Tag: Wealthsimple Trade

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Discount Brokerage Weekly Roundup – March 2, 2020

March is now here and while March Madness is synonymous with college basketball, it seems to sum up the sentiment in the stock market as fears about global economic slowdowns and uncertainty around COVID-19 continue to spread. Also at a fever pitch: deals from Canadian online brokerages at the RSP contribution deadline.

In this edition of the Weekly Roundup, we kick things off by looking at the best news coming out of the world of DIY investing this month: deals and promotions activity. From there, a review of the recent trading outage and how that serves as a constant reminder of the risks of trading online. As always, we’ve gathered colourful comments from investors on Twitter and in the investor forums.

Deals Marching On

The beginning of this month saw the apex of the number of offers that Canadian discount brokerages had for DIY investors. With offers from big bank-owned online brokerages and the smaller competitors, the race to RSP season meant a lot of selection for DIY investors to be able to choose from. Transitioning into March, however, there will almost certainly be a significant contraction in the number of promotions.

In terms of deals that expired at the beginning of March or that are set to expire during March, one common element is that most of these offers are from the bigger bank-owned online brokerages. Deals from BMO InvestorLine, TD Direct Investing, RBC Direct Investing, Scotia iTRADE, and CIBC Investor’s Edge are all set to expire in March, with the latest of them being the commission-free trade offer from RBC Direct Investing. In addition, recent online brokerage award winner Qtrade Investor will also see their deal expire at the end of March.

For consumers, the money conversation is still very much active and happening as we ramp up to the income tax filing deadline at the end of April.

What this means is that there are going to be a lot of Canadians with funds available to either direct towards investing or to keep safe somewhere while the market volatility continues to grip stock markets. Against this backdrop, the acquisition of SimpleTax by WealthSimple in 2019 is a particularly savvy example of being able to find a place that many of their potential key customers would be going to in order to make decisions about managing their wealth. And, make no mistake about it, tax planning is a key part of wealth management.

It will be interesting to see how Wealthsimple – in particular Wealthsimple Trade – benefits from this kind of software partnership. With an enormous amount of data being available from tax returns – including household income, investments, and more – there are a number of marketing possibilities with respect to understanding who might be interested in a wealth service provider.

Cycling back to the deals and promotions available for DIY investors, one new offer did surface at the outset of the month – a small commission-free trade offer from Virtual Brokers. In response to the launch of their new mobile app, Virtual Brokers is offering up 5 commission-free trades in exchange for completing a survey and downloading their new mobile app. Although it is small, it is a positive sign that Virtual Brokers is stepping back into the spotlight after having maintained a relatively quiet presence after its acquisition by CI Financial.

DIY investors continuing to think about and manage their financial well-being during the tax season indicates a bullish sign for deals and promotions for investors. That said, the backdrop of market meltdowns is going to make it considerably more difficult to attract DIY investors into the market. While some will see this dip as a buying opportunity, talk and fear of a recession or prolonged uncertainty is enough to keep investors at arm’s length. That reality might mean Canadian online brokerages will ramp up their efforts or incentives to attract gun-shy investors. Whether it is through investor education or using some well-timed, short term promotions, Canadian online brokerages will likely have a very bumpy beginning to spring season.

Wild Week of Market Outages

It’s (fortunately) not something DIY investors and traders see every day. This past week, a technical issue brought trading on Canadian stock exchanges to a grinding halt into the end of the day. No trades could be executed and as a result, lots of traders ended up frozen out and could only watch their trading screens broadcast error messages.

Were it some ho-hum week, it would still be bad, but on a week in which markets fell sharply, heightened emotions were already in play and this outage only amplified worries and concerns about market performance and integrity. Add into the mix the last business week heading into the RSP contribution deadline and it could hardly have been a worse confluence of events.

The fallout from the outage and heightened volume appeared to impact trading systems, and retail investors did not hold back in their dissatisfaction with the experience.

This is the second outage in two years at the TSX and a reminder that for online investing, there are many, many possible failure points for DIY investors to contend with. Whether that issue then contributed to a domino effect of systems issues at Canada’s online brokerages is tough to say. There were definitely messages that the change in price on Friday was actually relative to Wednesday’s closing price, since Thursday’s close technically didn’t happen.

With continued volatility in the immediate forecast, the benefactors are online brokerages who charge commissions. This is typically the kind of market that day traders love (because of the volatility) and that investors (even the nervous ones) tend to sell what they can or take profits off the table. And, that means trading, which means commissions.

Of course, if trading halts because of market technology failures or online brokerage failures, the ones impacted may include a higher number of active traders – the most valuable of the trading food chain for online brokerages in Canada.

Even if stock prices aren’t higher at the moment, stakes for online brokerages are.

Discount Brokerage Tweets of the Week

From the Forums

Upsides to Down Time?

With the effect of the coronavirus being felt in the markets, a Redditor asks fellow forum users to weigh in on how DIY investors have been responding in this post. A discussion ensues on timing the markets and how world events can affect ill-prepared, anxious investors.

The Fare-est of Them All

A forum user seeks advice on which online brokerage to use in this post. Fellow Redditors give advice on how to weigh out their options and how to invest while keeping risk tolerance in mind.

Into the Close

That’s a wrap on another wild week. Activity at the end of the market day on Friday was interesting – it may have been some optimism stepping back in or shorts looking to cover into the weekend. It’s clear that market direction is decidedly undecided. With debates raging over pullbacks versus corrections and the news cycle fixated on coronavirus, some seasoned investors are hoping to employ the same enthusiasm in the markets that is taking place in toilet paper and hand sanitizer aisles in Costco.

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Discount Brokerage Weekly Roundup – February 3, 2020

After the ‘big game’ in the NFL, it’s now time for the championship race between Canadian online brokerages to kick into high gear. With just a few weeks left until the deadline for RSP contribution, it will be an all-out sprint by Canadian online brokerages to land new accounts and assets from Canadian DIY investors. It won’t be easy though, with more choices than ever before and jittery markets because of fears about the corona virus, DIY investors are bound to be cautious, which means when it comes to choosing an online brokerage, the juice has to be worth the squeeze.

In this edition of the Roundup, we review the latest discount brokerage promotions that are available as of the beginning of February (great news there are lots!). From there, we launch into even bigger news with another less popular online brokerage cleverly finding a way to get attention by dropping their commission prices to zero well ahead of their peers. Finally, the third big story this week is the launch of the 2020 Globe and Mail online brokerage rankings, which offers another perspective on the different features available from Canadian online brokerages. As always, we’ll cap things off with a review of DIY investor comments (including reactions from the outages) from the forums and Twitter.

New Month, New Deals

On the heels of the Lunar New Year celebration, the start of the new month (and new year) shows that promotional efforts by Canadian discount brokerages are well under way.

The tail end of 2019 and the first weeks of 2020 have been filled with new promotions and pricing announcements at several prominent online brokerages – so much so that news of new feature releases or website redesigns have taken a back seat to the focus on cost.

At the start of February, almost all Canadian discount brokerages have made adjustments of one kind or another to try and win the attention (and assets) of Canadian investors. Many of these brokerages have opted for highly competitive cash back offerings to make it worthwhile for DIY investors to at least consider opening a new account or transferring an account to them. Even so, there are a couple of online brokerages that have remained on the sidelines despite the busy season for DIY investors.

One interesting observation about the state of deals and promotions heading into the final stretch for RSP season is that all of Canada’s large bank-owned brokerages have a promotion in play. Ideally, smaller online brokerages would leverage more aggressive pricing or promotional offers to win attention of investors away from larger bank-owned competitors. This year, however, that isn’t really the case, so it is noteworthy to see bank-owned online brokerages jockeying for investor attention with promotional offers and several smaller brokerages stand aside.

Of the big five bank-owned online brokers, only RBC Direct Investing is offering a purely commission-free trade offer, with the rest of its peers offering up cash back promotions. Typically, cash back promotions are most popular among investors, and even though commission-free trade offers might present significant value, the reality is that cash is still king.

The amounts of cash back offers and requirements to qualify for them this year reveal which kinds of customers brokerages are most interested in trying to appeal to. For example, Scotia iTRADE and TD Direct Investing have minimum deposits of $5,000 and $15,000 for their offers, respectively. This lower threshold means that less established investors – even  beginner or younger investors – may see either of these brokerages as a viable option to open online investing account with. By comparison, offers from CIBC Investor’s Edge and BMO InvestorLine require a minimum deposit of $25,000 and $50,000 respectively, which suggests a more established investor would pay more attention to the offerings by these bank-owed brokers.

Another interesting observation among all the cases of big-bank owned brokerage promotions (except RBC Direct Investing) is that the promotions are tiered offers that offer greater amounts of cash back with higher deposits. This tiered structure also reveals some interesting competitive dynamics among certain brokerages. For example, for deposits exceeding $250,000, it is essentially a race between three big bank-owned discount brokerages: BMO InvestorLine, Scotia iTRADE and TD Direct Investing for cash back incentives to this financially elite club.

Outside of the big bank-owned brokerages, popular online brokerages, such as Qtrade Investor and Questrade, have cash back offers (and in the case of Questrade also commission-free trade offers and a very competitive transfer fee coverage offer) that they hope will help them to stand out from the bank-owned crowd.

Qtrade Investor, which has a cash back offer (also tiered), is up against some stiff competition for new business and assets, as three big bank-owned brokerages are directly competing against Qtrade’s offer. At the other Q-named online brokerage, investors looking for a promotion can find a wide selection of offers. Questrade’s long-standing commission-free trade deal is an option and all of their most popular offers have very low barriers to access or qualify for them, which is ideal for younger investors. In addition, younger investors can benefit from special pricing and commission free trades from National Bank Direct Brokerage, which offers up 10 commission-free trades per year each year the account is open.

With most brokerages now on the deals board, it is curious to see other discount brokerages stand on the sidelines this year.

For instance, neither Virtual Brokers nor HSBC InvestDirect have commission-free trade or cash back promotions this year (as of the time of publication) – an interesting option given the fierce competition for assets. Also interesting is that newcomers to the discount brokerage space, Wealthsimple Trade and CG Direct, opted not to take advantage of RSP season with a new promotion. Passing up this cycle of investor interest means that they are giving up valuable airtime when DIY investors are most actively shopping around.

Ultimately, however, the news is great for DIY investors this month. There are several really strong deals from reputable Canadian discount brokerages. Timing to try to take advantage of these offers couldn’t be better; however, for investors, just be prepared to spend some time waiting on hold or with slow account processing.

Commission Price Drop: HSBC InvestDirect Launches Zero Commission Pricing

The zero-commission spectre has surfaced at yet another Canadian online brokerage. HSBC InvestDirect, one of Canada’s lesser well-known online brokerages, has announced they are prepared to offer zero commissions for clients who qualify as active investors, i.e. anyone who makes 150+ trades per quarter, for a limited time from April through December of 2020.

As has been mentioned in previous Roundups, it will only be a matter of time until larger, more popular Canadian online brokerages are forced to figure out how they are going to adopt zero commission trading.

