It was a big week for big apples. For the iconic technology firm, there were 1 trillion reasons to celebrate. For the New York Mets, there were probably 1 trillion reasons to explain what went so terribly wrong. Nonetheless, when it comes to comparing apples to apples, we’ve picked a few discount brokerages from the bunch to do some interesting analysis with.
In this edition of the roundup, we take a look at the latest crop of deals from Canada’s discount brokerages as a new month kicks off. From there, we launch into some big picture analysis – first with a continuing thread about content and how one online brokerage appears to be pulling back on it for the moment. Next, we look at some interesting numbers from a US online broker that signals a shift towards the next big revenue drivers for online investing. As usual we’ll cap off the roundup with a look at tweets from DIY investors and what’s making waves in the investor forums.
New Month, New Deals – Sort of
2018 continues to fly by as August – along with the summer weather – is now upon us. With the nicer weather, this is generally the window in which the online brokerages take the opportunity to enjoy said good weather, which might explain the leisurely pace of this month’s discount brokerage deals and promotions activity heading into the new month.
Aside from a one-month extension by Desjardins Online Brokerage of their standing commission credit offer, the deals pool remained steady with no new offers being advertised and no deals expiring heading into the new month. In July, National Bank Direct Brokerage’s offer expired early on in the month leaving 5 brokerages on the field with commission-free trades or cash back offers.
Even though things are relatively quiet at the moment, behind the scenes Canadian discount brokerages appear to be gearing up for a busy fall season. Another detail suggests that brokerages are lining up more activity for September, namely that there are two offers that are also timed to expire at the end of August and the beginning of September.
The cash-back offer from Scotia iTRADE, for example, is scheduled to expire at the end of August which could be convenient point to launch a new offer. Also, BMO InvestorLine has their current cash back offer set to expire in the first week of September, and if history is any indicator, there is likely something being planned to replace it.
So, for any DIY investor looking for a deal when opening an online trading account, the good news is that there are still a handful of interesting cash back or commission-free trade offers to choose from.
For deposit levels between $1,000 and $50,000, Questrade has both a cash back option as well as a commission-free trade offer to choose from. Also, Desjardins Online Brokerage’s offer is applicable for deposits of at least $10,000. Above $50,000, BMO InvestorLine’s cash back offer becomes an option as well as the cash back referral offer from Questrade, however at deposit levels of $100,000+, BMO InvestorLine currently has the highest cash back offer.
Overall, the competitive landscape for Canadian online brokerages, and online investing in general, is shifting, which means deals and promotions are likely to tread water.
With consolidation of Qtrade Investor and Credential Direct still taking place and the absence of a catalyst for pricing pressure or promotional efforts in the DIY trading space itself, Canadian brokerages are, at least for the moment, on cruise control. In all likelihood, brokerages are keeping their marketing budget powder dry for the upcoming fall and winter where the battle for DIY investor deposits and trading activity is sure to be fierce.
Questrade Gears Down on Content
The digital age provides the ability to connect some interesting dots. In keeping with a theme of the past two roundups, we continue to take a look at the evolving nature of content delivery across Canadian discount brokerages and this week turn the spotlight on Questrade.
Over the past two weeks, we noted that Questrade’s blog has started to show signs of activity after being dormant for some time. Now, a blog post or two doesn’t usually signal a trend nor is it the kind of thing that generally makes “news” however the bigger picture here is that content production – specifically content geared towards DIY investors – is something that has historically been a fixture at Questrade. The story here isn’t so much what is happening, but rather, what isn’t.
It is unusual to see a shortage of content activity from Questrade simply because historically they have been active and frequent in this particular endeavour.
We started down this rabbit hole by looking at the Questrade blog which, including the post this week, has a total of 18 posts. The first available post appeared on May 25th, 2017.
The graph above shows the timeline of post activity on the Questrade blog, which appeared somewhat regularly at the outset with the average time between posts between May 25th and October 10th working out to about a post every 11.5 days. The minimum time between posts in that range was 5 days while the maximum was 34.
After October 2017, however, things shifted and the next post took 62 days (at which point there were two posts) followed by the next post after that which took 135 days. Incidentally, a little digging on LinkedIn revealed (perhaps coincidentally) that was the same point in time that Questrade’s manager of content and social media landed a new role at RateHub; another member of the content team went off to RBC in December as well.
But the blog wasn’t the only content section to slow down.
