise and the Hare

In this post, a curious Redditor ponders the age-old question of whether staying on a steady course is better than “splurging” on a potentially high-growth stock.

Discount Brokerage Tweets of the Week

Into the Close

It’s been an interesting ride thus far, with markets continuing to press higher despite a worsening health crisis in the US. In the online brokerage space, this week will put a spotlight on earnings from other big online brokers and some business updates. Despite the summer weather outside, it seems like we’ll be glued to our screens as more news continues to break.

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Discount Brokerage Weekly Roundup – June 22, 2020

Summer is officially here. With warmer weather now upon us and progress – albeit slower than anyone would like – in the battle against COVID-19, it appears that there is reason for some cautious optimism. A group feeling particularly optimistic heading into the summer are Canadian discount brokerages. The combination of standard commission rates and higher trading volumes means a rising tide for the fortunes of Canada’s brokerages.

In this week’s edition of the Roundup, we hop back into the saddle after a week away and profile the interesting shift to Canadian online brokerages being candid about the numbers of investors opening accounts. From there, we focus in on the signs of change taking place at a pair of online brokers and the visual shift to become more diverse on their website. As always, we’ll close out the roundup with chatter from the investor forums and on Twitter.

Counting on Numbers: Online Brokerage Activity in the Spotlight

For Canadians, our neighbours to the south are a constant source of news and focus. In covering the online brokerage marketplace in Canada, however, the activities in the US take on an even greater significance. The US online brokerage space – and by extension the activities of retail investors that funnel trading activity through those brokerages – provides an interesting window into the trends impacting investors who choose to trade stocks online.

One of the biggest stories in the online brokerage space that we have been monitoring and reporting on since March of this year has been the spike in investor interest in participating in the stock market.

In what would normally be an environment that would “scare” investors away, the reality of the whipsawing market in hard numbers from US online brokerage shows just the opposite. The volatility in the markets has caused a surge in online investing account openings as well as record trading activity. Even though the word “unprecedented” has been tossed around a lot during the COVID-19 pandemic, the reality is that online brokerages in the US have never really seen this level of interest and activity in their history.

Which brings us to Canada. The news around trading activity among Canadian DIY investors and what that means to Canadian discount brokerages is only starting to trickle through.

Unlike their US counterparts, Canadian online brokerages are not publicly traded – at least not as a pure play, the way Interactive Brokers, Schwab, Ameritrade (which is in the process of being acquired by Schwab), and E*Trade (which is in the process of being acquired by Morgan Stanley) are. Those US online brokerages frequently and regularly comment on their performance, which includes standard key performance indicators (KPIs) on the success or health of the business. Included in those metrics is usually data on trading volume, revenue from trading, and the total number of customers, as well as new customer accounts, in any given period. Because the US online brokerages are publicly traded, they are required to disclose a lot more about their business than private companies are.

In the Canadian online brokerage marketplace, however, things are very different. Online brokers in Canada are normally coy or silent about the hard numbers regarding account openings, trading volume, and revenue generated from trading commissions. But these are not normal times, and the news cycle covering online brokerage activity among retail investors in Canada has a surprisingly high number of online brokerages disclosing information about the numbers of accounts opened and trading volumes – to a degree.

Over the past few weeks, Canadian online brokerages such as BMO InvestorLine, Questrade, Scotia iTRADE, TD Direct Investing, and Wealthsimple Trade have weighed in on the record levels of trading and account openings they have witnessed. This past week, BNN Bloomberg cited numbers from a recent Investor Economics report that showed close to 500,000 accounts were opened in the first quarter of the year here in Canada. The fact that online brokerages or BNN are talking about these numbers at all is highly unusual. However, when diving into the numbers themselves, it is also worth noting that there is no analogous disclosure mechanism in the US that would require or compel an online brokerage in Canada to reveal these numbers. In other words, it’s largely the honour system at play. The operative questions would be why – or at least why now – and what would they stand to gain by putting these numbers “out there”?

One important reason is because the traditional media is putting a spotlight on the issue, it is a great time to get additional exposure without having to dip too far into an advertising/marketing budget. Having a platform like BNN reach out to discuss the state of the markets and the retail investor angle is certainly a great way to gain exposure on a topic that is central to their business. A second reason to start flexing on numbers is to indicate to potential clients the “popularity” of the brand with online investors.

