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Table Of Contents

    Key points

    If you missed the first part of our J.D. Power & Associates Discount Brokerage Rankings series, read it here. The two main objectives of this section are to provide readers with: A look at the overall discount brokerage marketplace to see what, if any trends in investor satisfaction there are that matter to consumers A […]

    JD-Power-Data-Ranking - Discount Brokerage Rankings

    If you missed the first part of our J.D. Power & Associates Discount Brokerage Rankings series, read it here.

    The two main objectives of this section are to provide readers with:

    1. A look at the overall discount brokerage marketplace to see what, if any trends in investor satisfaction there are that matter to consumers
    2. A detailed look at the company results in the survey to see how each company has performed over time so that consumers get an idea of the responsiveness of a particular discount brokerage to the needs of investors

    When choosing a discount brokerage, you can either “go it alone” and find out for yourself what a discount brokerage is like or you can turn to the opinions of other self-directed investors to help you decide. Even though both approaches exist, surveys of Canadian investors have shown that many of them like to do research, turning to friends or family for recommendations, as well as third party reviews and research, before making a choice to go with a particular discount broker. While external opinions are valuable sources of information to help avoid potentially costly or unpleasant experiences they can also help to find a service provider that can hopefully keep you a satisfied customer.

    Looking at what thousands of other self-directed investors have said about their experiences can certainly shed light on what you’re likely to encounter with a particular discount brokerage and at the very least help to provide some context around informal discussions with friends or family. There are some questions, however, you may want to consider when looking to these sources. Questions such as:

    • How well does the source I’m looking at consider and describe my needs?
    • If they are a friend, family member or opinion in a forum, how long has this person been a client with the company and
    • What, if any, issues have they encountered with the service/experience along the way?

    Also, because numbers and statistics often get presented to support marketing and sales, we thought it prudent to state several “qualifiers” readers need to consider about such numbers up front instead of at the end. First, it’s worth stating that the range of data this section references covers four years of results of the investor satisfaction survey. This four year time period is a small time frame, especially since the interval that the survey is conducted on is annual. Second, the number of companies in the ‘pool’ is fairly small so we must be cautious about inferring too much about the performance numbers and possible trends of the industry as a whole. Instead, looking at a particular company’s change in performance over time is probably more reliable an approach than comparing companies to one another. Lastly, not every year had the same number of discount brokerages covered. In 2009 and 2010 for example, the number of discount brokerages covered by this survey was 6 and 8 respectively. Smaller or newer discount brokerages, therefore, are less likely to appear on the survey and so the inferences made about “the industry” actually apply to the discount brokerages covered in this list.

    Investor satisfaction with the overall discount brokerage industry in Canada

    Over the four years the investor satisfaction survey has been conducted, more than eleven and a half thousand individuals have been consulted about discount brokerage services in Canada.

    Canadian Discount Brokerage Industry - Investor Satisfaction Scores 2009-2012
    Figure 1: Canadian Discount Brokerage Investor Satisfaction Scores from 2009-2012

    When looking at the four year picture, the average industry satisfaction scores have fluctuated year over year, bouncing between a low of 679 in 2011 and a high of 707 in 2010. The four year average score for the industry is 696 (out of 1000) with an average standard deviation of 27.5 points. When graphed, it is clear that as a group no clear industry-wide trends in the satisfaction of Canadian discount brokerage investors are visible.

    Investor satisfaction with specific discount brokerages

    When we looked at the standard deviations of the scores from each year, we noticed that over time these deviations were getting larger, implying that some discount brokerages were pulling away from the average at the high end as well as at the low end. The plain English translation: some companies were scoring far better than others when it came to investor satisfaction in 2012 than in 2009. The “improvements” that have been made by Canadian discount brokerages have not been “across the board” and certainly not in areas that are the most important to the investor satisfaction rating definition. Instead, it appears that there are individual performances that need to be looked at to see where the variability might be coming from.

