Desjardins Group invests in Qtrade for the long-term

Desjardins Group, parent to discount brokerage Disnat, announced earlier this week that they are taking a significant ownership stake in Qtrade Financial Group.  Desjardins has committed to purchasing between 25 to 40% of Qtrade’s outstanding shares initially with the option to acquire the remaining shares within six years.

According to the arrangement between the two companies, Qtrade will continue to operate independently retaining its brand name and current leadership.  With regards to the discount brokerage component specifically, both Desjardins and Qtrade state that for the foreseeable future it will be business as usual.

Ron Cann, Qtrade’s VP of Marketing and Communications, says that the focus will continue to be on delivering a quality experience, something that Qtrade’s discount brokerage has earned top honours for from the Globe and Mail and Morningstar in recent years.  From Desjardins perspective, director of media relations André Chapleau says that the near term will be a time of learning – one in which the opportunities to build synergies will be explored.

Even though these two companies are going to operate independently, and they both seem committed to continuously improving their offerings for Canadian investors, there are still some wrinkles to iron out. Specifically, will Disnat, the discount brokerage side of Desjardins and Qtrade’s discount brokerage business compete directly with one another?  While there might be some overlap, each side seems to feel that their respective target client base is diverse enough in terms of trading style (active trader vs long term investor) and geography (Quebec vs Western Canada) that competition is not really a focal point.  The alignment of Qtrade and Disnat as alternatives to the big-bank owned discount brokerages is what both parties see as a value add for their respective clients and partners.

Where might the opportunities for Qtrade and Desjardins lie?

Disnat has been actively drumming up business in Western Canada, being present and visible at investor conferences, developing large advertising campaigns as well promotional deals. They have also invested heavily in investor education partnering with well-known traders/investors such as Michael Campbell and Tyler Bollhorn.  On the other hand, Qtrade does not have the same level of investor education infrastructure as Disnat, nor do they have the same advertising or promotional strategy.  Instead, they leverage the recognition from the Globe and Mail discount brokerage rankings and from Morningstar’s discount brokerage award as well as drawing on strong relationships with their credit-union partners.

Between the two companies there is certainly an impressive amount of award recognition in the Canadian discount brokerage space. Collectively, these two companies have won most of the high profile discount brokerage awards given out by the Globe and Mail, Morningstar and JD Power and have done so for multiple years at a time.  Their discount brokerage peers now have to factor in a greater recognition hurdle to overcome than they did before.

Change is the new normal for Canadian discount brokerages

Competitors of Disnat and Qtrade will have to decide how to grow accounts as well as continue to deliver value, which may not be an easy feat in the face of falling commission prices and declining investor participation.

The cost of competing to be a discount brokerage in Canada proved to outweigh the benefits for OptionsXpress Canada, which prompted their exit late last year.   While competing on price will be a challenging strategy, companies such as Scotia iTrade, TD Direct Investing and BMO InvestorLine will have to find innovative ways to highlight a service offering that is both competitive and appealing to Canadian investors.

Whether or not Desjardins and Qtrade decide to collaborate and on what terms remains uncertain.  What did get more certain, however, is that other discount brokerages, big and small, have now got their work cut out for them to compete against two award winning brands who will continue to be pushing harder to win the business of Canadian investors.