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    Key points

    For anyone watching any kind of news or social media, it is difficult to fully process what is unfolding in cities around the world. With so many of us in Canada and around the world still under restrictions to stay close to home, the window to the outside world has become a digital one. Despite […]

    For anyone watching any kind of news or social media, it is difficult to fully process what is unfolding in cities around the world. With so many of us in Canada and around the world still under restrictions to stay close to home, the window to the outside world has become a digital one. Despite even greater access to technology and almost limitless amounts of information, collectively we are struggling to make sense of something so senseless.

    So, although we will run this edition of the Roundup, the most important story, the one that needs to be heard, will be first. Take a moment to watch it, hear it, and let it sink in. From there we will take a pause, catch our breath, and do our best to continue to move forward. Keep reading for a deep dive into the latest Canadian online brokerage rankings and what they reveal about the state of the industry, including what it needs to get right with the next generation of DIY investors. Finally, we close out with chatter from DIY investors on Twitter and in the financial forums.

    George Floyd

    Latest Online Brokerage Rankings Show Room for Improvement

    If there’s one thing that’s synonymous with the end of the school year, it’s report cards. For Canadian discount brokers, the grades are in from a noteworthy financial services research firm and it’s clear that for many of them, improvement is needed.

    Though seemingly straightforward on the surface, online brokerage reviews and rankings are challenging endeavours. So much about rating online brokers depends on how the rankings are defined and what is actually being measured, which is why it is often hard to compare different online brokerage rankings. They simply measure different things about the Canadian discount brokerage industry.

    This past week, the financial services research unit of J.D. Power released their annual evaluation of the Canadian online brokerage industry with their Self-Directed Investor Satisfaction Study. Though the name and the study have changed slightly over the 12 years this evaluation has taken place, at its core, it continues to measure “investor satisfaction” and uses that to determine which Canadian discount broker is “best.”

    Before diving into this year’s results, it’s worth mentioning a few points about the study itself, to better contextualize what it does (and does not) measure.

    The first and probably most important factor to note is that the Investor Satisfaction Study measures just that: investor satisfaction. In this study, investor satisfaction is comprised of seven components:

    1. Account information
    2. Commissions and fees
    3. Firm interaction
    4. Information resources
    5. Investment performance
    6. Problem resolution
    7. Product or service offering

    Given that investor satisfaction is somewhat of an abstract concept, it is useful to have these categories in place to help structure how to think about the ultimate question when it comes to any client experience: were clients satisfied with the product or not?

    Of course, while it would be nice to get a simple “yes” or “no” answer, the reality is that these are complex concepts and there are things that brokerages do differently, perhaps better or worse than others. Further, how investors interpret things like “customer experience” may be highly subjective and as such make it a challenge to measure. Nonetheless, the scale that the Investor Satisfaction Study is built on is a numerical one that scores all brokerages out of a maximum possible 1,000 points.

    With that context in mind, it was interesting to see what the 2020 version of the study uncovered in terms of Canadian DIY investor perspective. More interesting, however, was the comparison of this year’s results to the previous year’s, as it uncovers important differences and shifts in the industry that have taken place since the last time this study was conducted.

    At a high level, one of the first things that stands out about the 2020 results is the drop in average investor satisfaction compared to the 2019 study. The average for the industry this year was 717, but last year it was 726 – a sign that the industry did worse when it came to investor satisfaction.

    Averages, however, only convey part of the picture. What was also interesting to take note of is that the spread between scores narrowed.

    Last year the difference between the best ranked online brokerage (with a score of 753) and the lowest ranked brokerage (with a score of 698) was 55 points. This year, that range dropped to 33. In fact, with the exception of 2019, since 2013 and 2014 (where the range was 64 points) the spread between “the best” and “the worst” in terms of investor satisfaction had been decreasing.

    The compression of this range seems to suggest that DIY investors are finding the experience increasingly similar between Canadian online brokerages, a signal that commoditization is taking hold and that online brokerages are not doing nearly enough to differentiate or out-innovate one another.

