If you are a self-directed investor prepare for even more marketing, incentives and competition for your business in 2013.  With modest trading volumes and account openings in 2012, a gun-shy investor base and increased downward pressure on commission pricing, discount brokerages will be trying very hard to win new business in 2013 but also to keep their existing clients from jumping ship.  So what should do-it-yourself investors keep an eye out for in 2013?

#1 Lots of deals and even more fine print

Bigger deals for self-directed investors mean lots of fine print to pay attention to. Although they may seem like deals, make sure to ask “What’s the catch?”

Look over and understand the strings attached to offers that require longer-term commitments of your capital. Large numbers of “free trades” are being offered but if you don’t really use them to their fullest, it may not be the best deal for you.  Also, pay close attention to “cash back” offers because those usually have restrictions on minimum balances or moving your money around within certain time frames.

#2 The marketing of “value” instead of “price”

2013 will be an interesting year for pricing.  The ‘race to the bottom’ in pricing will come up against those players who will try to offer more “value” for the money.  The result: brokerages will try to offer “new” services.  Unfortunately, in finance “new” is a double-edged sword.

Sure it may seem like a reasonable premise to try something new especially if something old isn’t working, however unless some new product can be demonstrated to work, why risk one’s money as the guinea pig? So-called “new” services are likely to be repackaged older services so be ready to ask how the “new” service is so different than similar “older” services.

Also, adding bells and whistles that you don’t need or use becomes a frivolous reason to pay more than you otherwise would to forego the frills.  Requesting trials of accounts or services before you commit to opening an account is a great way to test drive whether or not a discount brokerage’s services are worth the price they charge.

#3 More competition for your attention

Not only is the Canadian discount brokerage industry highly competitive, but so is the competition for those who deliver the financial news.   Declining interest in the stock markets by many self-directed investors has resulted in decrease consumption of financial media from television to print to online.

In the year ahead, media providers will be fighting even harder to get your prized attention, as the attention to content will translate into the ability to sell advertising – the lifeblood of most publications.  Already the pressure to make up for declining advertising revenues has forced many major Canadian newspapers to start charging online readers for access to articles.   In order to keep paying customers happy, the quality of the sources providing the information has to go up, otherwise Canadians still have many quality “free” or low cost sources to turn to. Whether or not the “paywall” experiment succeeds in Canada, it will be an added cost for self-directed investors to access quality financial news.

One of the areas that we see as being the next battleground for attention will be on social media.  It is cheap, accessible and many newer investors will turn to it. As financial companies start to figure how best to fit social media into their promotional and marketing objectives, you can be sure to see the names of large financial institutions follow “the eyeballs” even more so onto Twitter, Facebook and LinkedIn.

#4 Increasing the confidence of investors

In 2013, the discount brokerages will be trying to “increase your confidence” in the hopes that do-it-yourself investors will start to trade more. Because trading volumes have decreased substantially for discount brokerages, largely as a result of widespread skepticism on the ability of self-directed investors to make money in the stock market, the bottom lines of discount brokerages are suffering.  By having more “educated” investors, it is believed that investors will become more confident and therefore be willing to trade more.  Simply put: More trading = more commissions = more profit for the discount brokerages.

Be vigilant and critical of “education” offerings to learn the stock market.  There are no magic bullets, secret formulas or automatic systems that can make trading foolproof despite what creators of these products would have you believe.  There are simply strategies – sometimes they work, many times they only work under certain conditions.

While we are in favor of more education being made available for self-directed investors, we are bigger advocates of quality education.  Whether or not the “education” being offered is going to cost you significant amounts of money to obtain, be sure to request some reasonable proof that whatever program you are being sold actually delivers what it promises.