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    Key points

    More big news unfolding on the zero-commission trading front. We explore the latest move by Desjardins Online Brokerage as well as comments from TD Direct Investing on the move to eliminate commissions. Also, there are more new features available on SparxTrading.com to help self-directed investors research investor feedback on online brokerages and scan deals and promos more efficiently.

    During the pandemic, it’s understandable to lose track of time. Yet, there are some dates that stand out, such as September 11th, that are forever etched into the minds of those who lived through the terrible tragedies of that day. Despite 20 years going by, it is still a vivid memory for many, and though painful to reflect on, the lessons learned from that day show that hope can ultimately triumph over hate.

    In this edition of the Roundup, we kick things off with a look at the new features that launched on SparxTrading.com to help self-directed investors and industry enthusiasts track and research the latest developments in the online brokerage space. Next, we report on the latest zero-commission trading chatter, with a potential big move by one brokerage and another big brokerage potentially not moving. As always, we have some interesting commentary from the forums, including the launch of cryptocurrency trading at one brokerage that rolled out abnormally quietly.

    New Features at Sparx Trading

    It’s been a big year of changes across the Canadian online brokerage industry as well as at Sparx Trading. In addition to recently crossing the 10-year mark, earlier this year we launched a new website, affectionately named SparxTrading 2.0, given that it had been around pretty much from the time that Sparx launched in 2011.

    Suffice to say, we felt it needed a makeover to keep pace with the new world of online investing. Little did we know at the time, 2021 would also be the year in which so much would change in the world of online investing. It seems like our timing was about right when it came to prepping a new look and feel for a brave new world filled with new trading platform features, zero commission pricing, and new providers (coming soon).

    This past week, we rolled out some important updates to the website which we think will help self-directed investors (as well as industry observers who want to keep up with what’s going on in the space) stay on top of the big changes heading into RSP season.

    Investor Feedback Added to Online Brokerage Reviews

    When it comes to researching online brokerages, one of the biggest questions online investors have is what other online investors have to say. Community is a huge part of the self-directed investor experience, however, navigating the different online sources and forums can be a bit daunting.

    To help make accessing user feedback easier, we have now integrated comments made about each online brokerage on channels like reddit and Twitter and directly connected them to each online brokerage review. So, for example, the latest comments made by online investors about Questrade or Wealthsimple Trade on reddit appear at the bottom of each of these respective online brokerage reviews.

    Given that some of these brokerages generate a lot of conversation online, we added the ability to filter by channel, so readers can focus on the conversation taking place on reddit or on Twitter. To help combat spam and other nefarious activities, we also have developed a filtering system, so users also don’t have to scan through the questionable materials to find the good stuff.

    Finally, to make things easy to verify, we’ve hyperlinked each of the comments so anyone researching investor comments from our website can go directly to the reddit or Twitter post to see what the rest of the conversation contains.

    Our system is designed to evolve and learn over time so while it is not perfect at filtering out or capturing all of what we’d like, it’s a great advancement and beats having to sift through everything about a single brokerage manually. It’s something we’re going to continue to tinker with to improve, but we’re really excited to see this feature now in action.

    Deals and Promotions Section Gets Reorganized

    When we first launched the deals and promotions coverage on SparxTrading.com, we were able to capture most of the information in an “at a glance” format using tables.

    Unfortunately, even though our website was responsive (a big deal circa 2011-2015), the tables that powered our comparisons and the deals and promotions were not. Despite that being the case, these tables were really popular because they provided a birds-eye view of the different offers and promotions out there – a great feature for people who were browsing and for online brokerage staff who wanted a handy reference when comparing offers across the industry.

    It was a big decision (and a huge amount of work) to completely refactor the deals and promotions section, but we felt it was worth it to deliver a more relevant user experience and make it more accessible to users on mobile devices. In the new format, self-directed investors can efficiently compare online brokerage promotions and offers using filters to pick what attributes are most relevant, whether that be minimum deposit amounts, account types, or offers from specific online brokerages.

    In terms of the latest updates, one of the first things users will notice on the deals index page is that we’ve tidied up the design and user experience on the filter to perform more efficiently. Users can filter deals by deposit amount, online broker, account type, and deal type. Those interested in browsing can also view all deals by selecting all.

    To keep advertising to a minimum on the website in what is sure to be an increasingly crowded advertising market, we wanted to find an alternative way to feature offers. There are now two spots at the top of the deals index results list for specific deals to be highlighted. These are offers that we might be compensated for either through affiliate revenue and/or via paid placement by online brokerages.

    Featured Deals Snapshot

    Finally, we’ve adjusted the design of the deals cards themselves to display promotions and essential information more clearly. Data about the deal, such as the minimum deposit, expiry date, and promo code, are readily visible at a glance and the details about an offer are easily expanded when needed.