Fortunately for most competing online brokerages, HSBC InvestDirect is a relatively small and unknown online brokerage to many Canadian investors. Much like what happened when HSBC InvestDirect dropped their prices down to sub $7 per trade (making them the cheapest bank-owned online brokerage as far as standard commissions), the market as a whole effectively overlooked this announcement and went on its merry way.

Even though existing Canadian online brokerages are navel gazing and potentially looking for additional information on their clients to improve monetization, competitors such as Wealthsimpe Trade have already taken what felt like a giant leap.

Wealthsimple Trade has already led the way in this offering and as of late last year, the first ‘household’ name in online brokerages has drastically reduced their per trade commission. National Bank Direct Brokerage reduced their standard trade commissions for active investors (who they define as X trades per month) down to $0.99 per trade. Earlier this year, Desjardins Online Brokerage countered by dropping their commission rates (also for active traders) down to $0.75 per trade.

With HSBC InvestDirect now taking trading commissions down to $0 for active traders, there is clearly a trend taking shape where active traders are likely to be the first benefactors of the reduced pricing from some of the larger, established online brokerages.

The standard commission rates for trading at HSBC InvestDirect are 6.88 for North American ETFs or equities, which makes them among the lowest cost per trade (currently) for bank-owned online brokerages standard commissions.

That said, the cost to qualify for this new pricing means having to trade 150 times in a quarter which at that online brokerage can cost a hefty $1,032. It also means that clients have to continuously trade that kind of volume to maintain their commission-free status – which will be a challenge for all but the most dedicated or active traders. What will make this even more challenging is the user interface and client experience for very active traders, who need (typically) streaming quotes, level 2 preferably and multiple market data, as well as a trading platform that has advanced charting capabilities and rapid order entry. Even at a modest constant pace, the platform will need to handle 2.5 trades per day – which could be reasonable except that there is no robust market trading platform in place to do essential research.

The fact that this new offer hasn’t made the kind of splash we envisioned it would is not surprising given lack of visibility of this online brokerage within the Canadian DIY investor community. HSBC InvestDirect is not that well known among Canadian DIY investors, however their new pricing structure offers a valuable ‘canary in the coal mine’ for the brokerages as a whole and this latest move in pricing might be enough to prompt a larger brand to take a bolder step ahead of other brokerages.

For active traders, the new pricing structure at HSBC InvestDirect (and several other brokerages) is tempting – however, the platform will need to compare with and do better that it is now. Nonetheless, if HSBC InvestDirect was looking for at least a long shot kind of promotional event to generate some noise and coverage, then mission accomplished. Though we have yet to see major media outlets pick up the story, commission-free trading with the convenience of a bank is a secret that can’t be kept much longer.

Globe & Mail 2020 Online Brokerage Rankings

This past week, the 21st edition of Canada’s longest running evaluation of Canadian online brokerages was published by Rob Carrick at the Globe and Mail. Along with the changes in the online brokerage industry in Canada, this analysis of the industry continues to evolve.

This year, there was a familiar structure to the rankings, with letter grades being assigned to each brokerage as well as brief commentary provided from Carrick on the merits and drawbacks of each online brokerage, mostly from the point of view of the ‘everyday’ investor. There were also comparisons of all brokerages analyzed on 10 key questions or components, namely:

  • How do online stock trading commissions compare?
  • Is there a simplified fee for all accounts with small balances?
  • Is commission-free ETF trading available?
  • Foreign exchange charges
  • Are U.S.-dollar registered accounts available?
  • Can you buy high-interest savings ETFs?
  • Can clients send secure e-mails to get personal account questions answered, or use online chat?
  • Are there comprehensive tools to help clients assess their returns over the short and long term and against benchmark indexes?
  • How does the client website experience rank on a scale of 1 to 5?
  • Is there a security guarantee saying clients will be reimbursed fully for losses in their account due to unauthorized transactions?

The grades this year were generally decent, with 8 out of 12 of the online brokerages evaluated scoring a letter grade of B or better. This is an encouraging sign that, generally speaking, the online brokerages in Canada are starting to do a better job of catering to DIY investors’ needs according to this ranking. The top score (A+) was achieved by Qtrade Investor, while the lowest score (D+) was received by HSBC InvestDirect.

The most popular grade (B+) was achieved by four online brokers: Interactive Brokers, Questrade, RBC Direct Investing, and Virtual Brokers. This collective is a very interesting combination because they are comprised of mostly independent online brokerages and one bank-owned online broker. Conversely, of the three discount brokerages that scored A- or higher (Qtrade Investor, Scotia iTRADE, and TD Direct Investing), two thirds of those are bank-owned online brokers. What the latest Globe and Mail online brokerage ranking points to, as far as the experience for the ‘everyday investor,’ is that going with a non-bank owned online brokerage is generally going to be a safer or better bet than going with a large bank-owned brokerage.

As with the previous rankings, the full access to this ranking is for subscribers to the Globe and Mail, which means details on the comparisons section and full commentary are visible only to folks prepared to pony up for the Globe, as well as to readers of forums where this information has also been posted.

BMO InvestorLine B-
CIBC Investor’s Edge C
Desjardins Online Brokerage C
HSBC InvestDirect D+
Interactive Brokers B+
National Bank Direct Brokerage B
Qtrade Investor A+
Questrade B+
RBC Direct Investing B+
Scotia iTRADE A-
TD Direct Investing A
Virtual Brokers B+

 

It bears reiterating, with each ranking or rating mentioned here, that the grades are the product of the ranking system itself. As such, it is important for readers to understand the strengths and limitations of this kind of grading system at helping them arrive at a fair assessment of which online brokerage is ultimately best for them.

The detailed methodology for the online brokerage rankings did not accompany this year’s rankings so it was not clear what, if anything, had changed about the way in which online brokerages were assessed. Nonetheless, the scoring as well as the commentary reflect the informed opinions and expertise of the author, who in this case, has extensive experience in this area.

Overall, rankings from different organizations or entities point to a general improvement in the provision of online investing services for Canadian DIY investors. The difference between online brokerages in Canada from both a pricing, as well as a features, point of view isn’t so drastic, generally speaking, that they would feel compelled to move unless it were for features that weren’t available at their current online broker.

Discount Brokerage Tweets of the Week

From the Forums

Time in the Market is Better than Timing the Market

The perennial question of “the markets are so high, should I buy now?” comes to a head when a Redditor brings forward an article from “Of Dollars and Data” that digs into the numbers for this very question in the US markets. Fellow forum users debate the merits of this argument and break down the numbers even further here.

Inherited Stress

A user asks for advice on which self-managed brokerage account to put some newly-inherited wealth. Users put some fears to rest and offer brokerage options in this post.

Into the Close

Another week is in the books and the start of the month feels decidedly shakier than the start of the previous one. For DIY investors, this is an interesting moment to either scale in or start looking for some protection. Here comes the news cycle ready to report on the scare trade – and as every seasoned investor knows – now might be the time to look for places where things are getting a little too emotional.

 

 

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Discount Brokerage Weekly Roundup – January 27, 2020

2020 is off to one heck of a start. Coronavirus, impeachment trials, airliner tragedy and now news of Kobe Bryant. There is no shortage of bad news to start the new year; however, for markets and investors, the focus on the future might offer a reprieve from the current storm clouds.

In this edition of the Roundup, we highlight some shining stars in the customer service department that are making things challenging for the bank-owned discount brokerage crowd. Of course, that’s not the only challenge facing Canadian banks and bank-owned brokerages, as we cover a financial services firm that’s flipping the script on bank-owned brokerages and likely touching off a wave of new competitive response from Canadian banks. As usual, we’ll close out with investor commentary from forums and on Twitter.

They Serve, They Score: Canadian Discount Brokerages Outshine Banks for Service

With commission rates for online brokerages in the US falling to zero, there is growing pressure on Canadian online brokerages to revisit commission pricing. Already, the past three months have seen two online brokerages in Canada drastically reduce their rates. It begs the question though, when rates fall, what else will DIY investors do to evaluate the experience at an online brokerage?

One important category – especially around RSP season – is service. With many DIY investors either inquiring about or actively going about opening and/or funding RSP accounts, volume at customer service touchpoints is much higher than it is at other points in the year. That said, there are limits to the patience of investors – even Canadian DIY investors – when it comes to having to politely wait their turn to speak to a customer service agent regarding their account.

This past week, financial analysis firm Surviscor, published their latest rankings on the service experience at banks and online brokerages in Canada, and it provided some startling results for the customer service component of these service providers.

Starting first with the good news: Qtrade Investor was ranked the best in terms of service for the fifth consecutive year of these rankings. This is an impressive feat, especially as many other online brokerages appear to be under resourcing this key driver of the service experience. Even more impressive, Qtrade scored 98% on their service assessment – a near perfect in terms of the evaluation criteria.

Another interesting observation from these rankings is that two of the top four firms in terms of service are online brokerages. Questrade, a popular discount brokerage, placed third in these rankings with a respectable score of 90% (Questrade tied for third place with First Calgary Financial). The closest big-bank owned online brokerage was RBC Direct Investing which ranked 8th, scoring 79%. Amazingly, online brokerage is outperforming the banking services providers when it comes to connecting with customers quickly and appropriately.

Drilling deeper into the results reveals even more fascinating clues to the current state of customer service at Canadian online brokerages. The following figure shows the scores of the discount brokerages that were assessed during this ranking period. Of the 14 firms that were assessed, the biggest takeaway when looking at the field as a whole is just how far apart service experiences can be. The rankings ranged from 98% (at Qtrade Investor) to 4% (at Canaccord Genuity Direct). In fact, only five brokerages managed to score above 50%, and even then, after the second place score of 90%, scores depleted rapidly.

What really stood out from these scores, however, was the transition from fifth place Interactive Brokers (62%) to sixth place National Bank Direct Brokerage (35%). When asked on Twitter about the steep drop-off, Surviscor explained that “The calculation is based on a firm’s performance versus industry peers. The lower % indicates that a firm has a tough time being a top 5 at any point and probably sits in the 60-80 hour response range. The high scores mean some downs at times but mostly ups which is acceptable.”

For Canadian DIY investors, the harsh reality is that expecting a speedy response from an online brokerage is more the exception than the rule.

In looking at the top two firms, and in particular their commission rates, the position that ‘you get what you pay for’ doesn’t really seem to account for the fact that Questrade is able to deliver a standard of customer service well above almost all other online brokerages even though their standard commission pricing is lower (on average). In other words, high commission prices don’t equate to better customer service.

Unlike an online platform or a commission price, however, customer service may not be a feature that many clients ever really need to turn to. This explains why, for example, on the JD Power Investor Satisfaction survey, customer service does not factor heavily into the overall score. That said, long wait times, ‘inaccessibility’ or the perception of slow service are things that can drive clients who experience them to look for new business elsewhere.