The saying in the stock market is that higher prices lead to higher prices. When it comes to sharing how many online investors call a particular brokerage home, it spotlights an important – and difficult to contest – set of attributes about a brokerage: that they are where people ultimately decide to open accounts. In a muddied world of “best online brokerage” statements, the number of actual online trading accounts that a Canadian brokerage can demonstrate can go a very long way in shaping whether investors feel confident in a particular brokerage.

The forces that have driven online investors to open up online trading accounts – namely uncertainty around the impacts of COVID-19 – are likely to be in place for some time. As such, it will still likely impact the number of newer investors coming into the markets and result in elevated trading volumes. For Canadian online brokerages, that means the forecast for online trading is bullish.

That said, for online brokerages, there is clearly a shift in strategy taking place during these market conditions. From contractions in advertising and incentive offers, to increased conversations about the industry, markets, and their own strengths and success, Canadian discount brokers are once again finding ways to distinguish themselves from one another. That is going to be even more important now that new entrants are coming into the fray and vying for investor attention.

Signs of Change

In addition to the news being heavily focused on the COVID-19 pandemic, there has also been an important focus on diversity, inclusion, and ending discrimination. In the online brokerage world, indeed in the world of financial services, one interesting angle we have observed over the years has been the visual portrayal of an investor.

Historically – and, more precisely, within the past five years – there has been a gradual shift in the way in which the Canadian online brokerage industry has started to think about what an online investor “looks like,” and by extension what that translates into on their websites.

This past week, there were two important visual developments noted at Interactive Brokers and Virtual Brokers.

In the case of Interactive Brokers, the hero image (the primary image that a user who visits a website sees) was replaced: from the iconic Wall Street – or even white male – investor to a professional-looking female. Visually, this is an important shift for Interactive Brokers, whose commercials and imagery have largely leaned into the portrayal of the target client as the active (male) trader. In fact, the images shown below compare what Interactive Brokers had on their website in April and what they have replaced it with just recently. While there is still work to do as far as capturing visual diversity – in particular, ethnic diversity – it was nonetheless commendable to see the change in visual direction, especially at the homepage level.

Another Canadian online brokerage that has taken an important visual direction change is Virtual Brokers. This past week, a new layout on the homepage appeared in which the people profiled look very different from those who were there previously. Below are images from the website (snapshots taken at the end of 2019 and this past week) that show how dramatically different the portrayal of people (DIY investors) now feels, especially in light of the conversation around diversity and inclusion.

While changes to visual imagery or website layouts are generally not something that makes the news, the conversation about being discriminated against or being biased against because of skin colour or gender is a conversation taking place right now. Whether or not the timing of these changes is coincidental or deliberate to what is going on right now with respect to greater awareness of discrimination around the world, looking at these two changes that have taken place through the lens of diversity and inclusion drives home the point that how online brokerages – especially Canadian online brokers – think about DIY investors needs to change. At the very least, leadership (and every level of the organization) should be conscientiously asking, how representative of the Canadian population’s diversity is their brand? Are they truly listening and reflecting the social fabric? Or are they perpetuating biases around who can be an investor or who can be wealthy and what they should look like?

Progress may not always happen quickly or in a straight line, but it is clear when you see it, and these days, we certainly would welcome seeing more of it.

Discount Brokerage Tweets of the Week

From the Forums

Week In, Weak Out?

A Redditor turns to the forum to ask if it’s smarter to invest weekly or biweekly in this post. Fellow users reflect on the negligible impact of such a short timeframe while considering the amount of effort it may take.

Walk in the Park

In this post, a DIY Investor wonders where the best place to “park” their money is while they save for the down payment on a house. Fellow forum users share advice and their past triumphs and missteps in the same journey.

Into the Close

That’s a wrap for the first Roundup of the summer. With many parts of Canada opening up again, hopefully there are lots of opportunities in the days ahead to enjoy some good summer weather (responsibly, of course!). Traders will certainly be treating the markets like a barbeque and keeping an eye on just about everything that’s happening daily. Here’s hoping good news is less than rare this week!

 

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Discount Brokerage Weekly Roundup – May 11, 2020

Despite what most people, Garfield included, seem to think about Mondays, the good news is that this week isn’t last week. With historic job-loss data being reported, the good news is that hopefully the worst bad news economically is now behind us. Surprisingly, trusting the numbers is now a theme appropriate to the news and to the latest developments among online brokerages.