    We anticipate deals and promotions to play an even greater strategic role in how Canadian online brokerages navigate the new reality of a bank-owned online brokerage offering zero commission trading.

    Case in point, we’ve seen a big bank competitor to National Bank Direct Brokerage, RBC Direct Investing, offer a 100% increase in the number of commission-free trades and the duration in which to use them compared to their previous offer. Specifically, new accounts at RBC Direct Investing can qualify for 50 commission-free trades for up to two years. Most passive investors will be challenged to use that up within the time frame, so those self-directed investors looking for the features of a bank-owned brokerage like RBC Direct Investing and don’t mind the premium commission price, will find a promo that can be used for up to two years compelling.

    Also, there’s a lot that can happen within two years now that commission-free trading is starting to surface (see article below) and innovation among online brokerages is accelerating. Using deals and promotions strategically enables online brokerages in Canada to effectively delay the switch over to full zero-commission trading.

    More Zero-Commission Trading Chatter

    Another week, another big development in the zero-commission trading [storm] and another week in which other stories get bumped because zero-commission trading in Canada is kind of a big deal.

    In a piece published this weekend by the French-language newspaper, Le Devoir, Desjardins Online Brokerage was reported to be waiving commission fees for clients last week. And comments in this reddit thread also seem to corroborate the reporting as well.

    While we generally don’t report on rumoured activity, in our in-depth analysis of the launch of commission-free trading by National Bank Direct Brokerage, it was clear that the closest rival to NBDB would not have much choice but to either match the offer or make a substantial cut to pricing to defend its business.

    There are few details to report on at this point, however, what has come through online investor chatter has been reports of clients contacting Desjardins Online Brokerage directly and having commission-fees waived. Until a formal announcement is made, there is likely to be a flood of calls and emails from clients requesting the same, which is why we expect to see a definitive (and formal) response rather quickly.

    Currently, the standard commission at Desjardins Online Brokerage (aka Disnat) is $6.95 for the “Classic” option and as low as $0.75 per trade for the “Direct” option – typically the choice for active traders (defined as making more than 30 trades per month).

    If confirmed to be true, the roll out taking place in this fashion is evidence that Desjardins Online Brokerage is being forced to respond quickly, and likely, reluctantly.

    Unlike other online brokerages outside of Quebec, the local competition between National Bank Direct Brokerage and Desjardins Online Brokerage is extremely fierce. National Bank Direct Brokerage has set its sights on expanding nationally, which then justifies its move to zero-commissions because it can win the volume of business required to make commission-free online investing. For Desjardins, however, it does not seem like they have the same growth path in mind. With their stake in Aviso wealth, they can simultaneously cater to their core market in Quebec while continuing to benefit from higher commission pricing being charged by Qtrade Direct Investing outside of Quebec for however long that can be continued.  

    Though clearly an important development, Desjardins Online Brokerage potentially being the next online brokerage after National Bank Direct Brokerage to eliminate trading commissions on equities and ETFs is still something the whole landscape of Canadian online brokerages can absorb. TD Direct Investing going to zero, on the other hand, would be a game changer.

    This past week at the Scotiabank Financial Summit, comments by outgoing TD CEO, Bharat Masrani, revealed the executive view of going to zero commissions. Below is an excerpt from a discussion with Meny Grauman, Managing Director at Scotiabank, host of the virtual summit.

    Meny Grauman

    You talked about TD’s Direct Investing business, definitely yes, very topical. So I thought to just touch on that. National Bank and Wealthsimple going to $0 commissions and the question is, will TD match that offer? What’s the competitive response? How do you see this all playing out in the market?

    Bharat Masrani

    You know, Meny, we’ve been in this business I think we were the first bank in Canada to get into it in the mid ’80s I think. And, we’ve seen price compression come and go. We’ve seen lot of different sort of business models emerge out of it, and we’ve been able to manage it very well. So, is this a shocker? Absolutely not. Ours is a very large business, fully segmented and very integrated to the rest of the TD offerings. In fact, 80% of our direct investing clients have other TD products and TD relationships as well, so tells you how integrated we are.

    Secondly, the offerings we have, from a very sophisticated options trading to a offerings for active traders, for offering for long-term investors, so you know there are offerings, there are specialized products available in each of these segments. And is it, I mean, you should, this should not come as a shock, but based on certain types of traders, we have special arrangements based on their needs and their offerings, and what value they need. And so, when we look at our trading commissions are taxed well, the reality is, depending on which segment you’re looking at, it could be less than that.