That these rankings are scored on a relative basis is doubly challenging for the entire field of online brokerages chasing Qtrade Investor’s service delivery model. Rankings such as these point out definitive leaders in this category of feature, so much so that service can be (and is) a key differentiator for Qtrade Investor. Further, service is not easy to change overnight, which means Qtrade Investor is likely to enjoy a decent shot at keeping their win-streak alive next year. At this point, only Questrade appears to be giving them a run for their money in the service category according to these rankings. And, unless online brokerages competing with the two Q-named firms don’t want to see customers start losing faith in the service capabilities of their online brokerage, these rankings are a great wake-up call for change. Let’s hope that call isn’t left waiting on hold for too long.

Wealthsimple’s Cheque-Mate to Canadian Banks

Up until 2020, the combination of online investing and personal banking was tidily summed up by the title ‘bank-owned brokerage.’ This year, however, it seems like we’re going to have to come up with both a new term as well as find out what happens when online investing gets into banking.

This past week, Wealthsimple took yet another dig at the traditional financial service providers in Canada by offering a high interest savings account (2.4%) that now has a card that you can spend directly from. This brings Wealthsimple one step closer to being a brokerage-owned bank – something that doesn’t yet exist in Canada or the formal vocabulary of the financial services conversation. And it is big news to be sure.

Not content with just rolling out a high interest rate, the new account from Wealthsimple, named “Cash,” is also going to have a pretty slick-looking card and bring a whole new level of aesthetic experience to the ultimately forgettable, plastic debit card. Made out of tungsten, this is the kind of insta-worthy object millennials can’t wait to get their hands (and phones) on, which means that the marketing snow ball is going to go full avalanche once this goes entirely live. 

A great case in point is from Robinhood in the US. The rollout of a high interest savings/chequing feature from Robinhood, paired with a very classy looking card, has shown to be a hit with younger audiences. For Wealthsimple, this foray into banking represents their strategy to simplify and democratize finance.

In addition to collecting interest and being able to make purchases with the card, here are some other features that sound remarkably familiar to what keeping your money with a bank could do:

  • Direct deposit
  • Bill pay
  • Interac e-transfers

It’s also compatible with Google Pay and Apple Pay, has no foreign exchange transaction fees, and will refund ATM fees.

So, even though Wealthsimple started out as a ‘robo-advisor’, it has clearly got bigger plans in mind to handle financial services well beyond investing.  At some point, there will be an integration with Wealthsimple Trade and Wealthsimple, however, with the fact that Wealthsimple is leading the charge of being able to do what the banks do except cheaper.

Really at this point, the most elegant way to summarize what’s about to happen is that this is likely going to be a ‘shut up and take my money’ moment.

Wealthsimple just took the market for their services from Canadians interested in investing, to Canadians interested in earning. What a seismic shift in messaging, and the fact they have labelled this as just the beginning begs the most sacred question of great marketing, which is what are they going to come up with next?

We’re staying tuned to find out.

Discount Brokerage Tweets of the Week

From the Forums

Model Material

Redditors weigh in on the yearly model investment portfolio check-in released by the popular blog, Canadian Couch Potato. Click here to learn about some important changes, the removal of an individual three-ETF option, the debates over discount brokerage choice, and much more.

Getting Ready for the Big Gain

A curious user asks fellow Redditors to venture a guess about what the next big, unexpected, “once in a lifetime” stock opportunity may be. Answers range from water to niche biomedical technology to mushrooms lead into lively discussions in this post.

Into the Close

That’s a wrap on the week that was. It’s tough to close out the Roundup and open the week with a loss. But, as all traders eventually come to know, losses are part of the journey. Still, some sting more than others.

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Discount Brokerage Weekly Roundup – January 20, 2020

There’s snow doubt about it, winter definitely showed up in Canada this past week. Of course, for those fortunate or wise enough to have been prepared, weathering the storm just seemed like just a matter of time.

Speaking of time, curling up by a cozy fire to read this edition of the Roundup is a great way to get up to speed on a few interesting developments that took place amidst all the wild weather this past week. To kick things off, we look at the latest (and long-awaited) update to a mobile app for one online brokerage. From there, we provide an update to the deals & promotions being offered by Canadian discount brokerages as a familiar cast member makes a re-appearance just in time for the RSP season. Also, the race to the top of the online brokerage mountain in the US is providing some interesting clues to online brokers here in Canada. Finally, we welcome back the comments and critiques from DIY investors on Twitter and in the forums.

Virtual Brokers Unveils New Mobile App

With more investors turning to their mobile devices for just about everything, having a strong mobile app experience for online brokerages is no longer becoming a ‘nice to have’ feature. In fact, with brokerages like Robinhood (in the US) and Wealthsimple Trade going ‘mobile first’ with their online investing experiences, there is little room for error for existing online brokerages when trying to retain clients.

After a long-awaited update, Virtual Brokers has begun rolling out their new mobile app for both iOS and Android. The new app, which replaces their existing Power Trader Mobile app couldn’t have come any sooner for many clients.  Power Trader Mobile, which has been around since 2013, managed just 2 stars out of 5 on both Google’s Play Store and the Apple App Store.

So, hopefully, with a new year there’s a new start to the mobile experience. Already the early reviews on the App Store paint a picture of a better experience. Although there are only 2 reviews, the score of 4.5 from what look to be beta testers, looks promising.

The features on the new mobile app enable users to trade stocks and mutual funds – including get stock quotes; view account and transaction details; review orders and positions; withdraw and deposit funds, as well as view basic charts.

The interface of the new app also appears to be much more modern looking and easier to navigate. Screen shots available on the App Store highlight a refreshed look and improved user experience.

Like the refresh of a website, the launch of a new trading platform isn’t going to generate a lot of news or waves for DIY investors. Yes, it is something that is probably going to be appreciated by the scores of patient clients who were waiting for something better but the current release of the mobile app by Virtual Brokers is not so much a game changer as it is something that brings them back into contention with other brokerages.

One of the bigger challenges facing Virtual Brokers in the highly competitive online brokerage space in Canada is to get online investors to pay attention to this and any new features they roll out. While the online brokerage rankings offer a great way to showcase Virtual Brokers to the readership of the Globe and Mail, there is a lot of ground to cover to compete against their traditional rivals, Questrade, and the bank-owned brokerages in terms of brands that investors will talk about or tune into. Features like a mobile app launch are important but to truly stand out, pricing and innovation are key elements that should take centre stage. 

New (Reappearing) Deal for RBC Direct Investing

As we tick closer to the RSP contribution deadline, there is yet another discount brokerage deal announcement crossing the wires. Making a reappearance to the deals and promotions section this month, and in time for the RSP season, is a familiar commission-free offer from one of the most popular online brokerages – RBC Direct Investing.

Their 25 commission-free trade offer is back. With trades that are good for up to one year, a minimum deposit of $5,000 to qualify and an expiry date well after the contribution deadline, there is a low hurdle to qualify for this promotion at this bank-owned online broker.

With the re-entry of RBC Direct Investing to the premiere tier of offers for DIY investors, the major bank-owned online brokers are now all offering something substantial this RSP season. In fact, there are really only a handful of online brokerages who don’t have a major offer in this category at this time – notably Virtual Brokers and HSBC InvestDirect. With the bigger or better-known providers now offering up something substantial, there is not going to be any better time for those on the sidelines to launch an offer that can compete with the other online providers.

Schwab Rallies Despite Earnings Miss

If there’s one thing that investors pay attention to when it comes to stocks, it’s earnings. And, generally when earnings don’t meet expectations, prices usually fall. Of course, when they don’t, there is always a pretty good reason behind the gravity-defying behaviour and often it comes back to a bet on something bigger on the horizon.

Such was the case for the largest online brokerage in the US (and planet), Charles Schwab, who reported quarterly earnings this past week. While the reported earnings per share fell short of estimates by a few pennies, the eye-popping numbers that also accompanied this earnings report demonstrates just how big of a juggernaut Schwab has become on the heels of their decision to go to zero-commission equity trading and to acquire their large rival TD Ameritrade.

One big stat to pay attention to in their latest earnings announcement was the drop of commission revenues of 58% (down to $86 million dollars US). Nonetheless, the bigger news is that client assets under management ballooned 24% higher in the year to cross the $4 trillion dollar (US) mark – a new record high for the online brokerage.

For the share price to rise by almost 3% to end the week is signal by investors that they’re looking at the future for this online brokerage with optimism. Indeed, the assets that continue to get accumulated by Schwab are a great reminder that sustainability for online brokerages is going to be linked either to scale, operational efficiency, or irresistible innovation. For Canadian online brokerages, it’s tough to point to any brokerages right now that are winning based on personality (although Wealthsimple is certainly putting on a clinic as far as marketing is concerned), so it’s either go big, go fast, or go home. And as far as the market’s concerned, it seems that go big is the winning option for now.

Discount Brokerage Tweets of the Week

From the Forums

Age-Old Tips

A user wonders if their plan of allocating “my age minus 10 to bonds” is considered wise and fellow Redditors weigh in on a potentially outdated, and overworked, practice. Read more here.

Lights, Camera, Class-Action

When it comes to being in the spotlight ahead of RSP season, the Canadian financial service industry invests quite a bit to be top of mind. In this Reddit post, however, there is a significant storm brewing in the form of a class-action lawsuit over the way mutual funds were recommended to investors.

Into the Close

That’s a wrap on another bumpy week in the markets. In spite of the of volley of news stories of various degrees of shocking, equity markets in the US are sloping higher than a Newfoundland snow drift and Canadian equity markets are also pushing to new heights. If there’s solace or good news to be found anywhere, right now it’s in market momentum. And a Superbowl featuring the 49ers and Chiefs.

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Discount Brokerage Weekly Roundup – January 13, 2020

Welcome to 2020! Lots has happened while the Weekly Roundup has been on hiatus, however much like the snow blanketing rooftops all across the country (including Vancouver), there’s lots of news to shovel through and remarkably a lot to look forward to for DIY investors this RSP season.

In this first edition of the Weekly Roundup in 2020, we highlight the biggest story so far of the new year, the launch of new deals for DIY investors. From there, we report on the latest commission price drop from a turf war in Quebec that might actually start spilling over into the rest of the Canadian online brokerage market. Also, we’ll cover a neat feature for DIY investor clients of one bank-owned online brokerage that will start a new kind of streaming war (that doesn’t feature a baby Yoda unfortunately). Alas to make room for some extra stories, we’ve sidelined the sardonic tweets and put investor forum commentary on ice, but they’ll be back next edition.

New Year, New Deals

What better way to start the new year than with news of big deals and promos for DIY investors eager to open an online investing account. This year, there appears to be quite the battle between bank-owned online brokerages.

With 9 cash back or free trade promotions for Canadian DIY investors to now choose from, this isn’t the highest number of offers we’ve seen in this category, however what does stand out is the number of bank-owned online brokers in the category as well as the type of offers in play.

The new month has already seen deals from BMO InvestorLine launch and as of publication of the Roundup, a new promotion from Qtrade Investor.

