Table Of Contents

    Key points

    With the activities going on in the US republican convention this week, it was difficult to escape the news cycle that was dominated by the upcoming US elections in November. Alas there are no plagiarized speeches, comb-overs or bad spray tans (at least that we know of) in the online brokerage space. Given the hubbub […]

    With the activities going on in the US republican convention this week, it was difficult to escape the news cycle that was dominated by the upcoming US elections in November. Alas there are no plagiarized speeches, comb-overs or bad spray tans (at least that we know of) in the online brokerage space. Given the hubbub in the US, it seems fitting that this week we also shine a spotlight on US-based online brokerages as they reported their quarterly earnings and provided a fascinating glimpse behind the curtain of the world of an online brokerage.

    In this week’s roundup we take an in-depth look at the recent earnings from the major publicly traded US online brokerages as well as distill out some of the more fascinating talking points from the heads of the brokerages themselves. From there we’ll move to the borderless medium of Twitter to find out what had Canadian DIY investors talking about this week. Finally, we’ll close off the roundup with a few interesting conversation threads from Canadian DIY investors in the Canadian investor forums.

    Feel the Earn

    This past week, the latest quarterly numbers hit the tape for several of America’s largest publicly-traded discount brokerages. As a group, the four main publicly traded discount brokerages (Charles Schwab, TD Ameritrade, E*Trade Financial and Interactive Brokers) pulled in a combined $3B USD in revenues for the quarter ending June 30th – not a bad haul considering the ultra-low interest rate environment. Looking at these revenue figures, it is clear that they have not stood still waiting for them to rise. Instead, they have changed their model to incorporate everything from extra fees, fee-based advice and even integrated ‘robo-advisor’ products into the mix.

    Here are some highlights from the most recent earnings reports.


    Quarterly income per account brings headline numbers into perspective and also indicates how active each firm’s users are. These stats are displayed below, but the key takeaways are as follows.

    Interactive Brokers, despite having doubled their client base over the past five years to 357k clients, still has the lowest number of accounts compared to their peers.  That said, Interactive Brokers is clearly holding its own when it comes to profitability compared to its peers. IB clients on average generated $596 of net income per account. On the other hand, the least profitable per account firm was TD Ameritrade which came in at $34.78 of income per account, however keep in mind Ameritrade has over 6.9M accounts.

    Net Income per Client Account at US Online Brokerages Quarter Ending June 2016


    While all the other US brokerages houses showed mixed results DARTs (daily average revenue trades) wise, TD stood apart from the competition. TD posted the highest DART growth year-over-year, while Schwab had the hardest time quarter over quarter. The chart below displays DARTs for each firm.

    Far from being the ‘apocalyptic’ event that many news headlines would have suggested, the Brexit volatility tended to benefit the online brokerages with, according to E*Trade’s CEO, many traders and investors jumping in to purchase securities that had sold off.

    % Growth of Daily Average Revenue Trades (DARTs) at US Online Brokerages Quarter Ending June 2016.

    Technology & Platform Improvements

    All these firms have acknowledged the importance of staying on the cutting edge of technology. As online brokerages, this should come as no surprise. Nonetheless, one of the biggest themes of discussion in company conference calls was the “digital advice” aka robo-advisors.

    For example, Schwab released updates to their “Intelligent Portfolios” retirement planning feature. This application uses user generated initial investment, time and income stats to estimate monthly income levels. As the firm puts it, “clients now have more flexibility in setting their desired monthly income and receive suggestions on adjustments to meet their goal.”

    E*Trade Financial also reported in on their robo-advisor product line, known as the “Adaptive Portfolio” which launched in June and has attracted $100M in assets under management since debuting the service. This application is E-Trade’s take on targeted asset allocation and automatic rebalancing, a hybrid strategy between completely self-directed and a managed account.

    TD Ameritrade also rolled out a “digital upgrade” to their Amerivest service in June which will now enable Ameritrade to compete with its peers in the robo-advisor space. While not a full robo-advisor service just yet, the fully digital platform is forecasted to roll out in the fiscal year 2017.

    Interactive Brokers continued to update their hallmark Trader Workstation desktop application. From Interactive Brokers, there was the admission that market making isn’t the business it used to be. After making only $5M this quarter, the lowest amount in the last 96 quarters, the writing is on the wall for this business unit to go out to pasture. It begs the question, if it’s hard for the so-called pros to make money by making markets, how well can individual investors fare?

    Overall, despite the low interest rate environment, US online brokerages have managed to weather the storm by getting creative and offering a spectrum of services for investors. The biggest issues to watch over the next several months in the US will be the roll out of Department of Labor (DOL) rules on investor protection as well as the continued ramping up of robo-advisors.

    These are two particularly important points for Canadian discount brokerages to monitor as well. The robo-advisor space in Canada is already becoming a crowded field, considering the Canadian market’s size, and so any Canadian discount brokerage contemplating entering into the space (following the lead of the US brokerages) will have to do so quickly and effectively.

    The other item for Canadian brokerages to learn from is the role/impact of regulatory reforms (such as CRM2) that will force brokerages to be more efficient and effective in their use of technology. Already technology is clearly where Canadian brokerages, big and small, are trying to get right albeit with varying degrees of success. Throwing in the added pressure to ensure fees are disclosed properly and in a timely fashion means that brokerages might not focus as much on innovating as they do on ensuring they stay within the boundaries of the regulators.

    Discount Brokerage Tweets of the Week

    Even though there was a lot of heat outside and on Twitter, there was some high praise sent to RBC Direct Investing on their new digital look and feel. Mentioned this week on Twitter were Questrade, RBC Direct Investing, Scotia iTRADE, TD Direct Investing and Virtual Brokers.

    From the Forums

    Interface Dialogue

    RBC Direct Investing rolled out the latest upgrade to their online trading interface. Reactions to the new look and feel were definitely mixed, as seen in this post on’s forum. Click to learn more about the various reactions and perspectives on whether the new site hit or missed the mark with DIY investors.

    Fee-ling Down

    One of the perceived advantages of going with the deeper discount brokerages, such as Questrade, is that DIY investors can save quite a bit on commissions. While commission pricing isn’t the only factor to consider, it is an important one. In this post from Canadian Money Forum, one reader got a bit more than they bargained for with ECN fees at Questrade. Click to read more.

    Into the Close

    That’s a wrap on another wacky week. Despite the dour headlines, markets continue to push higher. Enjoy the ride while it lasts and have a great weekend!