    So I think it’s important to keep that in mind. So we feel very comfortable with our position, the offerings we have integrated with retail, the products that we offer, the services, if you look at thinkorswim platform, there’s nothing like that in the options trading business. And if a client needs that, that’s where they’re going to go.

    And finally, I mean, there’s a lot of sort of, write-ups on this, but the overall commissions in this business represents about 1% of total revenues at TD. So we’ve got to keep this in perspective as to what it does to the bank, than to think that oh, my God, this is a major, major, I’m not undermining anything, every part of our business, I love every part of our business and the business model around it. But our job is to adapt to the environment we find ourselves in rather than hoping, wishing and praying that we go back to the good old days, that does not happen. And we have shown consistently that we will adapt, and we will adapt faster than others and I have no doubt that we will do so.

    And another point I’d make, we just introduced TD GoalAssist, that’s a new offering there that competes very well, if a client is just requiring vanilla type of trading and services and then not the other value-added services that I just talked about. So important point is event that has occurred don’t want to underestimate as to what it means, but we feel very comfortable with the business model we have and the value proposition we provide to our customers.

    There’s clearly lots to unpack from that statement, however, there are three specific data points of interest.

    First, 80% of TD Direct Investing clients are also clients of other TD products and services. If this is true for TD, then it is likely comparable at other big-bank-owned online brokerages as well. The notion that Canadian self-directed investors would prefer to have the convenience of keeping all of their financial affairs at one firm is evident in that data point. The move by National Bank Direct Brokerage, therefore, is likely a play to acquire new customers that will then also want to simplify the management of their financial affairs by housing other financial relationships under the same digital roof.

    The second point of interest is that revenues from commissions at TD represent about 1% of total revenue. For a finer point, as referenced in their last earnings call, the amount would be 50% of the broker dealer fees and commissions which last year brought in $860 million dollars and year to date have generated $849 million dollars. The “hit” that TD would incur, therefore, would be something that could be absorbed by the bank as a whole. For reference, TD generated $42 billion dollars in revenue in 2020 and almost $32 billion dollars year to date.

    Third, and perhaps most instructive to those holding out for the big banks to make a move similar to National Bank Direct Brokerage and potentially Desjardins Online Brokerage, is that TD feels confident enough in their value proposition, in particular with their options trading platform and other elements, that they don’t need to rush to lower their commissions to zero. On this front, they’re happy to let others go first, which likely mirrors what at least one or two of the big bank online brokerages are thinking as well.

    While TD is clearly stating they are ready to adapt (read: respond) if a sizeable competitor or peer firm moved to reduce their commissions substantially, self-directed investors hoping for a quick response to National Bank Direct Brokerage shouldn’t hold their breath. Movements by Desjardins Online Brokerage and potentially other smaller online brokerages seem to be inevitable in order to preserve market share. TD Direct Investing doesn’t really have to worry about that.

    The rate-limiting factor, it seems, is how aggressively National Bank Direct Brokerage is prepared to advertise against competing brokerages while those online brokers maintain high commission rates. With more discussion and conversation on zero-commission trading to be almost a given, National Bank Direct Brokerage will likely be heavily referenced in that discussion, earning them a big discount on the media exposure.

    That said, picking a fight with all of the other Canadian online brokerages this far ahead of the RSP season still gives competitor firms a chance to respond. And they will.

    Had National Bank Direct Brokerage dropped this news in October or November, other Canadian online brokerages would have been hard-pressed to pivot their campaigns and advertising buys quickly enough.

    With a few extra weeks of lead time and a healthy fiscal year performance across the board, there just might be enough capital and circumstance to warrant some pretty interesting fireworks this year. And it seems the best place for that might just be the deals and promotions section. Here’s hoping.  

    From the Forums

    Interactive Brokers Crypto Trading Launch

    After a lot of hype around cryptocurrency trading being available at Interactive Brokers around September of this year, the actual launch of this feature was abnormally quiet. No coverage (yet) on major media but in this reddit post, online investors took notice (and we did too). More to come on this story but check out the early reactions.  

    Crunching the Numbers on Motley Fool

    As a very visible source of information about different investing opportunities, Motley Fool is a recognizable name among online investors. In this interesting post on reddit, one individual shared their analysis of whether the forecasts from Motley Fool lived up to the reality when it came to portfolio performance.

    Into the Close

    Apparently, there is lots to say (and still more to come) when it comes to zero-commission trading. There are other fascinating stories unfolding across the online brokerage space, so we look forward to highlighting those as well. At a certain point we can probably defer the reporting to a DJ Khaled meme. Until then, however, there’s lots going on between the launch of football (NFL) and the final stretch of the Canadian federal election (where people toss political footballs and, occasionally, pebbles). Whatever you’re focusing on this week, we hope you find some reasons to stay positive!

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