Most of Canada’s online brokers have come to market with cash back offers which suggests they mean business when it comes to getting the attention of DIY investors.

In particular, the battle between bank-owned brokerages CIBC Investor’s Edge, Scotia iTRADE, and BMO InvestorLine is a fierce one with the latest offer by BMO InvestorLine narrowly edging out competitor deals in each of the deposit tiers except for the $500,000 mark (at which point they’re tied with Scotia iTRADE).

For the non-bank-owned online brokerages as well as the smaller bank-owned online brokers, however, competing against the bigger players is going to be especially difficult. In the absence of blockbuster features (like the one that RBC Direct Investing rolled out at the end of 2019), the options for competing online brokerages are limited. Nonetheless, Qtrade Investor’s latest offer appears to hold its own in several deposit tier categories – and even is higher than the largest online brokerage in Canada, TD Direct Investing.

Of course, for those that are on the sidelines, there is always the ‘nuclear’ option of dropping commission prices substantially to get attention this RSP season. As we’ve witnessed already this year (in 2020) there is one online brokerage that has dropped commission rates lower AND offered up a commission-free trading bonus, so it is possible to do both, however the first challenge of getting on the radar of investors is a unique hurdle that less popular online brokerages have to overcome.

With the RSP contribution deadline now just a few more weeks away, it will be interesting to see if any online brokerages not currently offering up either a cash back or commission-free trade offer will step forward and what they will step forward with. It is highly likely that we will see more offers in the next few weeks so we’ll keep monitoring this increasingly active space.

Desjardins Online Brokerage Drops Commission Prices

Snow and temperatures aren’t the only things falling to start 2020, prices for online trading are also coming down. Even though it took a while for them to respond (they also may have been dealing with that whole data breach thing too), Desjardins Online Brokerage finally found a way to counter the incredible commission price drop launched last year by their crosstown rival National Bank Direct Brokerage.

To start, the standard commission for Desjardins Online Brokerage has been reduced from 9.95 per trade down to 6.95 per trade. Compared to National Bank Direct Brokerage, this works out to a slightly better deal since only National Bank clients receive the $6.95 per trade pricing. Standard pricing at National Bank Direct Brokerage is still $9.95 per trade.

For active investors, however, Desjardins Online Brokerage really dropped the gloves on National Bank Direct Brokerage by beating them the commission price for this lucrative customer. For active investors, defined at Desjardins Online Brokerage as those who trade at least 30 times per month, commission pricing has dropped to $0.75 per trade. At National Bank Direct Brokerage, the rate for active investors (defined as those who trade at least 100 times per quarter) is $0.95 per trade. Thus, on both the cost per trade as well as the hurdle to qualify, Desjardins Online Brokerage has come out ahead – at least for equities trading. For options trading, however, the required minimum charge for active investors at National Bank Direct Brokerage is $8.20 which is cheaper than the minimum charge at Desjardins Online Brokerage at $8.75.

For investors aged 30 or younger, National Bank Direct Brokerage still holds an edge over Desjardins Online Brokerage. NBDB offers younger investors a $4.95 per trade commission rate as well as 10 commission-free trades per year. By comparison, Desjardins Online Brokerage has their “Broker@ge 18-30” offer which has 5 commission free transactions (one time). Clearly, there is still some work to do for Desjardins Online Brokerage to catch up to National Bank Direct Brokerage for the younger investor segment. However, this latest series of price reductions by Desjardins Online Brokerage highlight another important storm brewing in the Canadian online brokerage space.

While it is an open secret that no major Canadian online brokerage wants to be the first to lower their commission rates to zero, the reality is that the price brawl between Quebec’s largest online brokers could spill over into other parts of Canada too. The price drops for active investors make sense as a starting point, since active investors will certainly be inclined to trade more volume but also subscribe to data packages and trading platforms as well as to dabble in options trading. Keeping these customers happy is crucial as they are the most savvy of what’s going on in the online brokerage world. Ultimately, however, it is a matter of time before mainstream investors get access to lower standard commission rates.

With Desjardins Online Brokerage lowering their active trading commission rates down to $0.75 per trade, the Canadian discount brokerage industry is plumbing new lows for commission rates (Wealthsimple Trade excluded). While the major Canadian online brokerages are still likely to take a wait and see approach, the smaller players are already flashing signs of what is needed to compete in a world where zero commission stock trading is a reality for millions of investors.

Lowering prices may not be fun for Canadian online brokers, but the price of leaving commission prices higher than everyone else seems like it’s going to be more costly in the long run.

RBC Direct Investing Gets Real

An investor is going to be only as good as the information they receive. When it comes to DIY investing, one of the biggest challenges investors face is finding convenient access to the prices of stocks they’re invested in and those they’re following. For most DIY investors, delayed quotes or ‘snap quotes’ (the kind you get from hitting refresh on your browser) were the norm unless you were prepared to pony up significant fees for streaming data.

Last month, however, RBC Direct Investing unveiled an incredibly valuable feature for DIY investors – streaming real-time quotes – at no additional cost and with no trade minimums required to access this feature for free.  Unlike most of their peer firms, streaming real time quotes are not part of the standard offering. Interestingly, as a shift has taken place in website formats to only display a minimum amount of information on websites, finding information on platforms and data has become a bit more challenging than it historically used to be. One possible reason for this is because “most” users aren’t really active traders and it would therefore be less of a prominent feature to talk about or make space for on a ‘minimalist’ design website. Nonetheless, a quick scan of other online brokerages shows that TD Direct Investing offers snap quotes as does Questrade, however the streaming option at both of these brokerages will cost extra. On top of providing free access to streaming quotes, one nice touch that cuts down on the amount of paperwork is that there aren’t any additional agreements that are required to be signed with the exchanges from which data is being pulled. This simply means it’s easier to get going for existing clients and potential new clients who wouldn’t really have wanted to go through the hassle of a feature they wouldn’t likely use.

Of course for Canadian DIY investors, the upside here is that while RBC Direct Investing’s commission prices are still at the standard levels, there is certainly more value to be gained with these features now in place. It is unlikely that the ultra-active investors or day traders will need or want to sign on to RBC Direct Investing for this kind of feature, but for moderately active or curious passive investors, this is certainly a ‘nice to have’ feature that can provide additional context on investing opportunities.

Certainly, features that improve the ability of investors to make better-informed decisions are welcomed. Of course, it is equally important for any investors who now have more convenient access to the flashing numbers and colours that accompany real-time information to exercise caution and discipline when pursuing a trading opportunity.

Into the Close

That’s a wrap on the reboot to the Weekly Roundup. There’s lots of action taking place for investors to digest to start the new year. A heads up to investors in Vancouver to check out the annual Vancouver Resources Investment Conference for a look at mining-related investment opportunities as well as for some fun investor content. Stay warm out there and for those contemplating account openings, this is the time of year to go shopping for a bargain. Good luck and have a profitable start to 2020!

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Discount Brokerage Weekly Roundup – December 16, 2019

Heading into mid-December, there are clearly lots of numbers being thrown about. The number of shopping days left until Christmas, the countdown to the end of the year, and the exact deadline for trades to be counted for inclusion in 2019. To add to the pile, there are also numbers to consider that measure the online brokerage industry in Canada – which for some folks is like getting an early Christmas present.

In this edition of the Roundup, we take a deep dive into the latest online brokerage rankings to be released ahead of the end of 2019, and look at the impact that big changes in definitions can have on how investors ultimately decide which online brokerage is best. After that heavy dose of numbers, we’ve layered on some interesting comments and reactions from DIY investors in the forums and from Twitter to close things out.

2019 Online Brokerage Rankings: Focus on Experience over Price

Just in time for the end of 2019, there was a fresh round of online brokerage rankings for DIY investors to review as they do their financial planning for the year ahead. The annual Canadian discount brokerage rankings from financial services analysis firm, Surviscor, were released this past week and featured some interesting results on the pool of Canadian brokerages.

For DIY investors, rankings and ratings from third party agencies help to provide insights into what the client experience is like at particular Canadian online brokers. In Canada, there are three primary rankings that investors typically turn to – the Globe and Mail’s annual online brokerage rankings, the Online Self-Directed Discount Brokerage Rankings by Surviscor, and the J.D. Power & Associates Self-Directed Investor Satisfaction Study.

Expectedly, each of these rankings and ratings measures different aspects of the online brokerage segment and provides a rating based on their respective view of what separates the best online brokerages in Canada from their peers. For DIY investors, this translates into a somewhat muddled experience where different rankings and ratings provide different perspectives on the question: “which online brokerage is best?”

It is against that backdrop that the most recent iteration of Surviscor’s Canadian discount brokerage review offers some fascinating insights and also provides important lessons for DIY investors relying on rankings for researching online brokerage accounts. In particular, because of significant changes to how they have defined their Canadian online brokerage review in 2019 and what the resulting effects are for interpreting the rankings, it is important for DIY investors to look more carefully at the latest Surviscor rankings to understand how those changes impact potentially important decisions around choosing an online broker.

Starting with Definitions

An important but easy to overlook detail about the difference between the 2019 Surviscor rankings and the 2018 rankings is seen in the respective press releases associated with the rankings data release. In the 2019 rankings news release, it states:

“Surviscor’s proprietary scorCard methodology measures over 3,600 objective usage-related criteria questions over six independent categories, each weighted according to industry importance through direct feedback with industry firms.”

However in the 2018 news release, the following was stated:

“Surviscor’s proprietary scorCard methodology measures over 4,000 objective usage-related criteria questions and reviews each firm by 9 independent categories, each weighted according to industry importance through direct feedback with industry firms.”

Thus, the first important difference appears to be a change in the number of criteria and in the number of categories that are being used to assess Canadian online brokerages in 2019.

As seen in the table below, the categories that did not make it into the 2019 assessment were related to service experience, mobile experience, transactional experience, and cost of services. This selection of categories substantially changes the way in which an online brokerage is evaluated as a whole – shifting the focus to certain components of the experience.

2018 Categories 2019 Categories
Initial Experience Initial Experience
Service Experience X
Mobile Experience X
User Experience User Experience
Account Experience Account Experience
Market Analysis Experience Market Analysis Experience
Transactional Experience X
Investing and Planning Experience Investing and Planning Experience
Cost of Services X

Another important qualifier to the 2019 Surviscor rankings is that these rankings are purposefully attempting to measure the overall “self-directed online brokerage experience” for desktop users. The rationale for the significant change to this year’s study was to focus “on the pure online usability experience to better determine the best online/desktop platform for Canadians.”

Diving into Numbers

Those important contextual points considered, this year’s ranking saw Qtrade Investor still manage to retain its position atop Surviscor’s rankings for the fourth consecutive year. While this is a laudable feat in such a competitive field, it is noteworthy to see that this year the gap between first and second place (TD Direct Investing) came down to one percentage point – a gap that has never been that narrow in the four consecutive years that Qtrade Investor has topped these rankings. Rounding out the top three this year was Scotia iTRADE, a bank-owned online brokerage which has traditionally had a strong showing in these rankings and is back on the podium in 2019 after having placed fourth in last years assessment.

