Discount Brokerage Weekly Roundup – November 4, 2019

They say when it (November) rains, it (November) pours. It’s fitting for the start of the second-last month to reference the turbulent weather that many DIY investors encountered at the outset of the new month, and a fitting nod to the Guns & Roses song, since nothing lasts forever, especially these days for online brokerages where the winds of change are picking up.

In this edition of the Roundup, we review the latest action taking place in the deals and promotions section, and highlight potential game changers for online investors looking for free trades. Next, we review another emerging trend in the Canadian discount brokerage space that puts portfolio performance and risk in the spotlight. And, speaking of spotlight, we shine a “Lite” on the early results of the commission-free trading shift in the US, with the release of trading metrics at one online brokerage. As usual, we’ve served up a healthy selection of investor comments from Twitter and the investor forums.

Deal-vering Change

The start of a new month typically brings with it some interesting activity in the deals and promotions section and this month is no exception.

Promotional offers for Canadian DIY investors did see some turnover as the new month began with an offer from Scotia iTRADE expiring, as well as the summer promotion from BMO InvestorLine giving way to a new offer that runs through to early January. Nonetheless, savings are in the forecast for investors with the end of the year in sight and industry competition at an all time high.

In terms of turnover, after having been extended from the middle of October through to the end of the month, the latest offer from Scotia iTRADE signalled that something interesting is happening behind the scenes at this bank-owned online brokerage. These past two months have seen some creative approaches to pricing and offers emerge.

In particular, in September, the parent of Scotia iTRADE, Scotiabank, rolled out a banking package that also kicked in 10 commission-free trades for the first year an account holder has the account, and five commission-free trades per year thereafter. Also that month, they launched an offer of $50 cash back and discounted commissions – again something novel for both that brokerage and unusual for the online brokerage space – which suggests that efforts are ramping up to win and keep customers. It remains to be seen how offers from the parent bank co-exist, complement, or compete with offers from Scotia iTRADE, but it does raise an interesting prospect as to whether deals and promotions, as we have traditionally known them, are about to evolve into something new.

On the topic of change, this month’s deals suggest that BMO InvestorLine is hoping that their latest offer brings in DIY investors who’ve got lots of change to spare.

The latest cash back promotion launched by BMO InvestorLine is a tiered cash back promotion with the highest top-tier offer we’ve seen yet – $5,000 cash back for a deposit of $5M or more. Both the minimum deposit tier and the accompanying cash back bonus are new highs among online brokerages in Canada. Of course, the entry point to qualify for the current offer is also relatively high – at a minimum deposit of $250,000. All told, BMO InvestorLine is looking specifically to appeal to investors with higher balances and assets rather than something aimed towards younger or entry-level portfolio sizes.

For DIY investors, the combination of the ramp up to RRSP season, the looming end of year deadline, and the recent collapse of commission prices in the US point to a perfect storm of incentive offers set to launch from this point through to March. Although it’s tricky to predict the weather, the forecast for DIY investors heading into 2020 will bring with it a high ridge of downward pressure on prices and a flurry of savings.

Qtrade Investor Powers Up on Performance Analytics

In the battle for DIY investors in Canada, the discount brokerages can see the writing on the wall with respect to commission prices falling.

Slowly but surely, as online brokerages tinker with pricing, they are also working on improving the client experience to address important wealth management needs. This past week, Qtrade Investor announced the integration of a new set of risk management tools for investors called Portfolio Score.

The analytics tool for investors, which is developed by financial technology firm Wealthscope, provides assessments to DIY investors that explain the performance and risk features. For example, clients can now assess their portfolio against domestic and global market benchmarks which helps to showcase how well (or poorly) their portfolio is performing relative to a diverse set of indices. Winning strategies will typically outperform the market so depending on the approach investors are taking with managing their own financial destinies via online trading, this tool will spell out the performance being generated.

Another interesting feature about the Wealthscope Portfolio Score tool that will appeal to DIY investor clients at Qtrade Investor is that it analyzes portfolios using a “checkup” evaluation.  Included in the list of items being assessed are: downside protection, performance, diversification, income, and fees.

Earlier in 2019, Virtual Brokers also announced it had partnered with Wealthscope to offer clients portfolio analysis and analytics, bringing the number of Canadian online brokerages using the Wealthscope system to two.