In this edition of the Roundup we dive into an interesting tale of how a trade gone bad exposes deep vulnerabilities and risks for DIY investors to consider. Next, we take a look at another big online brokerage releasing a very popular feature. As always, we’ve got a selection of comments from investors on Twitter and in the forums.

Outnumbered: Traders & Interactive Brokers Bitten by Computer Bug

Online brokerages play an interesting role in the capital markets ecosystem. They are, by some measure, the gatekeepers to individual investors being able to directly access opportunities in securities marketplaces.

In “normal” times the system tends to work, albeit with the occasional hiccup. When there are surges in demand, as DIY investors have witnessed this year and in prior years at many Canadian discount brokers, things tend to get less reliable. To correct some of this instability, brokerages have either resorted to taking their trading systems offline (or the systems themselves are being forced offline) or instituting some rather unusual moves, like Wealthsimple Trade forcing clients to wait “their turn” to be able to trade once they’ve opened and funded a new account.

As awful as these situations have been for online traders, one of the perils that didn’t really ever seem to be in the minds of traders is whether or not the information they were watching – specifically data about price – was accurate. It was this specific issue, however, that was apparently behind the spectacular loss that Interactive Brokers had to incur when one of its Canadian clients managed to turn a $77,000 gain into a $9 million dollar loss as the price of oil futures contracts turned negative in April.

The story is a must read for any DIY investor who trades on margin and, in particular, with any kind of leverage. And, it will almost certainly become the stuff of active-trader folklore. That said, it shouldn’t only be DIY investors who read the story – Canadian discount brokerages should take heed as well.

For starters, it should prompt a review of code and technology systems to be able to accommodate what might be unthinkable conditions in the market. Nobody at Interactive Brokers had configured their system to work with negative prices in the oil contract. For some context, Interactive Brokers is arguably the best of breed when it comes to technology and automation among online brokerages in North America. It does raise an important question: if such a technically capable brokerage can “miss” things, what do less capable systems currently have configured in their code?

To their credit, Interactive Brokers is owning up to it and will be reimbursing customers who were locked into long positions when prices had moved beneath zero. This is (currently) forecasted to cost Interactive Brokers about USD $110 million. While they are taking the initiative to process “refunds,” they are certainly not happy about it. Founder and retired CEO Thomas Peterffy did raise an important question: who, exactly, should be held responsible for individual investors – especially smaller investors – being given access to securities like the oil contracts in which liquidity becomes drastically reduced as contracts head to expiry?

Another important set of details to emerge from this story is the fact that the age of the trader who incurred this loss was 30 years old. To put a finer point on it, a millennial investor managed to get himself into an almost unimaginable position. Similarly, the other trader referenced in the story was someone trading on behalf of a couple of friends. While both of these details might seem trivial, it does characterize what happens when less sophisticated traders are given access to complex trading products. Even with the risk disclosures in place, the stampede of novice or newer investors to the stock market means there are many more stories like this that have either already happened or are waiting to emerge from another yet-to-be-imagined scenario. Younger or more aggressive traders can get into serious trouble, so the challenge to online brokerages is to find a way to have safety mechanisms in place – no small feat.

COVID-19 has had far-reaching effects on the economy and on society as a whole. For DIY investors, however, the economic consequences have brought into focus the vulnerability of online brokerage systems as well as the systems they interface with. It is surreal to think that even the data streaming in real time might not be accurate, but that is what can happen.

For Canadian DIY investors, it will be difficult to build trust in the technology and systems related to online trading without a transparent record of system stability. Wealthsimple Trade, for all of its recent hiccups, puts their system uptime and incident history out there for the world (and investors) to see. As much as society is focused on testing as a path forward to returning to normal, it seems that Canadian online brokerages should be investing in testing their platforms and systems too.

A Slice of Dice: Schwab Offers Up Fractional Share Trading

Some of the most popular names in the stock market are also among the hardest to access. Names like Amazon, Apple, or Alphabet are more than just stocks that begin with the letter A, they’re also stocks that cost in the hundreds or thousands of dollars each per share. For most beginner or younger investors, this presents a hurdle to participating in stock trading by using the approach of investing in things you understand.

