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Discount Brokerage Weekly Roundup – November 16, 2020

If there’s one place where the news isn’t all bad, it’s the stock market. True to their nature, stock markets are always focused on the future, and the record highs being notched and funds flowing back into highly beaten-down names signal a view of the world that says things are likely to improve. For DIY investors, especially Canadian ones, the news continues to improve – at least for most.

In this edition of the Roundup, we take a look at a recent trading outage that negatively impacted investors trying to cash in on another historic trading day and examine how online brokers can set the record straight on system stability. Next, we review the gift that keeps on giving – deals and promotions – as more Canadian online brokerages jump into the deals race to make for an exciting run-up to RRSP season. As always, we have interesting perspectives to share from DIY investors, including forum commentary and real-time reactions to trading highs and lows on Twitter.

Volume Challenges Online Brokerages’ Trading Systems Yet Again

There’s no denying money is an emotional subject. Layer in fast-moving markets, fleeting opportunities, significant expectations about reliability, relatively high commission pricing, and online trading screeching to a halt, and you’ve got yourself a recipe for some serious online brokerage “haterade.”

This past week was déjà vu all over again when stock markets moved substantially higher on the news of the vaccine from Pfizer and the prospect of a clear winner to the US presidential election. The heightened enthusiasm, however, ended up translating into a surge of trading volume on stock exchanges across North America and, sadly, some online brokerage systems were unprepared for the volume.

In the US and in Canada, several noteworthy online brokerages suffered trading outages at the worst possible moment, leaving many investors angry and sidelined from making (or saving) considerable money. TD Ameritrade, Schwab, and Fidelity were among the big names in the US online brokerage space that were reporting issues with users being able to access their online trading accounts on Monday.

In Canada, some DIY investors were also greeted with a bad case of the Mondays. According to reports from users on Twitter, Questrade and Scotia iTrade suffered outages that impacted traders on Monday morning, sending users into a fury that made for some disconcerting reading on Twitter.  

Massive volatility in stock markets is not something new, and, in fact, it is something many online brokerages had already been bracing for in the lead-up to the US presidential election. For DIY investors, however, it is understandably frustrating, perhaps infuriating, when online brokerages go offline or have technical issues because of increased trading activity.

Interestingly, only one online brokerage in Canada, Wealthsimple Trade, has taken it upon themselves to proactively report and disclose issues regarding their trading systems on a separate, dedicated website. By automating this disclosure, it provides some measure of access to situations where trading systems are impacted – so users aren’t completely in the dark about what’s going on. More impactful, however, by making this disclosure public, DIY investors can also see for themselves just how “reliable” the trading system is.

For example, from September through November 15th, Wealthsimple Trade reports their trading system was up 99.89% of the time – something users can verify for themselves. It is worth noting that there were no outages reported on their systems status page on November 9th, the date that other online brokerage systems went down.

Going forward, investor patience for outages that take place at online brokerages will be very limited. The fact that “new kid on the block” Wealthsimple Trade can do so almost begs the question as to why other, larger, better-resourced firms that are competing with Wealthsimple Trade haven’t or won’t disclose this data. Seems fitting for a challenger brand.

That said, the majority of online brokerages are likely up and running without issue for most of the year. Having a site that objectively reports this uptime profile is much more likely to communicate what reality is versus what the subjective and emotional impressions are of the reliability of a platform. If an online investor is doing their homework into the stability and reliability of an online brokerage (and those burned by outages before likely will), then it seems like a bad idea to have the only record of system function be the trail of angry tweets that inevitably highlight when things go wrong instead of a site that communicates how often they got it right.

Big Deals Keep on Turning

If there’s one thing November can lock in its reputation for, it’s ushering in deals and promotions. From Singles’ Day to Black Friday, millions of shoppers around the world look forward to this month to get access to savings, and so too do Canadian DIY investors.

This past week saw three more offers come to market. Two of those promotions came from big bank-owned online brokerages, RBC Direct Investing and Scotia iTrade, which launched a commission-free trade and a combo, cash-back and commission-free trade deal, respectively. The third offer, courtesy of Virtual Brokers, was a discounted commission offer.

Compared to earlier this year, when Questrade was the sole online broker in Canada offering up promotions for new accounts, the sharp increase in promotions this month alone is cause for optimism for DIY investors who are interested in opening an online trading account.