For its part, TD Direct Investing has also offered up financial planning and portfolio analytics via their own partnership with Hydrogen Technology Corp. TD Direct Investing’s “GoalAssist” was rolled out in March 2019 with the objective to help support DIY investors in understanding the factors and behaviours required to achieve their wealth planning goals.

While Canadian discount brokerages are, almost by definition, not allowed to provide financial advice, there is clearly a market for providing DIY investors with the kinds of tools and support they need in order to successfully plan and navigate the world of investing on their own. The role that technologies are starting to be able to play in providing statistical analyses of goals or portfolio composition provide an important piece of information that DIY investors can use to plan their trading or investing strategies more rationally.

Clearly, with three highly visible online brokerages bolstering their suite of features with portfolio risk and performance analytics, there may be yet another trend forming for 2020 as other online brokerages look to replicate and do the same. Ironically, providing investors with in-depth benchmarks could itself become a benchmark feature savvy investors come to look for.

As Financial Literacy Month kicks off, these kinds of tools are very much aligned not only with enabling investors to see the power of aggregated data in managing their portfolio risk exposure, but it appears these platforms will also help to support investors learning about sound portfolio management principles.

While cooler heads are something most Canadians try to avoid having in winter, when it comes to investing online – especially DIY investing online – hot heads are dangerous liabilities. With the new slate of portfolio analytics tools coming to market, there’s finally an easier way to digest and act upon complex information in a calm and orderly fashion.

Early Numbers on IBKR Lite

With the rollover to a new month, Interactive Brokers released its monthly trading metrics. Aside from the usual stats provided by the US-based online brokerage, this month’s metrics featured a new “bullet point” that reported on the progress of the commission-free trading platform IBKR Lite.

The early numbers reported by Interactive Brokers show that IBKR Lite clients executed an average of one thousand US Reg-NMS orders per day. Unlike the standard metric for trading that gets reported, Daily Average Revenue Trades (DARTs), commission-free trading doesn’t generate revenue (at least from trading commissions), so it was interesting to see what the numbers were but also how they were being reported.

Given the short timeframe in which the IBKR Lite platform has been operational, it was interesting to see the reporting of the figures showcase the volume of an average of one thousand orders per day. To put that into perspective, Interactive Brokers clients overall generated 797 thousand trades per day, so the volume of activity in IBKR Lite is almost inconsequentially small by comparison to the standard IBKR platform.

Another interesting number to highlight from the metrics release was the growth in accounts at Interactive Brokers. The month over month increase was 1% which, considering the move to commission-free trading, reflects that the introduction of this feature was met with a more muted response by investors than it was with competitors.

Upon the release of the IBKR Lite platform in October, other online brokerages in the US quickly lowered their commission rates to zero – perhaps in an effort to prevent a flood of customers from leaving to go to a lower commission competitor. Clearly, it seems to have worked, at least for the time being.

Interactive Brokers has never been shy about its focus on catering to active investors and traders. The recent moves into providing more products that mainstream investors could find appealing is still just a small portion of their business. International expansion also factors heavily into the Interactive Brokers growth plans.

In another interesting move, after Schwab announced in September that it is closing its offices in Singapore at the end of 2019, Interactive Brokers appears to be stepping into Singapore in January 2020.

Over the next several weeks and months, analysts and industry observers will be looking closely at how the zero-commission trading fees will impact metrics like client acquisition and turnover (churn). In particular, we will be monitoring the growth (or contraction) rates to see if there is any suggestion that zero-commission trading moved the needle on online investing accessibility or if the market of DIY investors still maintained its steady state pace of ebbs and flows with respect to joining an online brokerage.

Discount Brokerage Tweets of the Week

From the Forums

Shoring up an Exit Plan

After having left a full service broker, a new DIY Investor on this forum seeks help figuring out the logistics of investing as they make plans to leave the country. Forum users offer incredibly in-depth advice on how to approach DIY investing and weigh in on the possible home country bias in their investment strategy.

Switches in Stitches

A Redditor switched RESPs to Questrade in hopes of saving on fees, but encountered a lot of turbulence in the process. Fellow forum users share their experiences with transferring accounts and commiserate about the bumpy ride in switching online brokerages.

Into the Close

That’s a wrap on another series of updates. There are still lots of interesting developments taking place daily so it feels a bit like the ground is continuously shifting.  On the plus side, DIY investors are going to be in for a fun stretch into the end of the year.

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