This past week, another US online brokerage joined the trend of making fractional share trading available to customers. Charles Schwab announced that they are gearing up to launch their fractional share trading service, named Schwab Stock Slices, against the backdrop of unprecedented volatility and interest in the stock market.

Schwab joins Interactive Brokers, Fidelity, and (eventually) Robinhood in launching a fractional share trading programs in the US, a feature that is picking up significant momentum with users online. With the new program from Schwab, investors can purchase fractional shares with as little as $5 and up to a maximum of $10,000.

With so many online brokerages chasing the elusive “younger” demographic of investor, the fractional share trading program lowers the barrier to participating – something that younger Canadian DIY investors on social media and the forums often bump into. Conversations about diversification usually result in DIY investors turning to ETFs; however, with fractional shares, it is possible to achieve diversified status even with modest savings.

If ever there was a time to offer and advertise this feature, it seems like it would be now. Younger investors are coming into the market at a historic pace. Additionally, as with many features that get launched in the US, the natural question is whether or not this kind of feature can be deployed by Canadian discount brokerages.

Despite the diversity of tactics to reach a younger investor – from social media to digital advertising – online brokerages in Canada haven’t, in large part, lowered the barrier to participating in some of the most exciting names in the stock market today. That, it seems, could prompt another wave of interest and engagement with investing, since it makes trading financially accessible to active and passive investors alike.

Discount Brokerage Tweets of the Week

From the Forums

Honey, I Inflated the Market

A curious Redditor poses the question of whether federal spending and CERB might cause inflation, and a lively discussion on various schools of economic thought on the matter ensues in this post.

Blind (Liqui)Date

A young investor asks for advice on whether to liquidate their investments and transfer to an online brokerage in this post. Fellow Redditors offer their advice and experiences having opened an online brokerage account during a volatile market.

Into the Close

That’s a wrap on another historic week of market activity. Unemployment rates and the general shock to the economy might be making headlines, but stock markets continued their ascent, nonetheless. And  if FOMO wasn’t kicking in already, there’s clearly a case of market envy at play as certain stocks put in new highs and push into record territory (ahem, Shopify). So, if we needed yet another reminder that we don’t live in normal times right now, the push higher by stock markets even despite the direst economic news will almost certainly instigate other investors to join in the fray.

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Discount Brokerage Weekly Roundup – April 20, 2020

Another week gone by; however, the metrics that matter aren’t hours and seconds, it seems. Tests, cases, and, unfortunately, deaths are part of a grim set of metrics that serve as the very human backdrop to everybody’s new normal. While it’s harder to distance ourselves from the news than it is from one another, what is clear is that markets and online brokerages are pressing forward albeit in surges and stumbles.

In this edition of the Roundup, we continue to track data on the surge in interest by DIY investors to step into the markets, with new information shedding light on what is also likely happening here in Canada. From there, we take a look at how Canadian discount brokerages of various stripes are walking the tightrope of advertising during the time of COVID-19. As usual, we serve up the latest DIY investor comments from Twitter and the investor forums.

Inflection Points: Earnings Data Shows Trading Surge at Online Brokerages

Of the many letters being thrown around during the COVID-19 crisis, the one that seems to capture many themes concurrently is the letter V. For online investors (and by extension online brokerages), the two variations of V that matter are volatility and volume. Stock market volatility during March has been unprecedented and volume of trades executed equally so. The next V that might come into play is the shape of the recovery, which many speculators are hoping will be swift and sharp.

Earlier this month, Interactive Brokers reported a sharp increase in the number of online discount brokerage accounts opened – an eye-watering 22% increase compared to last year. This past week, another (arguably the most) important online brokerage in the US, Charles Schwab, reported its earnings. Though it did not meet estimates on the earnings front, tucked inside the earnings announcement were two very incredible facts. The first is that trading volumes in March represented 27 out of the 30 highest trading volumes of all time for this massive online brokerage. Daily average revenue trades (or DARTs) clocked in at 1.54 million, a 98% increase for the quarter. The second important piece of information contained in that earnings announcement is the tsunami of account openings – over 280K new online brokerage accounts opened in March alone and bringing the total number of online investing accounts to 609,000 accounts for the quarter and a total of 12.7 million.

Additional data from Robinhood, the firm that was the proverbial straw which took the price of commissions for trading in the US ultimately down to zero, also crossed the radar last week. The data reported that their daily trading volume was threefold higher in March compared to Q4 of 2019 and they attracted a tenfold increase in net deposits which ultimately led to revenue of USD $60 million in March, triple what they had made in February. Indeed, these numbers helped bolster the case for Robinhood to be raising USD $250 million, which puts their valuation at USD $8 billion.

