Advertisement

Table Of Contents

    Key points

    For Canada’s discount brokerages, fall not only means a busier season with investors, but for many of them it is also the time of year they either dread or cheer. The stretch of time between September and January is typically when a number of Canadian discount brokerage rankings get published – something that could be […]

    For Canada’s discount brokerages, fall not only means a busier season with investors, but for many of them it is also the time of year they either dread or cheer. The stretch of time between September and January is typically when a number of Canadian discount brokerage rankings get published – something that could be known as “rankings season.”

    Just before the end of September, one of the biggest of the ranking companies, J.D. Power & Associates, officially announced their 2013 Canadian Discount Brokerage Rankings.  This year’s winner, National Bank Direct Brokerage, finally managed to grab first place by narrowly edging out the reigning winner for the past four years, Disnat who came in second and BMO InvestorLine who placed third.

    In the first of a two-part series on the 2013 J.D. Power & Associates discount brokerage rankings, I’ll take an in-depth look at this year’s award winner, how they managed to land in first and what the ripple effect of their win might mean for self-directed investors as well as the Canadian discount brokerage industry as a whole.  The second part in the series will drill down into the numbers from this year to see what they reveal about the sentiment of investor satisfaction with discount brokerages and how it has shifted relative to prior years.

    For those of you interested in learning more about the awards are produced, check out the special series on the JD Power & Associates Canadian discount brokerage rankings.

    How “The Best” Was Won

    Getting to number 1 has been a story of persistence for National Bank Direct Brokerage (NBDB).  Over the past 5 years, NBDB has consistently scored among the top three Canadian discount brokerages in terms of investor satisfaction yet first place was always elusive.  This year, however, NBDB scored 757 (out of 1000) and narrowly managed to edge out the reigning winner Disnat (who scored 750) by 7 points.  While the margin is small, a victory is still a victory.

    For NBDB the win is a sign that they continue to hit the right notes with their clients in terms of providing an experience clients feel is satisfying – the metric the ‘investor satisfaction’ survey is designed to measure.  As is explained in the special series on the discount brokerage rankings, what goes into measuring “investor satisfaction” might help account for why NBDB was able edge out Disnat this year.  Fortunately, the President of National Bank Direct Brokerage, Nancy Paquet, helped to provide some background into what might have contributed to her firm’s win this year.  As a bonus, she also shared her views on the Canadian discount brokerage industry and provided a glimpse into how this industry continues to meet the challenges of innovation demanded by clients and competitors.

    Every Journey Begins with a Single Step

    One of the greatest strengths of the JD Power discount brokerage ranking is that measures “investor satisfaction” across the following six criteria:

    1. Interaction
    2. Trading Charges and Fees
    3. Account Information
    4. Account Offerings
    5. Information Resources
    6. Problem Resolution

    The breadth of this definition means that in order to achieve a higher ranking, strong scores in each of these categories need to be obtained.  That said, not all of the categories are weighted equally in terms of importance, so firms that are stronger in the categories that have the higher weights will tend to do better on the rankings.   For example the factor “interaction” relies heavily on the website and phone customer service and is weighted more heavily than trading charges/fees. Thus, a discount brokerage that has very inexpensive fees may not do as well another brokerage that investors feel has a better website experience (all other things being equal).

    With those weightings in mind, NDBD’s performance can be put into context with their efforts. Specifically, according to Paquet, one of the contributing factors to this year’s victory was that “we’ve worked very, very hard with our team to improve how we respond to client’s demands.”

    Indeed it seems to be the case. At about the midpoint of last year NBDB began to remove the time benchmarks client service agents were normally evaluated with.  As a result, agents were better able to focus on answering questions fully and also able to proactively assist clients with features or requests a client may have had issues with.

    Interestingly, although they have also recently improved their website and their mobile trading interface, it was their previous website and mobile platform that investors felt was effectively meeting their needs (the survey sampled investor opinion before the new website or mobile platform were launched).  Whether the new features now included on the website make any difference in this category will definitely be interesting to watch out for, however making the site more user friendly certainly can’t hurt.

