Business Reporter
New products, lower fees, less frustration.
That's what prompting more Canadians to open online trading accounts, even after so many investors took a drubbing in the stock market last year.
"Today we're experiencing record interest and activity in terms of assets and account openings," said John See, president of TD Waterhouse Discount Brokerage.
The rise of information technology stocks and dot com culture in 1999 also gave birth to the image of the day-trader: the stock market do-it-yourselfer who spent his days furiously buying and selling stocks electronically, often knowing nothing about the company or the industry.
The strong bull market attracted new investors in droves. When the tech bubble burst in 2001, so did the number of new discount brokerage accounts.
Interest in online trading stalled for a few years, then began to pick up steam as markets rebounded and the Internet became a way of life.
Then, last fall, came another market meltdown. Online brokerages braced themselves, but this time around, it was different.
"Last September, we had the markets falling apart. Yet we had account openings that were almost what we had in the height of the bull market of the tech bubble," said Connie Stefankiewicz, president and chief executive of BMO InvestorLine.
Experts say that new investment products, such as Tax-Free Savings Accounts and Exchange-Traded Funds, in particular, are driving the new boom.
They also point to widespread investor frustration – paying commissions to full-service brokers who failed to protect them from big stock market declines.
A lot has also changed on the technology side: Online investors today have a bulging tool kit that includes online calculators and portfolio builders, customized alerts, and stock and mutual fund screeners. Clients of bank-owned brokerages also have access to a steady stream of economics and equity research.
Stocks remain the bread and butter for brokerages but most allow you to buy and sell mutual funds, bonds and guaranteed investment certificates (GICs).
A recent survey by global marketing firm J.D. Power and Associates ranked Disnat Online Brokerage, a division of Desjardins Securities scored the highest level of investor satisfaction among Canada's online brokerage firms.
The same survey found that low transaction fees, new product offerings and efficient online trading brought more Canadians to discount brokerage firms in the past year.
Nearly one-third of discount brokerage customers in Canada indicate they have been with their primary firm less than 12 months. The study also found that lower trading fees are an important factor in the rapid growth of discount brokerage firms, but not the only one.
What clients value most: customer service – online, but also via telephone and in-branch channels.
"Discount brokerage customers may be independent and very self-directed overall, but when something goes wrong or they need assistance, it is critical that the firm delivers in efficiently resolving any issues," said Lubo Li, senior director at J.D. Power and Associates.
InvestorLine has found that investors are using Tax-Free Savings Accounts as a way to try investing on their own.
"TFSA's have had a significant impact in terms of new clients," Stefankiewicz said. "It seems that a lot of investors who may not have really looked at online brokerage for their RRSP or general portfolio are taking this opportunity with their TFSA to try a new approach to investing."
ETFs, or exchange-traded funds, with their low-cost and transparent structure, also seem to be an ideal vehicle for online trading. These investments are essentially index funds that trade on the stock market.
Canadians currently have about $27 billion in ETFs, and about $7.3 billion of that has come into the market in the last year, said Rajiv Silgardo, BMO's head of ETFs.
"Investors have gone through severe market downturns, volatility and lack of liquidity and less than full transparency. Investors want solutions that give them better risk control, that give them more diversification, more transparency. ETFs by definition do all this."
BMO launched four ETFs in June, two U.S. equity funds, a large-cap Canadian fund, and a Government of Canada bond ETF. It plans to launch more in the fall, along with a campaign to create awareness.
Typically, 20 per cent of brokerage clients are active traders who generate 80 per cent of the brokerage's revenues. The rest of the customers tend to be buy-and-hold types.
Discount brokerages are not allowed by stock market regulators to give advice, but investors can call with questions about how to use tools on the site, read charts or compare sectors or allocate their portfolio.
"We don't give advice but what we have found through this period of significant market turbulence is that often clients want to hear a voice on the other end of the phone to discuss what's in their account," Stefankiewicz said.
Experts are quick to say that online trading is not for all investors.
"People who don't have the time or the interest and they would be much better with someone who does that for a living," See said.
Ultimately, it also comes down to confidence, Stefankiewicz said.
"Do they have the confidence to make decisions? If they're not going to make decisions, they're probably not suited to doing it on their own," Stefankiewicz said. "They really would be much better of dealing with any adviser."
The growing trend, experts say, is clients using a combination of services.
"It's not an `either/or.' It's an `and' for investors these days," Stefankiewicz said. "Investors have an adviser and they have an online brokerage account. They segregate them in their own mind in terms of what they're doing in each of those relationships."
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