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Getting to the bottom of who’s on top of Canada’s discount brokerage market

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February 12, 2013

Published February 12, 2013

Table Of Contents

    Key points

    In search of Canada’s best discount brokerage Getting to the bottom of who’s on top in the Canadian discount brokerage market is a lot trickier than it seems.  After all, one would assume that winning the crown of “best discount brokerage” is fairly difficult to do and also when a discount brokerage gets that award, […]

    In search of Canada’s best discount brokerage

    Getting to the bottom of who’s on top in the Canadian discount brokerage market is a lot trickier than it seems.  After all, one would assume that winning the crown of “best discount brokerage” is fairly difficult to do and also when a discount brokerage gets that award, it means they’re actually “the best”.  In our ongoing search to find an answer to the popular question “who is Canada’s best discount broker?”, we found a curious answer – it depends on what is being measured.

    Over the past year, 7 of the 14 Canadian discount brokerages have been given titles such as:

    • Canada’s #1 Direct Investing Brokerage
    • Best Canadian Online Broker
    • Canada’s Top Online Discount Brokerage
    • Best Discount Brokerage
    • #1 Online Brokerage for Client Service in Canada
    • Highest in Investor Satisfaction
    • Top Bank-Owned Online Brokerage

    With so many high achievers to choose from, it seems hard to believe that Canadians would have any kind of struggle finding a great discount brokerage.  According to these stats, almost 50% of the Canadian discount brokerage providers are “the best” at something, if not the best outright. It stands to reason that if the discount brokerages are doing such a great job, then clients would also be satisfied with the service they are getting.  The data, however, paints a different picture.

    Best Discount Brokerages in Canada

    To find out more, click the link for Page 2 below.

    Is the glass half empty or half full?

    Indeed, at first blush, the data from the 2012 Globe and Mail reader survey of online brokerage users seems to confirm Canadian investors are happy.  The survey found that an astounding 94.4% of respondents were at least somewhat happy with the services offered by their discount brokerage. Interestingly 40% of survey respondents were with TD Waterhouse (now TD Direct Investing), which means that the experiences of individuals with a TD Waterhouse account heavily influenced the results.

    Happiness, it seems, is not the same thing as satisfaction.  When we looked at the J.D. Power and Associates Investor Satisfaction Survey results from 2012, the industry average investor satisfaction score for Canadian discount brokerages was about 700 on a 1000 point scale or 70%.  Other data points tracking the Canadian discount brokerage industry include results  from the most recent Surviscor ranking that show the discount brokerage industry average score on Surviscor’s measures of features and services to be 64%.  According to Rob Carrick’s online discount broker rankings, the industry average score is about 61% on features relevant to do-it-yourself investors.

    Interestingly when it comes to investors, neither happiness nor satisfaction matter when it comes to loyalty.  According to the most recent J.D. Power investor satisfaction survey, only 23% of Canadian investors would definitely recommend their firm and only 19% of them feel strongly loyal. Talk about a tough crowd.  To be fair, the surveys are measuring things differently however, when 94% of people are happy with their discount brokerage but only 23% are willing to recommend it, something doesn’t quite add up.

    You’re special, just like everyone else

    If you are a discount brokerage competing for the business of Canadian investors, it certainly helps when your marketing team can claim you are “the best discount brokerage”.

    With so many “bests”, however, the meaning of being special gets obscured and maybe even trivialized.   For consumers, it also means that seeing so many “best discount brokerage” claims reduces how reliable that news is.  After all, if people continuously hear “the best” being tossed around in the marketing and advertising of the brokerages, chances are they’ll cease to care about the title and instead focus on the person or company doing the recommending.

    What’s in a name?

    In the world of endorsements, the bigger the name doing the endorsing the more people pay attention.  That has been one of the go to strategies for US discount brokerage TD Ameritrade when they brought in Sam Waterston (district attorney Jack McCoy of t.v.’s Law & Order) as a spokesperson for 9 years only to replace him with Matt Damon in 2012.

    When discount brokerage awards are given out, the same is also likely true. Whether or not a consumer has heard of a company or organization that gives out a discount brokerage award can heavily influence whether they factor it in to their purchase decision.  Alas, just because those doing the ranking are popular doesn’t always mean they’re right.

    Consumers need to hunt around for the fine print on who it is that awarded the title with an eye towards two things:

    1. On what measure(s) a discount brokerage was deemed to be “the best”?
    2. What compensation (if any) does the rater receive for the work?

    Knowing the answers to these questions helps when gauging how reliable the title of the “best discount brokerage” is.  In our series on comparing the rankings of discount brokerages, we looked at two of the most popular sources, J.D. Power’s Investor Satisfaction Survey as well as the Globe and Mail’s online discount broker rankings.

    The bottom line

    Any way you slice it, getting a compliment is a great thing. If you are a discount brokerage, having someone call you the “best” among your peers is definitely something you want to share.  The problem, however, is that being the best has now become so easy to do that what it means to people isn’t exactly clear.

    There is a clear disconnect between the happiness of discount brokerage clients versus their satisfaction, and an even bigger disconnect between either of those and loyalty.  Imagine, if 9 out 10 people in a relationship you spoke to reported being happy, but 8 out 10 of them were thinking of being with someone else. We are no experts, but if all of the partners that described themselves as  “the best” actually lived up to the claim, people would spend more time looking at their partner instead looking for an exit.

    References & Sources

    The following table contains links to the data used in researching each discount brokerage:

    Company The Claim The Support Timeframe Claim Applies To Reference url
    Top Bank-Owned Online Brokerage Globe and Mail 2012 Online Brokers Ranking 2012 BMO Press Release
    Highest in Investor Satisfaction J.D. Power and Associates Investor Satisfaction Survey 2012 Award info page on Disnat’s website
    Best Discount Brokerage Morningstar Canadian Investment Awards 2012 Morningstar Investment Awards Page
    #1 online brokerage for client service in Canada Dalbar Direct Brokerage Service Award 2012 Award Info Page on HSBC website
    Canada’s top online discount brokerage Surviscor’s Online Discount Brokerage scorCard Q1 2013 News Release
    Canada’s #1 Direct Investing Brokerage Investor Economics in the “Online/Discount Brokerage Market Share Report” Quarter ending Sep 30, 2011 Report is not publicly available; No news release had the information either. The following two links: Link 1 and Link 2 reference the claim/report
    Best Canadian Online Broker Globe and Mail 2012 Online Brokers Ranking 2012 Virtual Brokers’ discount broker comparison page

     

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