Looking more closely at the new deals to cross the wire, the RBC Direct Investing commission-free trade offer is more of a “classic” than a new offer. They are bringing back a popular offer they have had for a few years that consists of 25 commission-free equity trades that are valid to use for up to a year from the time of account opening. The perks of this offer are the low threshold to qualify, a deposit of $5,000, and the long timeframe in which to use these commission-free trades. At a standard commission rate of $9.95, the equivalent value of the offer is just shy of $250.

By comparison, Scotia iTrade also leaned into a familiar strategy in offering up the choice to investors of accessing either a cash-back promotion or commission-free trades. The combined nature of this offer makes it one of the more interesting promotions currently in play among Canadian online brokerages. To further enhance the value, the discounted commission rate of $6.99 per trade equates to a 30% discount on the standard commission fee until June 30, 2021.

To see how the Scotia iTrade offer truly stacks up, however, it is worth comparing it to the other cash-back promotions currently in play.

Deposit TierBMO InvestorLineCIBC Investor’s EdgeScotia iTradeTD Direct Investing
$5,000$25
$10,000$50$50
$15,000$100
$25,000$100$100$200
$50,000$100$200$200
$100,000$250$500$400$300
$250,000$450$750$500
$500,000$950$1,000$1,000$1,000
$1M+$2,000$2,000$1,500

The first thing that jumps out about the cash-back offer from Scotia iTrade is that the minimum deposit threshold is lower than that of any of their peers. At $5,000 to qualify for a $25 cash-back bonus, there are no other offers in this range that would compete.

As we reviewed last week, there are certain deposit tiers that it is clear online brokerages appear to be most interested in targeting. In the case of Scotia iTrade, the segment where they (and they alone) have the highest offer is between $250K and $500K, with an offer of $750 cash-back. Their cash-back offer is also tied for top spot at the $50K deposit level with CIBC Investor’s Edge, with both of these online brokers offering $200. Similarly, Scotia iTrade is in a three-way tie for top offer of $1,000 cash-back at the $500K to $1M deposit range.

When it comes to the commission-free trade comparison picture, however, Scotia iTrade’s promotion is unique in that it is the only online brokerage (at the moment) to use tiered deposits to qualify for higher quantities of commission-free trades. And, beyond deposits of $100K, it is the only online brokerage offering commission-free trades of greater than 100 trades. That said, currently National Bank Direct Brokerage has, hands down, the highest commission-free trade offer, with 100 trades and no deposit minimum required to qualify.

Of the offers that have come to market thus far, Scotia iTrade is the most versatile of the bank-owned brokerages. It spans the widest range of deposit tiers, from $5K through to $1M+. It has a combined discounted commission and cash-back or commission-free trade offering. And, the bonus offers can be combined with their existing referral program, which means that there is an opportunity for extra cash-back or free trades to be added onto either of the base-free-trade or cash-back promotion offers.

Finally, a different category of deal that was launched this month was from Virtual Brokers. This offer waives the minimum spend per trade of $1.99, which is a part of the standard commission price structure. Interestingly, this offer does not apply to odd-lot trades – defined specifically by Virtual Brokers according to the price of the security. Also, this offer is available only until the end of December 2020, and in order to maximize savings from this offer, investors would likely be trading securities priced at $1 or more (likely significantly higher than $1).

As predicted, November has been a watershed month for DIY investors looking for a deal to open a new online investing or trading account. With market volatility likely to stay elevated (if last week is any indication), there will undoubtedly be interest from investors who are still on the sidelines or who are contemplating other account types (or moving online brokerages) to kick the tires on these offers. There are still a handful of online brokerages that have yet to jump into the deals pool, but we anticipate there to be at least one or two more offers coming to market before November ends.  

Discount Brokerage Tweets of the Week

From the Forums

A Chunk of Change

An investor who’s tired of high commission fees asks about switching partially or fully between two specific brokerages in this post. Fellow Redditors share their experiences with transfers – the good, the bad, and the ugly.

In Case of Emergency

In this post, a Redditor asks if anyone else has put investing on pause to focus instead on substantially increasing their emergency fund during this time of COVID-19 and an uncertain job market. The ensuing long and lively discussion touches on inflation, debt, how “safe” different types of investments really are, and how much of a rainy-day fund is enough right now.

Into the Close

That’s a wrap on another historic week. There are definitely lots of scary historical records being broken as well as incredible achievements happening simultaneously. For the first time in quite some time, markets are pricing in a return to normal and some good news to follow. Here’s hoping there are more treats to come.

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