When transactional, service, mobile, and cost data are removed from the evaluation criteria, the 2019 online brokerage rankings paint an interesting perspective of the field of DIY trading service providers. Immediately, the relative advantage that “low-commission pricing” provides is removed in the 2019 rankings.

Three of the four lowest cost online brokerages occupy the lowest three positions when it comes to the “online brokerage experience”: CIBC Investor’s Edge (ranked 10th), National Bank Direct Brokerage (ranked 11th) and Interactive Brokers Canada (ranked 12th).

Clearly, it is important for DIY investors to note that the “best online brokerage” doesn’t necessarily translate into the lowest cost online brokerage nor the “best value,” since commission prices appear to be heavily factored out.

Even with most online brokerages now charging standard commission pricing in the sub-$10 per trade range, events in the US online brokerage space as well as recent moves by brokerages such as Wealthsimple Trade (which was not featured) and National Bank Direct Brokerage point to a significant enough gap in pricing that DIY investors could still see merit in switching brokerages to realize savings on commissions. In other words, DIY investors are still price sensitive when shopping for online brokerages.

The performance of the Canadian online brokerage field in 2019 as measured by the Surviscor rankings is interesting in and of itself. Removing price factors as well as mobile and service features, however, introduces a substantial degree of variability in the scoring when comparing results year over year, and paints the picture of an industry that – other than the excluded factors – is generally getting it right when it comes to “online brokerage experience” for DIY investors.

One of the first interesting characterizations was noted by Surviscor in their press release as a “surge” in performance by TD Direct Investing moving up three ranking positions from fifth place in 2018 to second in 2019. We took the extra step of crunching the numbers on the gainers and decliners for 2019 compared to 2018 to highlight the magnitude of performance difference. Indeed, TD Direct Investing did “surge” a remarkable 22 percentage points from 69% in 2018 to 91% in 2019.

That said, a positional shift (or surge) also took place with two other firms: Desjardins Online Brokerage and HSBC Invest Direct. The latter of these was particularly interesting given the historically poor performance shown by HSBC InvestDirect on the Surviscor ratings since 2016 where it has either been second last or last. Using the new criteria for measurement in 2019, this suggests that the combination of pricing, transaction, mobile experience and service were actually dragging these firms down in terms of performance on the Surviscor rankings.

Two other firms saw double digit percentage point improvements compared to 2018: Scotia iTRADE (+16 percentage points) and Virtual Brokers (+17 percentage points). Despite these sizable gains, however, their respective rankings only improved one position, with Scotia iTRADE climbing to third place this year and Virtual Brokers rising to seventh place.

Interestingly, there were three firms that saw percentage improvements but did not see any change in their rankings: Qtrade Investor (remained in first), RBC Direct Investing (remained in sixth), and CIBC Investor’s Edge (remained in 10th).

Perhaps the biggest curiousity from this year’s rankings comes not with the advancers, but in the decliners category.

There were four firms that saw position rankings slip, however, in three of those four brokerages, there were actually increases in the percentage scores compared to 2018. This underscores a broader takeaway from the results of this year’s online brokerage rankings, which is that the quality of online brokerage experience appears to be significantly better this year at almost all brokerages. The one exception according to these results is Interactive Brokers, which plunged from seventh place in 2018 to twelfth in 2019.

Removing the factors related to price, mobile experience, transaction experience, and service experience appears to have a significant impact on the comparability of results year over year.

Compared to previous years, the year over year volatility in rankings and percentage points seen from 2018 to 2019 is significantly higher. The standard deviation in scoring in 2018 vs 2017 was 1.97 whereas in 2019 compared to 2018, this worked out to be 7.62 or almost a factor of four (3.87x) difference.

Why that is relevant to note, however, is that in comparing rankings from one year to the next, it is also important to understand that those rankings are not measuring the same set of attributes. And, it is on that particular point of year over year comparability of rankings that consumers and DIY investors need to take the streaks and the ranking shifts with a grain of salt.

To put the impact of the measurement changes in perspective, in 2018, only one firm (Qtrade Investor) scored better than 79% for overall experience whereas in 2019 there were six – or half the firms analyzed – that scored above 79%. Since 2019 to 2018 is not a true apples-to-apples comparison, however, the shift in ranking positions year over year has to be heavily qualified, as does the consecutive nature of a particular ranking. While it is true that Qtrade Investor is first overall (again), why they are first is materially different.

The Takeaway for DIY Investors

For DIY investors shopping around for online brokerages, rankings and ratings are generally a go-to resource to better understand what kind of brokerage experience can be expected. That said, it is important to note that online brokerage rankings and ratings are not static, nor do they measure the same things between rankings.

As such, while an accolade such as being named “best online brokerage” by a particular rating firm is certainly something online brokerages can be proud of, for consumers it is crucial to ask more questions about the nature of what’s being measured. In other words, definitions matter as much as the results.

In the case of the 2019 Surviscor online brokerage rankings, the focus has shifted away from a number of previously important components to focus on the desktop user experience.

The fascinating implication of this analysis, however, is that the differentiators for almost half the brokerages are on the factors that were excluded. That is to say, with so many brokerages scoring 80% or better on “experience” features, this evaluation shows the brokerages have very similar (and reasonably good) platforms and will have to differentiate themselves on other features.

The real answer (if there is one) is how these experience factors combine with the separated-out factors like mobile experience, price, and service. Strategically, Surviscor will be launching a comprehensive “Digital Brokerage Experience award” in 2020 that combines the multiple assessments into one evaluation. The challenge for DIY investors, however, is making sense of the different ranking performances and the inevitable confusion from multiple online brokerages rightfully claiming that they are the “best online brokerage.”

Discount Brokerage Tweets of the Week

From the Forums

Cast a Wide Net Worth

Following the loss of their preferred finance tracking tool, one DIY investor wants to know how others keep tabs on their net worth and investments. Read on for tools and tips provided by fellow forum users.

Singled Out

A DIY investor has questions about how to go about investing in a single US stock as a Canadian. See what advice other Redditors provided.

Into the Close

That’s a wrap on this edition of the Weekly Roundup. We’re going to be putting the Roundup on park for the remainder of 2019, so this is the official sign off for the year (unless some kind soul in the online brokerage world decides to take commissions to zero just before the end of the year). While we’ll be monitoring developments and reporting on deals updates (and potentially groundbreaking news), we’ll otherwise be in the workshop until 2020.  On behalf of the SparxTrading team, we’d like to thank the loyal Weekly Roundup (marathoners) readers for tuning in, and wish you all the best for the holiday season, and the New Year! Stay safe and profitable!

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Discount Brokerage Weekly Roundup – December 9, 2019

With the holiday season just a few short weeks away, gifts and presents are top of mind for many folks. Fortunately for Canadian DIY investors, there are some early presents that have arrived courtesy of some of the newest online brokerages in Canada – and the timing couldn’t be better.

In this edition of the Roundup, we keep things all Canadian (for a change) with a look at the newest online brokerage to roll out in Canada – including the challenges and opportunities they face in a crowded field. From there we’ll review the latest feature being rolled out by another relatively new online brokerage, and how their newest feature can be both a blessing and a curse. As usual, we serve up some interesting chatter from DIY investors on Twitter and in the investing forums.

CG Direct Rolls Out as Canada’s Newest Online Brokerage

This past week, an important and long-awaited shift took place in the Canadian online brokerage space. Jitneytrade, the online brokerage in Canada that is heavily focused on the active trader, and which was acquired in 2018 by Canaccord Genuity, officially wound down their website and transitioned to the new online brokerage segment at Canaccord called CG Direct.

In keeping with the acquisition trend in the Canadian online brokerage space, the smaller independent discount brokerages such as Virtual Brokers, Qtrade Investor, and Credential Direct have been snapped up by larger wealth management players. In the case of Virtual Brokers, it was CI Financial and for Qtrade Investor and Credential Direct, it was Desjardins. And, although the figures related to these transactions weren’t made available, the deal for Jitneytrade was, and came in at $14.8M in June 2018.

The key takeaway: independent online brokerages in and of themselves are not sufficiently profitable to be commercially sustainable in Canada. They need to be part of a spectrum of wealth or financial management services in order to have a chance of competing in the ultra-crowded online investing segment.

So, what would possess Canaccord to wade into a very crowded online brokerage space in Canada? Like most deals, it’s likely driven by ROI.

According to Canaccord’s FY 2019 annual report, the acquisition “serves to support the Company’s mid-market growth strategy by enhancing its market share of equities trading and providing access to new areas of growth through accelerating its development of an enhanced fintech product offering.”

What a positive return looks like for Canaccord is not just growth in revenues from commissions but also a deepening of relationship with their existing (and wealthy) managed wealth client base. With the acquisition of an online brokerage, no longer does Canaccord have to step aside while their private wealth clients who want to “dabble” on their own take assets to another firm or online broker. Instead, Canaccord can now keep those clients “in the tent” and create a stronger case for bringing assets located elsewhere into Canaccord.

Of course, growing assets from within is only one facet of the ROI picture. Another component to the possible return on this purchase will be the extent to which they can win new clients. In this regard, things are going to be considerably more difficult for Canaccord to successfully execute on.

While Jitneytrade may be a name more familiar to professional traders, among most retail investors it is not. This creates two distinct challenges: one is carrying over the Jitneytrade “brand” to the active trader segment, and the second is translating the Canaccord brand into something retail investors believe is compelling.

In the case of the first challenge, retaining existing Jitneytrade clients under a new banner of CG Direct will likely not be too difficult assuming service and pricing stay relatively close to where they were pre-merger. Interestingly, digging into the details of the deal, there was a category of the transaction labelled “intangible assets” which was valued at $1.9M, which specifically related to the value of customer relationships. Indeed, the ultra-active and professional trader segment is a high-touch client, which simply means that while pricing is key, relationships matter (a lot). Going forward under a new banner of CG Direct, growing the brand among the active trader community will now require selling the merits of CG Direct as the destination for active traders. It will have to compete directly with Interactive Brokers in this regard.

The second challenge will clearly be attracting business in the retail investor segment in an already crowded discount brokerage field.

With a new brand, there are inherent hurdles to clear (such as: Who is this firm? Can they be trusted?) and out of the gate, there are already some clear stumbling blocks to winning the attention battle for CG Direct. Perhaps the biggest challenge will be the “differentiator” among the other players.

For new entrants to the Canadian online brokerage space, pricing is one of the biggest drivers of attention among DIY investors. The pricing for CG Direct – at least for the equity commissions – is at the industry standard $9.99 per trade (plus any ECN fees), which pits it against the larger online brokerage competitors. When it comes to options, though, pricing is a bit more competitive (or even better) than most of the online brokerage peers. CG Direct will be charging $1.00 per options contract with a minimum commission of $10.