    Table 1: Company Scores from J.D. Power and Associates Discount Brokerage Investor Satisfaction Study from 2009 to 2012

    Overall Rank Company 2012 2011 2010 2009 Average (2009-2012) Standard Deviation Datapoints
    1 Disnat 768 729 725 723 741 21 4
    2 National Bank Direct Brokerage 719 724 716 n/a 720 4 3
    3 BMO InvestorLine 720 699 720 698 713 12 4
    4 TD Waterhouse 707 693 706 690 702 9 4
    5 RBC Direct Investing 687 677 706 714 690 17 4
    6 Questrade 690 676 686 n/a 684 7 3
    7 CIBC Investor’s Edge 686 640 668 689 665 23 4
    8 Scotia iTrade 656 633 668 661 652 15 4

    Looking at the scores of individual discount brokerages, what immediately jumps out is the performance that Disnat has managed to produce over the past four years. Not only were they ranked highest in each of the four years of the survey, but their numerical scores have also improved each year with this past year getting the highest score (768 out of 1000) ever achieved by a Canadian discount brokerage on this survey. When compared with the rest of the Canadian discount brokerages, no other discount brokerage has managed to show as consistent an improvement on the investor satisfaction survey year over year. Statistically, 2012 for Disnat is one in which they blew past the field and placed over 2 standard deviations ahead of the average. When compared to their performance from the prior 3 years, 2012 was even more anomalous. What all of this means is that according to those surveyed, Disnat clients report themselves to be extremely satisfied relative to the rest of the discount brokerage industry and relative to prior years.

    Even though they are numerically not contained within the “top 10 percent” BMO Investorline and TD Waterhouse Discount Brokerage have put in consistent performances over four years. Interestingly, National Bank Direct Brokerage’s scores have remained consistently at the higher end of the pack, suggesting that whatever they are doing is keeping them close to the top.

    If consistency of performance is one important metric, it is also interesting to shine a light on Scotia iTrade which has ranked last in each year of the J.D. Power investor satisfaction survey. Although they have numerical scores that continue to put them in last place, statistically their performance is improving. Similarly, CIBC Investor’s Edge has, at least statistically, managed to improve their performance to become closer to the industry average, doing so much more substantially than Scotia iTrade.

    A discount brokerage that is clearly slipping in terms of investor satisfaction is RBC Direct Investing. While numerically it may not seem like a large shift, relative to the industry average they are doing 10 times worse in 2012 in terms of investor satisfaction than they were in 2010 i.e. in 2010 they were only 0.04 standard deviations below average, in 2012 they are 0.42 standard deviations below average.

    Three discount brokerages that we were not able to get sufficient data on from the J.D. Power investor satisfaction survey were Qtrade, Credential Direct and HSBC InvestDirect.

    Why does this matter?

    For consumers, the bottom line here is not whether a discount brokerage is doing anything or not, but rather whether or not they are doing the right things to keep their clients feeling satisfied – a key difference. It is important to stress that there is no one definition of “investor satisfaction” and that the definition we’re using is that put together by J.D. Power and Associates for the purposes of this survey. Because we know how “investor satisfaction” is defined and measured by J.D. Power’s survey, we can decide whether this is a reasonable definition or not. Also, different discount brokerages might use different benchmarks when looking at whether or not their customers are actually satisfied.

    This brief look into the historical data shows that the industry as a whole is responding to investors’ needs unevenly. In spite of competitive forces, it is difficult to envision discount brokerages working harder than they have to in order to keep their clients sufficiently satisfied – after all as a business there has to be something in it for them. The data from the investor satisfaction surveys suggests that the ‘experience’ is more or less the same at most discount brokerages. Going with the “best of breed” is one strategy but certainly the smartest choice is to go with the brand that offers you the best fit of products and incentives for your needs. The evidence clearly shows that certain discount brokerages need to work not only harder but also smarter at delivering on things that matter to investor satisfaction. If not, there are certainly discount brokerages out there that can.

    Sources: