Discount Brokerage Weekly Roundup – December 7, 2018

Only in the stock market does everybody get more when everybody gets less. The cuts in oil supply provided a much-needed relief to an otherwise dour stretch into the final month of the year. With most of the gains of 2018 now erased on major indices and selloffs despite good jobs news, the good news is, it could be worse.

Fortunately, there is actually good news for online investors to be had. In this edition of the roundup we review the latest crop of deals that will add some Christmas cheer for DIY investors hunting for a great deal on an online trading account. Of course heading into the end of a year, it’s also a timely opportunity to review a portfolio – which is what we do by taking stock of the year that passed and what’s coming around the corner (hint: it’s exciting!). As always, we capture the reactions and questions of online investors on the forums and on Twitter.

December Deals

It’s the holiday season, and, true to form, there are lots of presents and still a few surprises left for Canadian DIY investors. December kicked off with a healthy count of 25 discount brokerage deals and promotions ranging from cash back deals and commission-free trades to transfer offers.

The big stories in this month’s deals section include the return of Desjardins Online Brokerage’s commission credit offer (along with some festive imagery befitting the season); the promotional offer accompanying the launch of RBC InvestEase as well as the return of Scotia iTRADE to the deals section with a cash back or commission-free trade offer.

With participation by Canadian discount brokerages at a healthy level, DIY investors hunting for a bargain on an online trading account certainly have a lot to choose from.

Of course, December wouldn’t be complete without a few surprises. There are already whispers of two online brokerages keen on launching some interesting promotions. Whether they get here in time for Christmas is a bit of a jump ball at the moment, however it’s a safe assumption that those brokerages currently on the sidelines without a commission-free trade or cash back offer won’t be staying off the promotions field for too much longer.

As a segue into the next story, it’s important to remember that last year at this time, the world was going crazy about “investing” in cryptocurrency and marijuana stocks. It’s likely that the enthusiasm for trading these was amplified across the holiday season with friends and family gathering to talk about these “investments” – so there’s still a good chance that, in addition to talking turkey, there’ll also be talk of investing.

We’re also really excited to see what happens to the promotional landscape next year as Wealthsimple Trade starts to roll out live trading accounts. Competing against commission free trading will be a challenge for the incumbent online brokerages, however our bet is that many DIY investors would still be open to cash back offers and incentives which is something Wealthsimple Trade may find difficult to match (since they’re already taking a hit on commission fees). Making a few trades a year (even at a “nominal” cost) may not be worth as much as the cash incentive on the way in.

In light of that, one interesting scenario that could play out in 2019 is that strong cash back (or better commission credit offers) could majorly slow the roll of Wealthsimple Trade. At that point it will be a faceoff between low pricing and design technology (i.e. user experience) and a mature functionality in the form trading platforms with news, research, screeners and more.

Looking Back & Looking Ahead

With just about three weeks until the end of 2018, it’s an opportune moment to reflect back on the year that was and where things are going in 2019 for online investors.

Last year at this time we were knee deep in crypto mania; it’s a good thing weed has been legalized because there are some people who are going to definitely want/need to chill after the drop in both cannabis and crypto stocks over the past few months.

Also around this time last year, SparxTrading pulled together a collection of 9 voices from across the Canadian online brokerage space to provide a platform for them to share what the year was like in their own words and what DIY investors could look forward to in 2018. In that piece, we highlighted three important themes that seemed to emerge from all of the submissions:

  1. There’s a technological arms race
  2. Delivering more value to DIY investors
  3. Focus on better trading experiences

Although these three items are interrelated, we saw evidence of distinct activities to address these themes over the course of the year.

From multimillion-dollar investments in the technology stack from firms like TD Direct Investing, to the adoption of youth or ‘student’ friendly pricing at major bank-owned online brokerage CIBC Investor’s Edge to trading platforms to roll outs of upgrades of custom-built trading platforms at Questrade there were numerous examples of these themes unfolding at many of Canada’s online brokerages.

One thing that also stood out over the past year was the consolidation of the online brokerage market.

After the merger of Qtrade Investor and Credential Direct under the umbrella of Aviso Wealth, the acquisition of BBS Securities by CI Investments and the acquisition of Jitneytrade by Canaccord Financial, the war chests of non-bank owned online brokers have gotten much stronger. The industry as a whole seems to be in a ‘rebuilding’ phase – with investments in their business and technology taking place to enable them to serve investors of the future. Case in point, the launch of robo-advisors/digital advice platforms at RBC and the announced roll out of one at TD clearly signal this as a product line ‘must have’ for 2019 and beyond. They’ll have their work cut out for them, though, as Vanguard is also reportedly pursuing a launch of a robo-advisor as well.