While Canadian markets are different than in the US, one reasonable inference to draw is that Canadian discount brokerages have seen a similar spike in their business that likely rivals anything they have ever experienced – including the crypto and cannabis surges of 2018.

Unlike the online brokerage markets in the US, most Canadian online brokerages have yet to drop their commission fees substantially and as a result, have likely generated significant commission revenues from heightened trading activity.

Indeed, until the return to work fully takes shape in Canada and the US, the likelihood of stock market volatility is going to remain high, which is great news for active traders and some of the speculators being pulled into the markets in search of a quick return. It is also great news for online brokerages in Canada who stand to benefit from the increased trading activity. The exact letter that defines the recovery – whether it’s a V, U, W or L – will determine what spells success or failure for the near term.

Online Brokerage Advertising in the Age of COVID-19

The data gathered from online brokerage activity over the past several weeks has validated the immense interest in trading online. For Canadian discount brokerages, the ‘usual’ playbook during predictable times of investor interest is to advertise. After all, if people are out looking for an online brokerage account or interested in trading, it makes sense to be visible.

These are unusual times, however, so it is interesting to see how online brokerages are wading into the ‘marketing’ efforts during this tenuous time of ‘doomscrolling’ and massive social media content consumption.

For the moment, three Canadian online brokerages that have been spotted advertising on Facebook and/or Instagram are Qtrade Investor, Scotia iTRADE, and TD Direct Investing.

A quick scan of the ads show something interesting – that both Scotia iTRADE and TD Direct Investing are featuring female protagonists as the DIY investor. In the case of Scotia iTRADE, they opted to push their campaign from the fall of 2019 which featured “self-starters” – essentially entrepreneurs who also were notable social media personalities to boost the brand with a younger audience. By comparison, TD Direct Investing also took a much more contemporary view of a DIY investor, not sitting at home but out and about on their phone.

During this current state of affairs, both bank-owned brokerages’ ads seem to strike a similar tone but neither quite give a nod to the current sentiment. In contrast, Qtrade Investor’s ad is simple and strikes a thankfully positive tone to the long list of bad news stories and jarring autoplay videos. Pleasant clouds and blue skies are almost a setup for what seems like a travel ad, but nonetheless set a backdrop for a compelling message proving the point that sometimes less is more, including on social media. More importantly, it seems like an astute “read the room” move.

Another small blip on the radar this week was the move by Virtual Brokers to tweet out an investor education piece to help explain some investing basics. Normally a tweet by an online brokerage doesn’t really seem newsworthy; however, in this particular context it is the first post by Virtual Brokers in some time, so the timing and the content are interesting, especially against the backdrop of what is likely a pick up in DIY investor interest.

That said, the push to advertise or broadcast content on social media is not without some degree of risk. There continues to be negative consumer sentiment about the experience of wait times to get in touch with online brokerages here in Canada, especially for the resolution of issues that require a phone call. A case in point is this post by Questrade on Twitter, which managed to get a pointed response focusing on wait times.

And they are not alone. A scan of the tweets of the week continues to reveal cringe-worthy wait times to talk to an online brokerage that references brokerages that are actively advertising at this time and those that aren’t. Even the most astute marketing team coming into the crisis couldn’t escape the fundamental requirement to have the product fulfill the promise of reliability. Wealthsimple Trade continued to experience system and trading issues last week, creating its own doomscrolling feed of unhappy campers.

There’s no doubt the level of interest for DIY investors to start trading in the market has surged. As many investors have rushed into opening new accounts and many existing account holders have been more active than in some time, systems are starting to show their strain. For Canadian online brokerages, the difficulty is to make sure their systems are stable enough to handle the flood of interest.

With that in mind, we anticipate more online brokerages might start leaning into their advertising programs on social media, and some with promotional offers, to get the right kind of attention at a moment when DIY investors are hungry for some good news.

At the moment, markets seem to have found their footing – a situation that could change at any point. Here’s hoping several Canadian online brokerages start to find theirs.

Discount Brokerage Tweets of the Week

From the Forums

(Mis)Take Your Time

A forum user who received both EI and CERB asks what to do with the money while the mistake is sorted. Fellow Redditors offer advice and their experience with current COVID-19 related funding in this post.