On the technology front, the retail web-based trading platform for CG Direct, called DirectFolio, will be up against incredibly tough competition. While the core business of an online brokerage is order execution, the “standard” offering for most online brokerages when it comes to platform is to deliver a relatively feature rich experience. As an extension of that, the current website and digital experience of CG Direct is not the kind of wave-making experience that something like Wealthsimple Trade has been.  In particular, there is a sense that CG Direct is a “desktop” brand versus a “mobile” one, suggesting that the pace of growth in the retail investor segment is going to be limited by the ability of CG Direct to appeal to the newer, tech-savvier generation of investor who all the competitors are working very, very hard to attract.

When an online brokerage can focus its identity on a segment – e.g. if CG Direct were purely for active traders – it becomes easier for consumers to understand what CG Direct does and when the right time would be to engage them as an online brokerage. In this case, however, with CG Direct going after two segments of the market, it will be an uphill battle to structure communications to be appealing to both.

One component of the story that we have not yet dove into is the potential for robo-advisory services to also emerge from this transaction. In addition to Jitneytrade, Canaccord acquired Finlogik – a company also started by the founder of Jitneytrade. The Finlogik side of the deal also brings with it the software platform that could be used for the deeper push into the digital wealth management experience (e.g. robo-advice) and the web-based trading platform for the self-directed investor.

Ironically, as online brokerages, their core business comes down to execution. In this case, success of the CG Direct brand will undoubtedly come down to execution on the value proposition and brand promise.

For active investors and traders, this means CG Direct needs to continue to execute well on the “bespoke” pricing and service experience that Jitneytrade was known to offer. And, in wading into ultra-competitive waters on the retail investor side, delivering on the value that online investors expect from a discount brokerage (pricing, platform, ease of use, service, resources, etc.) will be crucial if the online brokerage arm of Canaccord is going to be more than a retention tool for existing clients.

Wealthsimple Trade Transfers Now Active

The journey of a thousand miles begins with a single step. In the road to bringing even lower commission costs to Canadian DIY investors, Wealthsimple Trade has been slowly moving forward on its plans to be a genuine competitor to other Canadian online brokerages. This past week, the social media feeds for Wealthsimple Trade highlighted another important step that the zero-commission brokerage has taken to make it easier to do business with them: enable account transfers.

DIY investors can now request a transfer of their eligible registered and/or registered accounts to Wealthsimple trade. Among the accounts users can transfer over to Wealthsimple Trade are TFSAs, RRSPs and non-registered accounts.

As an added bonus, if the amounts being transferred over are greater than $5,000, then Wealthsimple Trade is willing to cover the transfer fee that the existing brokerage will likely charge on the way out.

There is still no way to directly transfer between Wealthsimple and Wealthsimple Trade, however the fact that it is now possible to go from one institution directly into Wealthsimple Trade without having to sell a portfolio into cash first is a big plus for DIY investors who want to take a dive into the zero-commission experience.

For other online brokerages, even though the changes that are taking place at Wealthsimple Trade are still small enough not to be too concerning, the ability to have investors transfer funds and securities away from their brokerage is one which undoubtedly raises some eyebrows.

The addition of account transfer capability was undoubtedly an important feature to get rolling just before RSP season ramps up to full speed, however, this particular feature is not without its risks.

Unlike many of its peers, Wealthsimple Trade (and its parent, Wealthsimple) have made significant strides to redefine user experience in the financial and wealth management space. Their websites, apps and even content are very much the envy of other wealth management firms and as such, the Wealthsimple brand has earned a substantial degree of goodwill with consumers, in particular millennials.

Of course, aesthetics aside, when it comes to people and their money, emotions inevitably factor in and expectations around reliability, stability and speed are also crucial. Why this matters in the context of account transfers is because unlike account opening (which can be completed in minutes online) the account transfer process can take anywhere from two to four weeks (and in many cases, even longer). This pits the ultra-fast, low-friction experience and promise of Wealthsimple Trade against the realities of the financial network between online brokerages in Canada today. And, for anyone who reads the financial forums and tweets about online brokerages on a regular basis, it’s clear that account transfers make up a unique category of frustration among DIY investors.

So, as widely anticipated as this feature is for Wealthsimple Trade, it is almost one of those “be careful what you wish for” situations as well.

Not only is the risk (based on ample evidence from other DIY investors’ brokerage transfer experiences) of mistakes incredibly high, the consequence and subsequent optics of delays that stretch into the weeks and months are terrible. If Wealthsimple Trade manages to generate enough interest, they could be the victims of their own success when it comes to having too much volume of transfer activity taking place, which would also strain their internal resources. Add to that the very high likelihood that their target client is on social media in some way shape or form, and the magnitude of the mistake or delay – even if it is not on Wealthsimple’s end – would be outsized relative to their peer firms.

When it comes to trading and markets, timing is really everything. In the case of Wealthsimple Trade’s new transfer capabilities, it may be a question of investors waiting and seeing as to whether or not the two to four week window is realistic or if it is something even longer. If there’s one thing worse than paying bad fees, it’s enduring the uncertainty of exactly who has your entire nest egg while it’s being moved. Trading markets is fun, trading brokerages – at least from what is written about online – not so much.

Discount Brokerage Tweets of the Week

From the Forums

No Time for Bonds

A DIY investor questions the advantages of bonds over HISAs. Fellow forum users weigh in, providing insight on situations in which each type of investment would prevail. Read more here.

Slow and Steady Wins the Race

A 45-year-old, self-employed Redditor wants to start investing and turns to the forums for guidance on where to begin. Read the advice that fellow forum users gave this new DIY investor here.

Into the Close

That’s a wrap on another eventful week. Fortunately this week there was lots taking place in the Canadian online brokerage space. Just like the shopping habits of many consumers, the online brokerage space still might have a few last-minute surprises left before the end of 2019. With a new decade just around the corner, some new discount brokerages starting to make waves here in Canada, there’s lots for DIY investors to look forward to in 2020. To anyone braving the malls to shop, hats off to you and wishing you lots of great parking karma!

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Discount Brokerage Weekly Roundup – December 2, 2019

Sandwiched between Black Friday and Cyber Monday, the beginning of December is undoubtedly synonymous with big savings and big deals. This year, there are definitely both in the world of online brokerages here in Canada and in the US.

In this edition of the Weekly Roundup, we review the latest deals activity to cross the wire at the outset of December and explore some interesting trends for the end of 2019 and early 2020. From there, we peer into the fog of online brokerage war as the massive news of the Schwab / Ameritrade deal continues to send shockwaves of uncertainty through the online investing industry. For a great change of pace, we’ve also got the ever popular DIY investor tweets as well as chatter from investors in the forums.

December Deals & Promotions Update

It’s a new month and that means another chance to revisit the discount brokerage deals and promotions scoreboard to see what’s new for the month as well as what trends are emerging for promotions from Canada’s online brokerages.

There’s a slight bit of irony to the fact that the end of financial literacy month (November) coincides with both Black Friday and Cyber Monday, since the former is all about learning how to manage money wisely and the latter are all about getting consumers to open up their wallets with the promise of deep discounts. In the world of online investing, the irony extends just a tad further, with “discount brokerages” now cutting commission rates to zero (at least in the US) in the hopes of seeing more trading activity take place.

Before going too far into the trends or strategies that we see unfolding, the good news is that the deals and promotions activity heading into December is upbeat (at least for DIY investors).

Despite there being no online brokerage launching a deal on December 1st, there are currently 24 offers available to DIY investors and the brokerages currently offering deals represent some of the most popular choices in the space.

Kicking off December, most of the big five bank-owned online brokerages, with the exception of TD Direct Investing, have either commission-free trade offers or cash back promos currently in the market. This offers considerable value for DIY investors to choose from and is dominating what investors are looking at on SparxTrading.com.

That said, we’re expecting some volatility and turbulence over the typically quiet holiday period because of the spacing out of expiry dates on some of the current offers.

RBC Direct Investing, one of the bigger players in the online brokerage space behind TD Direct Investing, has their commission-free offering currently scheduled to expire on December 13th. BMO InvestorLine’s seasonal offer is set to expire at the beginning of January 2020 and both Scotia iTRADE and CIBC Investor’s Edge have deals set to expire close to the end of February or beginning of March – which coincides with the RSP contribution deadline of March 2, 2020. So, even though the beginning of the month may be relatively quiet, there’s a good chance that there will be more activity as the month progresses or as soon as the new year hits.

One big development in the online brokerage space that is likely going to impact the way in which deals and promotions unfold in the new year is the move to zero-commission trading in the US.

In Canada, the wave of zero-commission trading has yet to fully take hold and between now and the time that it does, the go-to place for online brokerages to get the attention of value-conscious investors is going to be with deals and promotions.

Knowing what’s at stake in terms of having to lower commission prices to zero entirely, the better option for online brokerages is to start dishing out bigger and more valuable incentives to attract new clients (or more accurately, more assets) and more importantly, to retain clients (and their assets).

We’re already seeing that online brokerages are starting to get more creative with what they’re offering.

Scotia iTRADE, for example, launched a new promotion at the end of November which combined both a cash back promotion with a discount in standard commission fee down to $6.99 per trade. That same promo also offered the option to choose commission-free trades instead of cash back. And, to boot, this is a tiered offer that ranges from deposits as low as $5,000 all the way up to deposits of at least $5M. This is by far one of the most comprehensive offerings in terms of choice and targets. By contrast, BMO InvestorLine’s tiered offer is focused on cash back and for higher deposit levels only.

For brokerages other than the big-five bank-owned online brokerages, the mix of already low commission prices and convenience-appeal of a bank suggest that there has to be a mixture of bold thinking and savvy marketing to navigate the choppy waters for their brands going forward. There are likely to be firms that will try to tread water with middle of the road promotional offers, however, it is clear that to stand out from the big bank online brokerages, one strategic area to do that is with promotional offers.

It almost goes without saying but the commission rate drops or promotional offers alone are not going to be enough to keep clients, the service and value experience has to also measure up otherwise customers will choose a provider who gets the details and little things that are important to online investors right. That said, unless there’s something to get attention away from the behemoth and ultimately familiar banks, investors will likely default to the fastest and easiest option this holiday season.

Certainty Begets Uncertainty

They say when it rains, it pours. It seems like a fitting description for the online brokerage space in the US this past week (and for the past 8 weeks) which saw perhaps the biggest repercussion of the zero-commission fee move unfold.

Last week, we reported that Schwab was rumoured to be in talks to buy out TD Ameritrade, and this past week the announcement was made official. Schwab announced that it would be purchasing TD Ameritrade in an all stock deal valued at $26B USD. With the stroke of a pen, two of the US’s largest online brokerages combined forces to create a super online brokerage with almost $5T (trillion) USD in assets under management (AUM).

The question that everyone is asking is naturally where things go from here? In particular where things go for E*TRADE Financial, which for a long time was viewed as the most likely candidate to be acquired. Though just speculation, the case for takeover of E*TRADE seems to still be viable. There are still entities large enough to take on acquiring an online brokerage (including competitors like Fidelity or even Goldman Sachs) however, even a private equity deal in which the business pieces were sold off to different parties could make sense given the value of the different business lines operated by E*TRADE.