Coming up next week we’ll launch the online brokerage look back on 2018 and look ahead to 2019 and this is definitely (and literally) going to be a page-turner.

With an exciting new look and rendering for this unique piece, interesting new themes on where online brokerages are focused as well as the unique opportunity to hear what online brokers have to say about themselves and what they’re looking forward to in 2019, we’re thrilled to be rolling this out. Be sure to follow SparxTrading on Twitter for exclusive sneak peeks at this year’s set.

Lightning Roundup

There were more noteworthy developments that took place this past week in the online brokerage space here in Canada as well as in the US.

Interview with Interactive Brokers Founder

Earlier this week, founder and CEO of Interactive Brokers, Thomas Peterffy was interviewed at the Goldman Sachs Financial Services Conference. In this informal fireside chat, there were a number of very interesting nuggets shared by Peterffy.

The first was his perspective on the “zero commission” trading trend emerging in the US online brokerage market. He specifically mentioned Robinhood and JP Morgan in this respect but he had some rather ominous words for the latter. Peterffy mentioned that JP Morgan’s decision to also do so was “a big mistake” and that ultimately “they will regret this.” Within that conversation about commission-free trading, he also laid out the simple truth to online brokerages which is that they need to make money or break even in order to exist so the money will have to come from somewhere – including with administration fees. This could be an important consideration for those online investors contemplating platforms like Wealthsimple Trade or who might be hoping for online brokerages to lower their trading commission pricing.

Another major development shared by Peterffy is that as of January 1st 2019, Interactive Brokers will be paying interest out to accounts with balances underneath $100,000. Specifically, the interest paid on an account will be indexed against the $100,000 threshold so that investors who, for example, have a cash balance of $50,000 will get an interest rate that is half the rate of an account with $100,000 or more in cash. This will definitely spur a larger segment of investors to consider kicking the tires on Interactive Brokers who simply want a better deal on their uninvested cash.

Mobile Trading Apps Spinning Their Wheels

Interactive Brokers was once again in the spotlight but this time in Canada where financial research firm Surviscor released the findings of their mobile online brokerage experience study. The mobile trading experience at Interactive Brokers blew the doors off its competitors according to the Surviscor study.

According to the rankings, Interactive Brokers’ mobile trading experience scored a 94% followed next by Questrade at 64% and then BMO InvestorLine at 57%. Perhaps most surprising is the number of firms who scored under 50% (8 out 11 firms). Desjardins Online Brokerage’s mobile trading experience ranked last with a score of 24%.

Glenn LaCoste, President and CEO of Surviscor cautioned that while the scores may appear shocking, that “it is important to understand that they do not reflect the overall merits of any of the firms. The take-away is that most industry firms fail to provide a seamless mobile accessible experience for the base online offering.”

Earlier this year, a similar sentiment was echoed by J.D. Power in their Canadian Self-Directed Investor Satisfaction Study in which Mike Foy, Senior Director of the Wealth Management Practice at J.D. Power stated “Investment firms in Canada, in general, are significantly behind the curve when it comes to their mobile app offerings, capabilities and customer engagement.”

From the Forums

Robo-Wars

Vanguard Canada is the latest wealth manager to join the robo-advisor phenomena. The news hit the forums this week as one user kicked off a discussion on the global investment company’s choice to compete in the growing market. Check out the discussion points here.

Passive or Active Retirement

One forum user took to personal finance Canada on reddit this week, wondering if a DIY investment approach would be the way to go after years of a passive strategy. With a personal aversion to financial matters at the age of 60, this proves an interesting post both for those looking for advice on what to do with their finances after retirement and for those who are curious to know if they’re on the right track.

Discount Brokerage Tweets of the Week

Into the Close

With just over two weeks to go before Christmas, the procrastinators among us are still not worried about getting that great gift in time for the holidays. For the traders, however, that deadline day for making trades in 2018 is coming. Circle December 27th as the final day to make trades in Canada that will settle in 2018 (Dec. 31st). Speaking of settling and end games – now that the weekend is here, it’s a great time to relax and marvel at the great indoors, starting with a trailer for the Avengers Endgame. Have a great weekend!

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