Time to Think Again

After 20 years of investing, a user takes to the forums to lament the current state of their portfolio in this post. Commentators offer their insight into the current markets as well as how the poster might realign their goals with their investment strategy.

Into the Close

Were it any other time, the horrific news of a mass shooting in Canada would be the only terrible story the country has to digest. Against the backdrop of the COVID-19 stories, this makes this senseless act of violence even more heartbreaking and amplifies the heroics of first responders. It is truly shocking. Our deepest condolences to the families of those who lost a loved one in this tragedy – we are thinking of you and sending you wishes for strength.

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Discount Brokerage Weekly Roundup – April 13, 2020

For DIY investors, last week’s market bounce is sure to put a spring back into their step, even though stocks are trading well below their levels from just a few weeks ago. Nonetheless, with the fear gauge falling and DIY investors hoping to find treasures in the market, one spoiler to that momentum is that technology and capacity issues are making access to trading online more challenging than anyone wants.

In this edition of the Roundup, we focus in on yet another series of outages and interruptions that took place at Canadian online discount brokerages last week and what that could signal for the industry in the post-COVID-19 era. From there, we highlight a couple of interesting virtual developments set to take place later on in the month that might offer additional guidance on where online brokerages in the US might look to next when trying to navigate the impact that Coronavirus is having on markets. As always, we’ll look to some rather colourful commentary on Twitter and in the investor forums to close things out.

More Outages at Online Brokerages

Markets have continued their volatile dips and surges, and while this past week has seen many stocks rebound, DIY investors yet again have found themselves subject to outages and interruptions of service at Canadian online brokerages.

This time it was a series of outages at CIBC Investor’s Edge, BMO InvestorLine, TD Direct Investing and Wealthsimple Trade that hampered the ability of DIY investors to trade and angered enough of them to the point where they posted their struggles directly onto Twitter.

Last month, there was a feature piece in the Financial Post about Canadian discount brokerages suffering from outages and complaints from active investors who were either sidelined by not being able to log in or trade.

While it is true that technology can occasionally fail, the timing couldn’t be worse. The compounding effects of site outages during heightened volatility, as well as surges in call volume, mean that DIY investors are ultimately left with no viable options other than to wait out whatever interruption or disruption they are facing. A quick scan of the tweets of the week below showcases some of the scarier wait times and frustrations experienced by DIY investors encountering these current trading conditions.

Although there are currently some very major issues taking the spotlight, the recurring issues with uptime and stability will ultimately attract the attention of media and, from there, regulatory agencies. At the very least, DIY investors ought to be aware of what kind of service experience they can expect from an online discount brokerage, not just in terms of wait times or features (like a call back), but also in terms of uptime and platform outages.

The COVID-19 pandemic has shown that governments and industries are capable of moving remarkably quickly when required. With the shift in conversation about COVID-19 starting to move towards describing ‘the new normal’ and life after the peak has passed, there will hopefully be a conversation about better equipping service and systems to contend with surges in traffic and requests. There will undoubtedly be changes that will be put in place and it would be wise for the industry as a whole to use the opportunity to mobilize around continuity and surge protection.

For now, the message to active DIY investors being relayed by the delays and outages is sadly this: beware of your online discount brokerage, it may not be there when you need it. Plan accordingly.

Online Brokerages Navigating COVID-19

When it comes to DIY investing, one of the more interesting things that being a shareholder entails, regardless of size, is the stockholders’ meeting. Of course, now that meeting in person is a non-starter for a variety of companies, the annual general meeting is going online. The combination of investors being sequestered at home and the online availability of these meetings could make for interesting times ahead. At the very least, it may provide a palette cleanser from a binge watch series on Netflix or Amazon Prime.

For the online discount brokerage world, we’ll be keeping an eye on Interactive Brokers, who has their annual meeting on April 23rd, to see what interesting announcements and questions might arise at that time.

Another interesting development coming out of the US will be from the largest online brokerage, Charles Schwab, as they are set to provide their spring business update on April 21st.

Already here in Canada, the largest banks have held their annual general meetings virtually to maintain social distancing protocols. In the Q&A sections, for example, it has been valuable to hear from the senior leadership with regards to the current COVID-19 generated crisis and to get a sense of where their priorities are on a number of key issues.