In addition, this past week the online brokerage credited with accelerating the move towards zero commissions, Robinhood, quietly withdrew their application for bank status, putting their cash management plans in limbo. Curiously, despite this about-face, there are still images for debit cards on the homepage of the website, suggesting either that they’re slow to update their site (not likely) or that there will be cash management coming but through a partnership with an existing financial institution – potentially similar to what Google is orchestrating in its partnership with Citibank to create their “Cache” program.

Sufficed to say, it has been a whirlwind of activity into the end of the year. Judging by the degree of uncertainty still surrounding the acquisition of Ameritrade by Schwab, the fallout for brands like E*TRADE and Robinhood, and the new world in which online investor preferences are going to shift to focus on the other value drivers of the online investing activity flow.

The big question to DIY investors is “so what?” In particular, for Canadian DIY investors there is clearly an undercurrent of consumer demand for the same kind of pricing in Canada that online investors in the US receive. On Twitter as well as in financial investing forums, Canadian investors are calling for rates to drop to zero for commissions – the premise being if the US online brokerages (as in ALL of the US online brokerages) can go to zero, why can’t Canadian brokerages? It’s a fair question and not one that Canadian online brokerages can answer well just yet, with one exception – Wealthsimple Trade.

Perhaps the only thing that is clear at this point is that there is a great deal of uncertainty looking forward in the online brokerage industry. The fun part of that uncertainty is that it leaves room for speculation.

The one thing that analysts can hang their hats on as far as value is the assets that individual investors bring with them and what that, in turn, can be converted into as far as revenue for the financial services firm. Looked at in this light, financial services firms rely on having large pools of users to achieve the scale required to be sustainable. That also means that technology platforms, such as all of the members of the FAANG stocks, are likely competitors for the traditional financial services firms. For that reason, our best guess for the path forward for the large (and especially not so large) financial services firms will be becoming exceptionally interesting and helpful in the financial management of everyday investors. Anything less, and there’s going to be a cheaper and faster alternative provider for it.

Discount Brokerage Tweets of the Week

From the Forums

One Hit Wonder

After switching jobs at 40, this Redditor’s pension payout was put into a LIRA. Worried about the future of the economy, this forum user seeks advice on how to proceed with their pension. Read the responses of fellow Redditors here.

Mad Max

Having already invested in a HISA and GIC, a DIY investor is considering using their TFSA to invest in index funds to get the best returns. Redditors weigh in on this financial situation and provide guidance on the best ways to use a TFSA effectively.

Into the Close

Fitting heading into the holiday season that that’s a wrap on another edition of the Roundup. With Cyber Monday now upon us, there are clearly deal hunters on the prowl and by all accounts this year was a strong one for shopping activity. Savvy DIY investors also know that this is the most wonderful time of the year for bargains on under-performing stocks (*cough cough cannabis and energy*). So, while there’s more than enough uncertainty to go around these days, don’t lose sight of the opportunity it creates. Happy deal hunting!

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Discount Brokerage Weekly Roundup – November 11, 2019

This week more than most, the focus of November is on remembrance. For some (cough cough weed) investors, however, November is about trying to forget and cutting ties with losing stocks. Capitulation typically takes a while to set in. With so many losses accumulating this year for lots of DIY investors, however, this could be a bargain-filled month of investors finally throwing in the towel on non-performing names. Of course, on the other side of the trade, there are still several online brokerages who are not quite ready to throw in the towel.

In this edition of the Roundup, we take a look at the newest discount brokerage deal to cross the wire and what the uptick in activity suggests for the stretch heading into the end of the year. From there, we cover another new feature added by the newest discount brokerage on the block, and what it means for driving change among existing online brokerages. As always, we’ve got an intriguing selection of chatter from DIY investors in the forums and on Twitter to close things out.

Deals Uptick: New Cash Back Offer From CIBC Investor’s Edge Now Live

November is a month that a lot of bargain hunters look forward to. DIY investors, however, don’t have to wait until Black Friday to take advantage of deals coming their way, especially this year. Just a few days into the new month and there is another bank-owned online brokerage that has stepped up to the promotions plate with a competitive cash-back offer for online investors to consider.

CIBC Investor’s Edge has launched a new promotion with cash back offers ranging from $100 (for deposits of $25,000 or more) to $400 (for deposits of $100,000).  Currently there is only one other bank-owned online brokerage, BMO InvestorLine, that is offering cash back bonuses as part of a general campaign. The latest offer from CIBC Investor’s Edge, however, is decidedly more competitive than other cash back offers from Canadian discount brokerages, whether those offers be referral based or public cash back offers.

As can be seen in the table (below) there are currently five Canadian discount brokerages offering up some kind of cash back bonus offer. From the deposit tiers between $25,000 up to $250,000, CIBC is largely unchallenged (for now) with the only alternative offers for a cash back reward being Questrade or Scotia iTRADE via their referral bonus. Even then, CIBC Investor’s Edge is offering, in some cases, more than two times their competitors.

If history is any indicator, we would anticipate seeing other online brokerages start to enter the cash back promotional offer pool with the bulk of offers focusing between $25,000 and $250,000. That said, with millennial investors getting significant focus this year, it would not be surprising to see additional offers come to market for the sub $25K deposit level.

Already at the sub $25K deposit level, four of the five brokerages offering cash back promotions have an offer, however it is remarkable that those are the same four brokerages with cash back referral programs.

With the end of the year fast approaching, it is likely that additional offers will be coming to market. Those stepping onto the field will have to play a fine balance between waiting to see what competitors are offering and getting into the market to be visible when online investors are most actively looking for an online brokerage.

This year in particular, against the backdrop of commission-free trading in the US, it will be interesting to see what the mix of commission-free offers to cash back offers shakes out to be. With two of the big five banks offering up “mass market” offers that are cash back, it would be tough for the bigger remaining players who don’t yet have an offer (e.g. TD Direct Investing or Scotia iTRADE) to come to market with something less appealing. And, for the non-bank-owned online brokerages, this will be a particularly tricky needle to thread. Commission-free trades are less expensive (but also less appealing), however, their pockets are not nearly as deep as their bank-owned competitors.

With markets shrugging off uncertainty or political volatility and pushing into record new highs, strong economic data, and healthy jobs figures, the big picture sentiment seems strong for Canadian investors in many parts of the country to be thinking about saving (and investing) for retirement. That is likely to be an important driver of just how competitive brokerages are willing to be on incentives, especially considering the zero-commission trading train may pull into the station at any time.

The Long Route: Wealthsimple Trade Grinds Away at RRSP Accounts

The classic football film Any Given Sunday has an iconic speech delivered by Al Pacino in which he talks about football being a “game of inches.” In the highly competitive world of online brokerages in Canada, those inches (or centimetres to keep it metric) are also hard to come by in terms of gaining market share. For the newest online brokerage on the block, Wealthsimple Trade, there continue to be signs that it is making progress in its bid to be a serious contender against other Canadian discount brokerages.

One important step that Wealthsimple Trade recently took was the launch of RRSP accounts for DIY investors.

For such an important feature, it has received a remarkably small amount of spotlight on both the Wealthsimple Trade or the Wealthsimple social media channels. One clue as to why that may be the case is because the account feature is not entirely functional in the way it is at most other online brokerages.

The help section of Wealthsimple Trade provided additional details on why that is. Perhaps the most important limitation on the account right now (at least until November 18th) is that money that goes into the RRSP account cannot be withdrawn to a linked bank account. Convenience is a big factor for the target market of Wealthsimple Trade, so a perceived hurdle like this is not something they’d want to highlight (understandably) as it could be the source of a lot of confusion.

Another possible reason why there hasn’t been a lot of noise made yet is because there isn’t the ability to transfer RRSPs from another institution into the Wealthsimple Trade RRSP. As a result, the current pathway to gaining traction for Wealthsimple Trade is to rely on RRSP contributors to: 1. Open a new account with Wealthsimple Trade, and 2. Deposit funds there.  Again, with convenience being an important driver to adoption, having to open up another account with another provider and keep track of money in two different places is just more work than many DIY investors are prepared to put in. With most passive investors capable of accessing commission-free ETF trading at multiple online brokerages, there are just too many other lower friction options out there.

Despite all of the friction points currently in place for Wealthsimple Trade’s RRSP account (and there are a couple more), there is a strong likelihood that these will be addressed or removed entirely in short order. As RRSP season is just around the corner, it is likely that the creative folks at Wealthsimple will find a way to put an optimistic spin on the state of the RRSP account at whatever level of readiness it happens to be at.

Of course, the ace up the sleeve for Wealthsimple (and Wealthsimple Trade) going into RRSP season is that they recently acquired the very popular tax preparation platform SimpleTax. It is not a great leap to be able to see the synergy for Wealthsimple Trade and the tax preparation software, especially at the moment that an individual would be logging any RRSP contribution data or if they have a tax refund they might need to stash somewhere (like a TFSA, RRSP or other investment account).

For now, Wealthsimple Trade remains the underdog in the online brokerage competition in Canada. Even with zero-commission trades, convenience and ease of use are going to be the key areas that the competition can use to pull ahead. That said, other Canadian online brokerages can’t afford to fumble on service or stability any more, and if they do, DIY investors will be asking why they’re paying the fees they are.

Discount Brokerage Tweets of the Week

From the Forums

Low Fees, High Price

In the midst of the announcement from Planswell that they’re shutting down, Redditors engage in a discussion on the downfall of the company and the precarity of robo-advisors in the race to the lowest fees.

If It Ain’t Broke, Don’t Fix It

A Redditor concerned with optimizing his son’s RESP ponders whether or not to move from TD e-Series to Questrade or TD Waterhouse. Fellow forum users weigh in, offering advice about whether or not it’s a necessary change.

Into the Close

These days, it seems like there’s no shortage of vitriol kicking around online. Sadly, we’re at a moment in history when the efforts and sacrifices of those who fought against fascism and totalitarianism have been overshadowed by some who, if they were really students of history, ought to know better. Fortunately, the symbols of those who stood up to the world’s evils can inspire us to do the same and give each of us the strength to make the hard choice to do the right thing. Thank you to the brave individuals who continue to serve, in spirit and in person, this great nation.

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Discount Brokerage Weekly Roundup – September 30, 2019

One of the best parts of summer happens to be ice cream. Of course, just because the season is behind us, it doesn’t mean that we can’t enjoy a good scoop – or in this case, a couple of incredible scoops – of online brokerage news that are sure to put just as big of a smile on the faces of DIY investors as the frozen treat would.

In this edition of the Roundup, we dish out two incredible stories about pricing changes. The first is a game-changing announcement south of the Border that is sure to make waves in the industry here in Canada. And if those waves weren’t enough, we dive into the news that is going to also make a major splash with DIY investors and other discount brokerages here in Canada, as the first big shift in pricing from a bank-owned online brokerage in several years is coming. Not to be glossed over, we’ve also included a healthy portion of treats from Twitter and the DIY investor forums.

