For individual investors, shopping for an online trading account often requires doing a fair amount of research and comparison between brokerages.  While commissions & fees are the most important factor investors consider when choosing an account, what it’s like to be a client of a particular brokerage is also something many investors are often curious about.

Fortunately for self-directed investors, one Canadian research firm (Dalbar Canada) measures client experience for most of the Canadian discount brokerages as part of their direct brokerage service evaluation (DBSE) program.  As part of the DBSE, Dalbar Canada also recognizes the high achievers in their evaluation with their Direct Brokerage Service Award.

Earlier this year, Dalbar Canada announced  the two highest performing brokerages on the DBSE:  RBC Direct Investing and HSBC InvestDirect.

Quick Overview

In our previous two-part series explaining the Dalbar Direct Brokerage Service Evaluation, we looked in detail at how the evaluation takes place including the components that go into defining ‘client experience’ at discount brokerages.   Here is a brief overview of why client experience still remains an important feature to track when comparing discount brokerages.

More than Just Price

With competition amongst online brokerages increasing, many of them (especially bank-owned brokerages) have adopted very similar pricing models.  Thus, comparing discount brokerages by price alone may not provide enough information for potential clients to make a decision. Going forward, shoppers will have to turn to the other features of a brokerage (such as client experiences) in order to evaluate how ‘good’ they believe the fit will be.

For those shopping for an online trading account, the only somewhat reliable ways to find out about client experiences have been through third party research/reviews and/or from other investors via investor forums or friends, family and colleagues.  The Dalbar Direct Brokerage Service Award is therefore unique in its focus on client experience and tries to provide a picture of what clients can expect from a brokerage when connecting via phone or email.

Which Online Brokerages Were Ranked?

This past year (2013) the following 10 discount brokerages (listed alphabetically) were evaluated as part of the DBSE program:

1. BMO InvestorLine
2. CIBC Investor’s Edge
3. Disnat (Desjardins Online Brokerage)
4. HSBC InvestDirect
5. National Bank Direct Brokerage
6. Qtrade Investor
7. Questrade
8. RBC Direct Investing
9. Scotia iTrade
10. TD Waterhouse Discount Brokerage (TD Direct Investing)

The popular discount brokerage firms that were not tested include:

1. Credential Direct
2. Interactive Brokers
3. JitneyTrade
4. Virtual Brokers

According to Dalbar, the same 10 firms monitored for 2013 will also be monitored over the course of 2014 with no immediate plans to increase the number of firms covered.

What Goes into Client Experience at a Discount Brokerage?

With any discount brokerage ranking or rating, is important to be clear on what is being measured. For the DBSE, “client experience” is being measured according to the following criteria:

1. Expertise
2. Accommodation
3. Professionalism
4. Sales Effectiveness
5. Chat/Email

Among these five factors, expertise and accommodation factor in the highest.  According to Dalbar, the weightings are assigned in a way that reflects what consumers have said matters the most when accessing a discount broker via a customer service channel.

What’s Different for the 2013 Evaluation?

Although much of what goes into the direct brokerage service award remains the same as last year (2012’s evaluation), there have been a few adjustments.

New for the latest year’s DBSE is an increased importance placed on meeting baseline expectations.  According to Dalbar, “providing a complete answer that is clear and concise is a baseline expectation by investors so firms that under deliver in this area will be deducted more severely than in years past.”

Also new for this year is the introduction of the “Winners Circle” for the award, a program that allows for companies that meet a certain criteria of achievement to qualify for top honours. Given their scores in this year’s evaluation, both RBC Direct Investing and HSBC InvestDirect are qualified as part of the “Winners Circle”.

Of interest, as of the writing of this post, neither of the two recipients of the award have posted news of their win on their respective websites.  Given the competitive nature of the discount brokerage space, however, it is likely that one or both of these brokerages may opt to update their homepage and/or marketing efforts with news of the win.

Evaluation Results

While exact numerical scores for each brokerage weren’t provided, the overall industry average score was (see figure below).  This year’s average client service evaluation score was 68.77, a slight decrease from last year’s average of 70.88.  Also noteworthy, the group of brokerages who scored above average changed.  New to the ‘above average’ category is National Bank Direct Brokerage whereas TD Direct Investing (TD Waterhouse Discount Brokerage) fell below the industry average. It should be noted that even though RBC Direct Investing and HSBC Invest Direct qualified for the ‘winners circle’ designation, the scores between these two brokerages were very close. Overall, the results from this past year’s evaluations show that client service generally stayed the same industry wide when compared to last year.

What Dalbar’s Direct Brokerage Service Award Means for Investors

Since Dalbar only discloses the ‘winners’ of the award, the inferences that can be drawn about client performance are limited to those that won vs those that did not win the award. That is to say, it is important to interpret the win as a sign that RBC Direct Investing and HSBC InvestDirect did “better than the rest” on client experience, however “how much better”  is not known. That said, if all else is equal in pricing and tools (which is largely becoming the case among bank-owned brokerages), then client experience becomes an important deciding factor.  So, for example, when looking at BMO InvestorLine vs RBC Direct Investing, Dalbar’s client experience scores could influence potential shoppers in favour of the latter.

The Bottom Line

Although many discount brokerage account functions are now possible to access online, there are often times when engaging with a representative directly is preferred or even required. Ultimately, the DBSE sets out to measure the ‘human’ factor of dealing with a discount brokerage.   Unlike other rankings, where discount brokerages move in and out of the top position frequently, the data from the DBSE over the years shows that client service scores have been consistently high at RBC Direct Investing and most recently at HSBC InvestDirect. Ironically, the adage often quoted by financial services firms bears mentioning here:  past performance may not indicate future results.  For the time being however, Dalbar’s data suggests clients expecting to get informed, polite and professional service can look to this past year’s winners to find it.

Editor’s Note: An earlier version of this posting stated that live chat was part of this assessment, however live chat is being measured as part of a different evaluation program. A subsequent edit was also made to include the new Winners Circle program as well to clarify that HSBC InvestDirect and RBC Direct Investing scores were sufficient to qualify them for the Winners Circle. Both the text and graphic have been updated to include the reference to the Winners Circle