Discount Brokerage Tweets of the Week

From the Forums

(Mort)Gauging the Market

A Redditor asks whether paying their mortgage faster is better than investing in the current market in this post. Fellow users give their advice on how they should define their goals and the different decisions that they can make with those goals in mind.

Down the Habit Hole

In this post, Redditors discuss how the recent market downturn has impacted their investing habits. Different users lay out their plans and potential outlooks for the coming year.

 

Into the Close

That brings another edition of the Roundup to a close. This one was a little shorter than normal (just like last week!). However, as many Canadian online brokerages are finding their footing with transitioning many systems to remote operation and getting a handle on the flood of interest, we expect more activity to be unfolding in the weeks to come. In the meantime, a deal reached on oil production cuts by OPEC(++) will be yet another reason to expect a volatile week ahead. Have a safe, healthy, and profitable week!

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Discount Brokerage Weekly Roundup – March 30, 2020

For frequent market watchers, a screen is hard to ignore. Information about COVID-19 is flying at investors faster than a souped up Vin Diesel muscle car and coupled with, or perhaps compounded by, stock market volatility means it is hard to know exactly how to navigate the unfolding economic, medical and societal crises. Of course, channeling a little Vin Diesel at this moment means having a steady hand at the wheel, being ready to shift gears and having some strong clichés at the ready.

In this edition of the Weekly Roundup, we drive into a story of how investors who move fast also get furious when systems can’t keep up. Staying on theme, we also look at how one big online brokerage got sanctioned for skirting the rules. As usual, we wave the checkered flag with comments from Twitter and the investor forums. Buckle up!

The Upside of Down(markets)

With markets trying to digest, model and value multiple shocks to the economy, it is no wonder that volatility and uncertainty are at all-time highs. And while many investors are rightfully afraid and panicked by the current market whipsaws, there are nonetheless certain investors piling into the markets in hopes of either making fast money or picking up assets at shockingly low prices.

Although there is no one reliable indicator of a market bottom, one of the requisite ingredients for stocks to reverse fall in price is buyers. And, this is no way to call how the market floor is forming; however, the evidence from multiple online discount brokerages appears to indicate that there is a strong flow of DIY investors who are opening online brokerage accounts on both sides of the border.

A scan through recent Twitter threads and synthesis of news stories reveal that, among the complaints logged in the current market conditions, DIY investors are encountering issues with account opening, funding and getting started. Having tracked the Canadian online brokerage industry for the better part of 8 years now, when complaints about getting an account opened begin to show up on social media, it generally points to FOMO – or fear of missing out – kicking in.

A second line of data that might also be indicative of the activity level of DIY investors in this market is that online brokerage systems become strained under the volume. After the frenzy of the cannabis and crypto craze in early 2019, why system overload is still an issue is a bit of a mystery, but being what it is, the backlog of calls and delays in account opening processing reflects the pace and priority of technical and support system investment.

In fact, this past week, there was a fairly critical article in the Financial Post which highlighted the malaise of DIY investors who reported losing money on trades because of system failures and order-related mishaps at many of Canada’s largest bank-owned and independent online brokerages. Had this been during “normal” times in the market, outages would not be getting the kind of coverage they are, but these are not normal times.

A closer inspection of the complaints being cited in the Financial Post article shows that they were from investors using highly leveraged securities, for example, the Direxion Daily S&P 500 Bull 3X Shares, or those using options trades or who were intent on quickly flipping a trade on a highly volatile cannabis stock. These are not the garden variety buy-and-hold or passive investors, and this confirms the data we’ve published in previous weekly roundups as to which DIY investors were in this market.

There are only a small handful of online discount brokerages with platforms and data packages that are equipped to service clients who want to trade this actively and it is, by all measures, the most ideal time for Canadian online brokerages to step up their efforts in appealing to this group of investors, both in service experience and incentives. It perhaps won’t be too long before offers to attract these investors are launched – however, there is a cruel irony at work.

At the time when these most highly-prized active online investors want to sign up and trade with Canadian discount brokerages, the systems cannot support the volume nor can the client service teams keep pace. It seems that grocery stores aren’t the only place that Canadian DIY investors are going to be forced to wait in line.