Z-Day is Here: Interactive Brokers Offers Unlimited Commission-Free Trades

After the meteoric rise in popularity of US online brokerage Robinhood and their zero-commission trading fee model, the online brokerage industry as a whole knew it would be only a matter of time until they had to decide to follow suit.

When Robinhood was first launched in 2014, it’s fair to say there was a substantial level of skepticism that zero-commission trading would ever take flight, let alone be profitable. Yet, year after year, momentum behind the zero-commission brokerage grew, attracting major investors (such as Sequoia, Google’s venture capital fund Capital G, and others), achieving a USD $7B valuation and earning numerous awards for design and user experience. Beyond just the product or platform, it turns out that Robinhood also appealed heavily to the next generation of online investors: millennials.

Fast forward to last week, and any skepticism about the viability of the business model has been put to rest by a firm that few predicted would become the first of the major online brokerages in the US market to also take trading commissions to zero.

Interactive Brokers, already one of the lowest-cost online brokerages in the US (and internationally), announced last week that they would be rolling out a new option of their online brokerage service known as IBKR Lite which will provide online investors commission-free trading on all US equities and ETFs. The existing service provided by Interactive Brokers (whose ticker symbol is IBKR) will be rebranded to IBKR Pro and will retain the existing pricing and feature set.

At the heart of the new IBKR Lite is how and where an order for an equity or ETF trade gets routed. Rather than go through Interactive Brokers’ proprietary order routing algorithm, known as the IB SmartRouting system, orders for equities placed through IBKR Lite will be sold to market makers (aka high-frequency traders) who will be able to take advantage of minuscule variations in pricing that can then be turned into profits.

Often snubbed by Interactive Brokers’ founder and CEO, Thomas Peterffy, selling client order flow or trading against clients was touted as contrary to the core of Interactive Brokers – who has always sought to offer clients the best execution price for trades.

Interestingly, it was just over a year ago that they opted to become the first company to be listed on IEX, the US stock exchange founded by Brad Katsuyama – of Flash Boys fame – largely because there was strong overlap in organizational values. Just a few days prior to the announcement that Interactive Brokers would be launching IBKR Lite, however, Interactive Brokers announced that they would be delisting from IEX and moving back to NASDAQ, a fascinating turn of events in its own right.

Against the backdrop of the launch of IBKR Lite, something that is almost antithetical to the IEX mission, the continued presence of Interactive Brokers on that exchange seems to now be irreconcilable. Further, with the exit of Interactive Brokers, IEX is also exiting the listings business altogether and will not be seeking at this time to list publicly traded companies on the exchange.

So – why the about-face for Interactive Brokers?

Ever the entrepreneurial organization, Interactive Brokers is agile enough to see what the market is asking for and be able to mobilize to deliver. The past two to three years have seen a number of innovative services added to the Interactive Brokers ecosystem, that have sought to deepen the relationship (and share of wallet) Interactive Brokers has in its clients’ financial lives.

Ultimately, the move to zero commission fees appears to be a ‘why not’ moment at Interactive Brokers – if the market is showing that there are investors who are willing to forsake the best execution price for a trade-in order to save on the commission up front, then Interactive Brokers is simply leaving money on the table by not doing this.

For many years, their primary discount brokerage competitors (for example, TD Ameritrade) have been selling order flow and generating significant revenues from doing so. A snapshot from the FY18 report for TD Ameritrade shown below illustrates the growth in revenue derived from order routing and clearly shows just how lucrative this has been for them. From FY17 to FY18, for example, the revenue from this source grew 43% to USD $458 million.

And, in FY19, revenue from order routing has contributed to 32% (USD $365 million) of the trading revenues earned by Ameritrade.

While the information is publicly available, what appears to be different about the approach Interactive Brokers is taking compared to that of their peers is that they are being very transparent about the fact that users of IBKR Lite are getting commission-free trades because they are giving up (or trading away) best execution price. Even zero-commission trading firm Robinhood isn’t as clear as they could be in stressing this to potential clients.

For other online brokerages who both charge commissions for trades AND make money from routing orders, the new launch by Interactive Brokers is highly problematic.

Competing online brokerages will now be forced to answer the question of the real value of order execution, as well as the value of the other features that define a client experience, whether that be great user experience, an amazing mobile app, education, charting, support, access to research, or some other feature.

While the reaction of stock prices of the online brokerages to the news was generally negative, there are clearly some online brokerages that were more negatively impacted than others. TD Ameritrade, who derived 36% of its revenues in FY18 from trading commissions and order execution, for example, was down 6% on the news while Schwab fell only 2% – a sign that the latter is less reliant on trading commission revenues than the former.

Despite the announcement, the online brokerages in the US have undoubtedly prepared a playbook for this scenario. They may not have known exactly when this “Z-day” would come but in conference calls over the past year, the spectre of zero commission trading has been raised and addressed with the general response being along the lines of “we can handle it”.

Earlier this year, Peterffy hinted at something big happening at Interactive Brokers in the latter stretch of the year. While we thought that the sports betting platform might have been it, clearly the market-disrupting thing Peterffy was referencing was the deployment of this zero-commission option. Evidently, Interactive Brokers has seen the writing on the wall when it comes to mass market appetite for commission fees on trades, and what consumers are willing to trade away for those prized zero-commission rates.

For the moment, the zero-commission fee offering of IBKR Lite is restricted to the US. Canadian discount brokerages, therefore, have a bit more breathing room to figure out their game plan if and when a major player here decides to offer up full commission-free trading here.

Already offered (with some restrictions) here by Wealthsimple Trade, this feels a bit like déjà vu with Robinhood.

Canadian online brokerages are generally slower to innovate than their US counterparts – and the skepticism on the street around Wealthsimple Trade still permeates. For that reason, it is unlikely that a larger online brokerage in Canada is going to move to full zero commission trading until they absolutely have to.

For the foreseeable future, the battleground among Canadian brokerages will clearly be in other value offerings – like account integration, ease of access (and stability!), of platforms (including mobile), and user experience to name a few. Like their US counterparts, Canadian discount brokerages had better be prepared to clearly explain to DIY investors what benefits there are to be paying for trading commissions.

If Canadian brokerages ignore or downplay the accelerating trend towards zero-commissions, however, they will ironically have to pay a hefty inactivity fee for that.

At National Bank Direct Brokerage, It Pays to be Young, Stay Active and Be Connected

Were it not for the news out of the US online brokerage market this past week, the big news story would have been in the Canadian discount brokerage market, when it broke that National Bank Direct Brokerage is getting to shake up their commission pricing and making a very aggressive play to go after young (aka millennial) investors as well as the active trader segment.

In a mention in the French language publication La Presse, National Bank Direct Brokerage’s President Claude-Frédéric Robert was quoted as saying that National Bank Direct Brokerage is getting set to roll out a new pricing program for investors aged 18 to 30, that offers up a generous 10 commission-free trades per year and a decreased commission pricing tier of $4.95 per trade. Added to that, there are no account minimums required or inactivity fees to be charged.

For very active traders – those making more than 100 trades every three months – the news is also great – a jaw-dropping $0.95 pricing for trades.

And finally, individuals who have an account with National Bank will benefit from that relationship by getting standard commission rates of $6.95 per trade instead of $9.95.

So, as referenced above, the trend towards zero commission trading is finding its way to Canadian discount brokerages and has shown up yet again at National Bank Direct Brokerage, which already offers up commission-free ETF trading on all ETFs (with a caveat of a minimum purchase/sale amount required to qualify for the commission-free status).

This latest move by NBDB is a salvo at both their bank-owned online brokerage peers – in particular, Desjardins Online Brokerage – and the low commission leader in Canada, Questrade. Offering up 10 commission-free trades per year is unheard of in the marketplace today, so that alone will generate buzz among the younger investor crowd, who are especially keen on passive investing. And, active traders are sure to be kicking the tires with sub $1 trading commissions.

While services like Wealthsimple Trade offer unlimited commission-free trading, there are still a number of restrictions in place on the kinds of markets (e.g. Canadian Securities Exchange or TSX-Venture listed securities) investors can access as well as that whole forced currency conversion thing to trade US-listed securities. Neither Wealthsimple Trade nor Questrade are bank-owned online brokerages, so there is not the reputational security or the integrated convenience factor of managing multiple financial products in one place (yet).

While we are awaiting more details on the pricing plan, clearly it pays to be a young investor in 2019.

With respect to younger investors, the calculus here is interesting for National Bank Direct Brokerage. Young investors don’t have the kind of investible assets (yet) that make them attractive prospective clients. What is likely the case is that NBDB is hoping to generate enough traction with and provide sufficient incentive to younger investors so that they stick around with NBDB, especially as they start working/earning more and begin inheriting wealth from older generations.

To say this is interesting is really putting it mildly.

The test being played out in real time is whether bank-owned brokerages like NBDB can edge out peer bank-owned firms before they act to match or beat the offer and before newer players figure out how to offer more bank-like services (e.g. higher interest on idle cash).

For millennial and younger investors, NBDB has got it right, insofar as pricing is clearly a pain point. That said, they are in for a tough fight when it comes to user experience on digital platforms, such as mobile, where those prized millennial and younger investors are going to be spending most of their time. The mobile experience for National Bank Direct Brokerage is something that will be crucial to their success perhaps as much as if not more so than the price of commissions.

Whether it’s Netflix, Skip the Dishes, Uber or some other subscription or fee for service offering, paying the money for things isn’t the issue so much as the ease with which the experience takes place is. If it feels hard to do, the price is already too high.

Once the pricing rolls out officially in October, NBDB will be poised to make a splash about it and their bank-owned peers will have to take a serious look at both their ‘millennial engagement’ strategy and active investor offering when it comes to pricing.

It’s never been a better time for younger investors to be DIY investors. With discounted (now free) commissions, waivers of account minimums and inactivity fees, Canadian online brokerages are clearly competing for investors who may not have lots of capital now but with whom important relationships need to be built. One crucial thing for brokerages to keep in mind though is not only what it will take to win the interest of these new investors, but also to keep it.

Discount Brokerage Tweets of the Week

From the Forums

Short Changed by a Long Transfer

Worried about a recently transferred account that seems to be missing funds, a DIY investor on Reddit vents about Questrade. Read the full conversation and the response from the online brokerage here.

Dazed and Confused

Puzzled after a debate that started over a family dinner, one DIY investor asks fellow Redditors to clarify whether an RRSP or a TFSA is the better option for saving and investing. Read the full discussion here.

Into the Close

Snow getting dumped on Calgary in September is sort of crazy, but not out of the realm of possibility. It is, by comparison, a far saner development than what just got dumped on all of the other online brokerages this past week. The avalanche of pricing news that is sure to follow in October and November from the online brokerages in Canada and the US is likely to make the Calgary snowfall in September seem like cupcake frosting. We started with dessert and ended with it too – something tells me this is a particularly sweet time for Canadian DIY investors.