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

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.

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