To drive this point home even further, it was also remarkable to witness Wealthsimple Trade have to place new clients who had signed up to invest on a waitlist to trade after they’ve signed up to trade. As much as Wealthsimple Trade has earned its current standing as innovative and disruptive to the Canadian wealth management landscape, moments like those observed last week are damming and not-soon-forgotten.

For all of the assurances that Canadian DIY investors are provided as to the safety of their investments, moments of extreme strain on the systems reveal there are still many points of possible failure. While there is already a lot of compliance burden on Canadian online brokerages, when it comes to financial services, the latest in a recurring set of examples points to the need for greater transparency in technical system integrity. System reliability, scalability, and service provision capability are factors that DIY investors are learning that will be crucial to determining which online discount brokerage can best suit their needs.

On the flip side, one way that Canadian online brokerages can avoid having this surge of interest show up where new accounts need to be opened in the height of market volatility is by ramping up their marketing efforts across the year.

If Canadian online brokerages effectively “flattened the curve” of demand or “raised the line” on their own systems through a combination of assertive “always on” marketing campaigns and appropriate investments in scalable technology systems, this kind of system overwhelm could be mitigated. Had the market volatility hit a mere two or three weeks earlier, at the peak of RSP contribution season, the results could have been catastrophic for Canadian DIY investors.

As the world continues to be forced to adapt and learn from the COVID-19 crisis, there will undoubtedly be lessons that Canadian discount brokerages will be learning from as well.

Much Ado about Noting

In one of the more apropos headings to be found in a Weekly Roundup, this one is a play on words from a famous William Shakespeare play in which one of the key arcs happens to be about the consequences of not providing the full picture.

In the Canadian online brokerage world, when it comes to the disclosure to clients of certain key information about their investments, there is no room for playing around.

From about the end of 2013, Canadian regulators at the Investment Industry Regulatory Organization of Canada (IIROC) initiated a revision to the way in which member organizations were to report certain pieces of key information to Canadian investors. Regulators gave member organizations, including Canadian discount brokerages, a long runway of about 3 years to implement changes to the way in which investor statements were organized to ensure that organizations had sufficient time to implement the necessary changes.

Unfortunately for one organization, however, the decision to step offside of a regulatory requirement was met with a harsh rebuke. TD Waterhouse Canada was fined a stunning $4 million dollars (plus almost $30 thousand dollars in legal fees) for its decision to not comply directly with the CRM2 requirements.

There are a number of intriguing angles to this story, but what sticks out is what the calculus of this plan must have been to warrant such an action. It truly begs the question “what were they thinking?” in running afoul of regulators and exposing themselves to the kind of financial penalty they ultimately ended up having to pay.

With any business decision, the risk has to be worth the reward.

Looking at the fascinating details of this particular event, it was clear that the downside of ensuring that the TD Direct Investing was fully compliant within the timeframe laid out by IIROC seems to have suggested that there would have been some messy tax consequences and potential litigation that could have ensued. In short, facing the stern – if not damning – language (see image below) and fine was potentially the better option.

Ultimately, the persistence of a single client that sought information that was legally required from TD Direct Investing was what triggered the avalanche of activity that concluded in the fine and the damaging rebuke. It demonstrates that individual clients do, in fact, have the power to hold their vendors – in this case, online brokerages – accountable.

In the language of the panel’s decision:

“In the modern world where news is distributed almost instantaneously and widely by all forms of media, the reputational aspect has to be taken into account in fixing a sanction. Major financial institutions such as TDW invest large amounts of time and money in promoting their brands. While they may be able to easily afford large fines as a cost of doing business, bad publicity is very bad for business and that in itself provides a strong specific deterrence.”

For a brokerage of the size and repute of TD Direct Investing (TD Waterhouse) to be called out by IIROC is a very big deal and certainly something their peers – and perhaps investors – will take note of.

Discount Brokerage Tweets of the Week

From the Forums

Go with the Flow

Redditors discuss an article from the New York Times of an investor who was rocked by the recent fluctuations in the market in this post. Forum users go back and forth on the impacts of the markets on their own portfolios and investment plans.

The Little Short

A forum user asks how they may be able to short the market and fellow Redditors offer their two cents on the incredible risks involved in this post.

Into the Close

That’s it for another edition of the Roundup. To close out this irony-filled edition, markets also appear to be both fast and furious. While the plot of the unfolding saga in the markets may be hard to follow, there is certainly no shortage of action unfolding a quarter mile at a time.