    Defining Success

    While acknowledging that receiving the J.D. Power Award is a ‘great recognition’ what drives her team, according to Paquet, is that NBDB clients positively experience the value of their choice of discount brokerage.  “We work for our clients and we want them to say…I’m going to stay, I’m happy’” said Paquet when asked what the win means for NBDB. Even so, she said, “of course we’re happy, because no one works to be second best.”

    To get a sense of how close “second best” really was in this year’s competition, the following table shows the power ratings (out of 5) for all but one category (resolution).

    Brokerage Interaction Trading Charges & Fees Account Information Account Offerings Information Resources 2013 Rank
    National Bank Direct Brokerage 5 4 5 5 4 1
    Disnat 4 4 5 5 5 2
    BMO InvestorLine 4 4 5 4 4 3
    TD Direct Investing 4 3 5 3 4 4
    Qtrade 3 4 2 2 2 5
    CIBC Investor’s Edge 3 4 3 2 3 6
    HSBC InvestDirect 2 4 2 4 3 7
    RBC Direct Investing 3 2 3 3 3 8
    Questrade 2 5 2 3 2 9
    Scotia iTrade 2 2 2 3 3 10

    Clearly what made the difference was NBDB’s interaction score as they were the only discount broker to earn a score of 5 in this area.

    The take-home lesson for investors is that these scores reflect the average opinion of the clients of each discount brokerage.  What is most important for “the average” investor from this survey may not be the same for particular individuals and so different investors may “weight” categories differently. Given that the race was as close as it was, the difference between “the best” and “close enough” may have more to do with other factors, such as convenience, pricing or incentives (such as deals/promotions) than anything else.

    Responding to Change

    As a law of nature, adaptation is critical to survival.  The same is true for Canadian discount brokerages where competition for limited resources is fierce. In the discount brokerage business, however, size and scale while beneficial in some respects, can also make it challenging to keep pace with investor demands for the latest features.  When asked how discount brokerages can keep pace with evolving technological demands of Canadian investors, Paquet explained it as follows:

    “when you are a smaller company, you’re very agile but you might not always have the budget. If you are a bigger company, you might have the budget, but you might not be as agile as you would love to be”

    Thus, for self-directed investors, larger discount brokerages might provide a ‘slow and steady’ approach to adopting new features. Indeed, the ability for any discount brokerage to respond to trends and changes requires being able to ensure that multiple moving parts work well together and with greater size comes greater complexity. For example, ensuring that clients get their tax statements on time requires that systems coordinate huge amounts of data and regulatory requirements across hundreds or thousands of clients – no small feat for many IT departments.

    For financial institutions, such as discount brokerages, the stakes are high.  Unlike low cost consumer products, financial services are heavily regulated and have lasting emotional impacts – investors are not willing to trust just anyone with their money, and certainly are not willing to be subjected to too many system glitches. Those online brokerages that are able to respond quickly, effectively and consistently will most certainly earn top marks with the growing segment of self-directed investors and those that falter will almost certainly earn their way into heated forum postings.

    Conclusion

    With an industry that continues to evolve quickly coming out ahead means having to juggle expectations and competition.

    For NBDB, getting to first place this year took persistence and strategic innovation. Just because they’re in first though, doesn’t mean that they or their competitors are standing still.  Disnat, for example, only lost by a very slim margin in one category and BMO InvestorLine has also been a podium finisher for the past several years.  Then there are the brokerages making great strides, such as HSBC InvestDirect who went from an ultra-low score 3 years ago to being right in the middle of the pack this year.

    The level-headed perspective Paquet provided for investors who navigate the markets could hold equally true for other discount brokerages.  She stated: “People say you only panic when it goes down, but you also panic when it goes up, so keep calm, keep your plan steady and you’re good to go.”

    In the next part of the series, I’ll take a deeper look at the numbers from the discount brokerage rankings and what they mean for all Canadian discount brokerages.