The race to the bottom on trading fees is driving client satisfaction and movement in Canada’s self-directed investment industry, a report from J.D. Power says.
Commission-free trading from National Bank Direct Brokerage and Desjardins Online Brokerage is leading to an “inflection point” in the do-it-yourself investing space, according to the J.D. Power 2022 Canada Self-Directed Investor Satisfaction Study.
The annual report ranks investor satisfaction on a 1,000-point scale. National Bank topped the rankings with a score of 662, followed by Questrade (656) and Desjardins (631).
National Bank and Desjardins moved to no-fee trading last summer. National Bank explained its strategy as putting “a relatively small” amount of revenue at risk in order to increase its client base and gain market share.
While online brokerages struggled to adapt to the influx of new investors during the pandemic and the strain on their infrastructure, the report said fees were the most significant factor in ratings.
“Trading fees are something very visible and relatively easy to understand and compare across platforms,” said Michael Foy, senior director and head of wealth intelligence at J.D. Power, in a release.
“Until the industry aligns, we expect trading commissions—or the lack thereof—to be a driver of brand consideration and selection among do-it-yourself investors in Canada.”
Customer satisfaction declined at the Big 5 banks, with value for fees showing the sharpest drop, at 18 points. Commission-free firms, on the other hand, saw their value for fees rating increase by 69 points.
No-fee trades can also win customers in a space short on brand loyalty, J.D. Power said. Almost three-quarters (72%) of clients who’ve been with their firm for fewer than three years said they’re open to switching providers. More than one-third (36%) of those who said they intend to switch cited high costs as the primary reason.
“When Schwab announced commission-free trading for U.S. clients in October 2019, the rest of the industry followed quickly,” Foy said.
“We are not seeing that play out as rapidly in Canada, though it is hard to imagine the industry won’t get there. Once trading fees are no longer a way to stand out from competitors, it really raises the stakes on providing a superior client experience as the critical way to differentiate.”
The survey also found more than one-third (37%) of millennial self-directed investors in Canada have invested in cryptocurrencies and 11% have invested in fractional shares.
Mobile trading is also on the rise, particularly among younger investors: trades via mobile app increased 8% year over year for millennial and gen Z investors.
The J.D. Power study measures satisfaction in seven factors: trust, digital channels, wealth management, products and services, value for fees, people, and problem resolution.
The 2022 study was based on responses from 2,099 investors who make all their investment decisions without guidance from a financial advisor. The study was fielded from November 2021 through January 2022.