We also saw Twitter activity from July 2017 to July 2018 slow down considerably. Not including tweets about service-related issues, there were approximately 27 tweets in July 2017 compared to 6 in 2018. The tweets last year were largely of personal finance topics whereas this year they seemed to be focused on holidays and media mentions. To be fair, however, Questrade is actively responding to client service issues on Twitter, making it one of the standout online brokerages in this regard. Nonetheless, the change in publishing pace was noticeable.
Finally, the client notifications and new feature developments published to Questrade’s other blog/content space, the Exchange, has also not seen an update since April and no self-direct investing customer notice has been published since February.
What does this all mean and why does this matter?
For starters, while Questrade has seen their content publication slow down, other online brokerages, including and especially several bank-owned online brokerages have ramped up their investor content programs considerably.
This means that the “value” that information and content represents to investors, notably to clients, is somehow absent or muted. On a relative basis, competitor brokerages are pulling ahead of Questrade in terms of compelling content.
Another reason why this is important is because one of the increasingly important metrics for any technology company will be perceived innovation.
Those on the outside looking in will be asking and looking for “what’s new” as a reason to pay attention to a particular brokerage. If an online brokerage appears to be standing still – even if they are doing work behind the scenes – DIY investors won’t have a reason to tune in, which is sure to make some folks at Questrade more than a little discontent.
Interactive Brokers Steering Towards Growth
Sometimes taking a step back and looking at the big picture reveals some fascinating trends. As with the beginning of every month, Interactive Brokers released their trading metrics and, as with every month they’ve reported these metrics (since 2008) they’ve seen growth across a number of important metrics, including and especially the number of accounts. In fact, the growth in new accounts on a month/month basis in July was an enviable 40%.
Despite all of these very healthy metrics, one of the interesting data points that has been trending downwards since 2008 has been the cleared average daily average revenue trades (DARTs) per account (the number trades made by each account). It is perhaps no surprise or cause for concern that the latest figure of 314 is less than half of what it was in 2008 (842) considering that number of accounts has increased ten-fold over that same amount of time – and all of the revenue drivers to go with that.
What is interesting about that shift, however is that it signals, in all likelihood, that fewer trades are being made. This might be a result of a combination of factors such as lower volatility in the market and/or less active traders being drawn into the client mix of Interactive Brokers than has traditionally been the case.
While it may not be ‘news’ to anyone in the industry, it does reinforce that active traders are a valuable segment of the market. They are also just a small fraction of the “investor” pool. Even so, active traders are only going to be really active and attracted to trading when there is volatility and movement in the market.
As a result, being niche is not enough. Online brokerages will need to build scale to survive a lower volatility environment and perhaps ask themselves the tough question as to where online investing – especially at the active segment – is heading in the near to intermediate future?
Perhaps the clearest hint on the direction of active trading is the capitulation by Interactive Brokers to exit the market-making business with the sale of the Timber Hill side of their business. If the pros can’t make money actively trading the market, it begs the question, who can?
The moves being made by Interactive Brokers in both their international expansion as well as the introduction of a credit card, higher interest payments on account balances, lower fees for trading commissions and features such as payroll deposit capability signal that even active trading has its limits when driving profitability at an online brokerage. Revenue from interest/lending appears to be the next revenue-generating chapter as do fees for services – such as managed wealth in the form of robo-advisors.
For Canadian discount brokerages, especially those seeking out active traders, the trend revealed by Interactive Brokers is certainly worth considering. What this also likely might signal is that online brokerages here in Canada may start to shift their user experience efforts towards less active investors who can bring with them considerable investable assets. Funnily enough, that seems close to the same group robo-advisors are also looking to capture.
Discount Brokerage Tweets of the Week
From the Forums
When it comes to online investing, online security is top of mind for many DIY investors. Questrade was in the spotlight in a couple of interesting threads on reddit – the first directly referencing two factor authentication (2FA) being mentioned as being ‘in testing’ and the other which focused on the fine print of the Questrade security guarantee. Worth a read for those interested in security-related features.
Into the Close
That’s a wrap for another week. With a long weekend for Canadian investors now on deck, it’s a great time to enjoy and gear down until the ‘fun’ begins again on Monday courtesy of the action stateside. Have a safe and happy long weekend and in the meantime here’s an awe-inspiring look at ways other folks are getting out and enjoying themselves!