Virtual Brokers Takes Top Spot

The 2012 Globe and Mail Canadian discount brokerage rankings are out as of today with Virtual Brokers claiming the top spot and displacing the 6 year “reigning champ” of this survey, Qtrade (which came in second), by a razor thin margin.

Becoming Globe and Mail’s top ranked brokerage, albeit barely, was a pretty lofty achievement for Virtual Brokers for a number of reasons, not the least of which is because they were sitting at the bottom of the ranking back in 2010. This year (2012) marks only the third year in which Virtual Brokers has been included in the ranking, so for such a recent entrant into the ranking pool to move up so quickly is certainly noteworthy.

So what took Virtual Brokers from the bottom of the pack in 2010 to being crowned the best Canadian discount broker for 2012?  Certainly credit is deserved where credit is due.  Virtual Brokers has aggressively priced their services far lower than many of their peers and started to match the types of services found at their competitors.  Of course, it also helps to understand how the types of categories that went into this ranking could impact the outcome. In order to understand what being the “best discount brokerage” really means, we took a closer look at the rating system used by the Globe and Mail’s Rob Carrick.

Looking at the Ranking Structure

The following five sections (and the percent they play in the scoring) are used in the Globe and Mail discount brokerage ranking to assess each Canadian discount brokerage:

1. Costs – 25%
2. Account Information – 25%
3. Trading – 20%
4. Tools – 20%
5. Innovation -10%

For this ranking, the two factors that heavily influence the overall ranking are costs and account information (combined they form 50% of the score).  The last three categories of trading, tools and innovation combine to form the other 50% of the ranking.  Interestingly, when looking at the definition of innovation: “Which firms are leaders in terms of cutting prices and introducing new services, and which are followers?” price comes in again.

Thus, the prices that a brokerage charges for its services end up having a bigger influence in the overall score relative to any other single component.  Virtual Brokers had the strongest showing on fees and innovation and tied for first in the “trading” category which likely gave it the edge it needed to squeak out ahead of Qtrade.  Qtrade shone brightest in the “account info” category.  Sometimes the overall ranking can mask some particularly noteworthy performances.  On the good side, buried in the results is an impressive perfect 20 out of 20 that TD Waterhouse managed to achieve in the Tools category (even though they were ranked 6^th overall).  Conversely, the lowest ranking was given to HSBC InvestDirect which ‘earned’ a particularly biting comment: “They win in one respect – most annoying log-in process.”

Handle with Care

When reading these kinds of rankings, it is important to know what the strengths and limitations are, especially if/when using these rankings as part of a decision to consider one discount brokerage over another.

The Globe and Mail ranking has been taking place annually for 14 years and is done “from the point of view of mainstream investors”.  Because the “mainstream” contains a mixture of different needs and preferences, it is important to understand what your individual needs are to see which category or categories reflect your particular situation.

For most shoppers, price matters but perceived value matters more.  Is research important to you? Are you willing to pay more for your trading to get easier transaction experiences or more reliable trade execution? Do see yourself as an active or passive investor? Do you know how much money you should invest? Asking questions such as these is important because the more time you spend getting clear on what you need before you go hunting, the easier it will be to find the right fit.

Rankings such as these can certainly cut down on some of the research time. It was a nice touch that the rankings in all categories were reported rather than an aggregate score (and that you could download a spreadsheet of them!) because sorting who fits you best is simpler.  You may choose to put a different emphasis on trading or tools than the way the original survey weighted it.  To that end, we’ve created a sortable version of the results table below that lets you sort who ranks highest in the category that matters most to you.

There are also a couple of interesting videos (featuring Rob Carrick) as part of additional content  on the 2012 discount brokerage rankings: the top brokers for retired investors and the top brokers for young investors. Both are short clips but provide some useful advice on which brokerages to consider for each group and why.

Conclusion

On a final note, even though Rob Carrick is one of the most informed sources on the Canadian discount brokerage market, and the ranking is structured around a knowledgeable consumer’s point of view, the comments around the experience with each company reflect those of the author.  A sound strategy to follow is one that Rob Carrick himself suggests in his article “Three smart ways to find an online broker” which is to “cross-reference your findings with the many online resources available.”

Finding reliable and impartial sources, such as some of those listed within Rob Carrick’s article, is important for self-directed investors because when you have over a dozen discount brokerages trying to get and keep your business, there is no shortage of opinions on who or what makes a company the best Canadian discount brokerage.

Table 1: Globe and Mail Canadian Discount Brokerage Rankings 2012

Overall Rank	Broker	Costs (out of 25)	Account Info (out of 25)	Trading (out of 20)	Tools (out of 20)	Innovation (out of 10)	Total (out of 100)
1	Virtual Brokers	24	14	18	12.5	10	78.5
2	Qtrade Investor	15	22	18	15	8	78
3	BMO InvestorLine	10	19	15.5	16	7	67.5
4	Scotia iTrade	14.5	14	13	17	7.5	66
5	RBC Direct Investing	12.5	19	9.5	18	5.5	64.5
6	TD Waterhouse	11	10	14	20	6	61
7	Credential Direct	12	19	9	14	4	58
8	Questrade	15	8	14	11	8	56
9	Disnat (Classic)	11	17	7.5	14	4	53.5
10	CIBC Investor’s Edge	14	9	11	12	5	51
11	National Bank Direct Brokerage	10	14	10	14	2	50
12	HSBC InvestDirect	14	15	10.5	9	2	50.5

(source: Rob Carrick. (November 20, 2012). A new winner: The Globe’s 14th Annual Online Brokers Survey. Globe and Mail (accessed online here)