While storms were raging across stock markets this past week, it was definitely calmer waters in terms of discount brokerage news and chatter.  In this week’s roundup, we look at the actions that landed another Canadian discount broker in the IIROC penalty box, a report by TD on Canadian investors as well as a review of the chatter on stock forums about brokerages and some useful cautionary investing tales. Finally, we take a quick look at the results from the twelfth edition of  the U.S. Self-Directed Investor Satisfaction Survey results from J.D. Power released earlier this week.

Scotia Capital gets called for an offside

Over the past several weeks, it seems that that Investment Industry Regulatory Organization of Canada (IIROC) has been handing out a series of penalties to Canadian discount brokerages. Joining the likes of Questrade and Interactive Brokers, the decision against Scotia Capital Inc (the parent of Scotia iTrade) was based on activity between 2009 and 2011, shortly after it had acquired E*Trade in 2008.

Scotia Capital was hit with a $150,000 fine for failing to have policies and procedures in place that could detect potential wash trades and high closing prices.  To read more about the settlement, check out the IIROC press release or a great write-up about it in the Globe and Mail.

The Investor Survey Says…

TD Bank Group released results from a recently commissioned a survey of Canadian investors. The survey asked just over 1000 Canadian investors about their thoughts and perspectives on the investing climate in the next 12 months.  Of those surveyed, 41% felt that their personal portfolios would improve even in the face of mild Canadian and US economic recoveries and a poor global economic outlook.    This suggests that investors surveyed might be more interested in looking closer to home for investing ideas rather than looking abroad.

Another interesting finding from the survey is a classic illustration of behavioural finance in action.  Given the run up in the markets experienced for the first half of this year, the rising prices seemed to have also lifted the outlook of investors. Paradoxically, investors are constantly told or reminded that past performance doesn’t guarantee future results, yet it is interesting to see how the past does, in fact, shape investor perceptions.   As described in their press release, those investors surveyed who experienced a loss were more prone to being pessimistic about the future than those investors who experienced a gain.

The Word on the Street

Looking through the Canadian investment forums this week, the radar picked up quite a bit of chatter about TD Direct Investing, specifically on the Canadian Money Forum.

The first posting raised an interesting example of what happens when the value of an investment falls beneath the price of the commission it would take to get rid of it.  Often this occurs for companies that have either been delisted or have lost so much in value that they are trading at a small fraction of their previous value.  In this posting, the author points out what happened with their experience at TD Waterhouse (TD Direct Investing).

Still on the Canadian Money Forum, forum member ‘recklessrick’ describes their process of deciding upon and opening a TD Direct Investing account. It is an interesting perspective on the fact that discount brokerages that have physical locations still appeal to investors even though opening an account online is still possible. As the comments point out though, just because things are done in person, service between locations can definitely be variable.

Finally, the last thread about TD Direct Investing was a very interesting cautionary note regarding order entries.  In particular the post’s author did not have an account that was set up to short stocks (or so they thought) however an order entry mistake proved otherwise. It sounds like even though commissions were refunded the loss on the trade was not, highlighting the importance of understanding how to place different order types properly.

Self-directed investors should take it in stride, however, as order entry mistakes happen to professional traders all the time (and are, in fact, blamed for most of the major “flash” crashes that have taken place over the past several years).  That said, there are so many moving parts that enable self-directed investors to trade online that technical difficulties are a fact of life.  Even though many people don’t dwell on the subject, as this post illustrates, service interruptions because of software updates are common at the bank-owned discount brokerages as well as at the independent discount brokerages.

U.S. Self-Directed Investors Can’t Get no Satisfaction

J.D Power and Associates released the results from their annual Investor Satisfaction Survey of U.S. self-directed investors earlier this week.  The key findings from their study showed that overall investor satisfaction declined compared to last year, with communication with the discount brokerages being cited as a possible reason for the decline.  We recently reviewed the importance of customer service to discount brokerage customers and the recent results from the U.S. discount brokerages highlight how client interaction can impact overall satisfaction scores.

Overall,  the US discount brokerage that received the best score was Scottrade with a score of 810.  The average score of all US firms investigated was 752 which is still above the Canadian discount brokerages’ average score from 2012 which was 700.  For an explanation of how the J.D. Power Investor Satisfaction Survey is conducted, check out our special series on it (Part 1, Part 2 &, Part 3).