    Nowhere is this more evident in the 2020 results than in how close the top four online brokerages were from one another.

    The difference between first (Questrade) and second place (BMO InvestorLine) was five points, and the difference between second (BMO InvestorLine), third (Desjardins Online Brokerage), and fourth place (National Bank Direct Brokerage) was each one point, respectively.

    As poorly as the Canadian discount brokerage industry as a whole performed relative to 2019, however, there was one exception. National Bank Direct Brokerage was the only discount brokerage to see a surge in investor satisfaction scores, rising 31 points from 2019 to 2020, and moving from last place in 2019 to fourth place in 2020.

    Despite dropping four points on a year-over-year basis, Questrade managed to rise in the rankings from third place last year to take top honours in 2020 with a score of 736. At the other end of the spectrum, Scotia iTRADE ranked last this year, falling to a score of 703.

    One online brokerage that stands out as having a significant shift downward is CIBC Investor’s Edge. This popular low-cost online brokerage fell 40 points compared to last year and slipped from a second-place finish to a seventh.

    Importantly, not all Canadian online brokers were measured or reported publicly. Popular brands such as Qtrade Investor, Virtual Brokers (soon to be CI Direct Investing), Interactive Brokers, and HSBC InvestDirect did not have data published about their level of investor satisfaction in this year’s results.

    So, what’s driving the decrease in investor satisfaction among Canadian DIY investors? One of the biggest areas where Canadian discount brokerages appear to be struggling is website stability and accessibility.

    Somewhat shockingly, 46% of DIY investors reporting an issue with an online brokerage chalk it up to a problem with the website, and 29% of investors surveyed were unable to access their online brokerage website at least once during the prior 12 months.

    It is difficult to determine how representative the sampling of this survey is for all DIY investors across Canada, but these numbers are concerning, considering that investors put their nest eggs or significant savings in the hands of online brokerages. These results, however, do help to validate the scores of complaints DIY investors have logged on Twitter about Canadian online brokerage websites going down during trading sessions. And, keep in mind, these survey figures were generated prior to the COVID-19-induced market meltdown, which saw unprecedented surges in trading volume and account sign-ups.

    Not being able to access a trading account when you’d like to is frustrating enough; however, not being able to do so when market opportunities open up – that certainly leaves an impression.

    Perhaps the most intriguing number reported in the online brokerage rankings was that 26% of millennials (or younger) indicated that website inaccessibility has got them thinking about switching brokerages. That’s a huge number in an extremely hard-to-win-over segment.

    The rankings from J.D. Power highlight that the Canadian online brokerage space will increasingly face a challenge to escape becoming commoditized. In these latest investor satisfaction metrics, what ultimately separates one online brokerage from another is becoming harder to distinguish.

    Perhaps ominously, the relatively slow pace of innovation in this online service leaves the industry exposed to possible disruption by a provider able to deliver the technology piece with greater reliability and at a lower price. This is certainly the case in the US, in which an online brokerage was able to grow to an extraordinary size while lowering the price of commissions to zero.

    With so many online brokerages facing technology challenges even when investors weren’t stampeding into and out of markets, the past several weeks have uncovered the limits of customer service and client experience capabilities at many online brokers. And while the news certainly isn’t all bad at Canadian brokerages, the scores show that investors expect online brokers should be doing better.

    Discount Brokerage Tweets of the Week

    From the Forums

    Going All Out

    A forum user contemplates breaking from their investment plan and selling everything to avoid the stress of a turbulent market in this post. Fellow DIY investors weigh in by sharing their approaches and thoughts on the temperament it takes to invest.

    Where’s the Wealth?

    In this post, a Redditor inquires about how illiquid wealth works, and fellow forum users outline the imprecise nature of such wealth and offer helpful analogies.

    Into the Close

    It almost goes without saying that the start of this new month will begin on uncertain footing. There are many events taking place with very little visibility as to exactly how they will unfold. However, of the things that can be controlled, here’s hoping that readers remember to find ways to be kind, stay informed, and find the courage to dream for and change the world for the better, one action at a time.