Canada’s discount brokers continue to disappoint

For investors who choose to go it alone the growing selection of discount brokers over the past decade would seem like a godsend. Instead, the twelve major industry players in Canada continue to fall short of expectations.

A new study by J.D. Power & Associates puts customer satisfaction at only 70 per cent — a mere 21 basis points higher than last year. A similar study done in the United States places the customer satisfaction level at nearly 77 per cent.

Satisfaction with our discount brokers also trails our opinion of full brokerage service providers and retail banking.

The study, conducted with 2,900 investors last summer, ranked Canada's top discount brokers in six areas on a scale of one to one-thousand. Our biggest beef is in the way problems are resolved (568) followed by trading charges and fees (622).

Investors gave the highest mark to discount brokers who reach out to customers to inform them about new products, education and financial planning tools — although Canada still lags behind the U.S. in just about every key area.

"In the United States, competition has driven trade commissions much lower, forcing high-performing firms to compete in the value they provide their investors in terms of tools and resources" J.D. Power senior director and financial services practice leader Lubo Li said in a release.

Winners and losers

In Canada, highest marks go to the discount brokerage arm of Desjardins Group, Disnat, for the fourth consecutive year. Disnat leads in terms of investor satisfaction with a score of 768 and beats the competition on just about every level.

Disnat charges a flat fee of $29 on trades of more than one thousand shares priced at over $2 each but offers a discount of $9.95 on more than ten trades per month worth more than $50,000. Commissions are charged on smaller trades but commissions from most mutual funds are returned to the investor.

BMO InvestorLine comes in a distant second with a score of 720. InvestorLine's fee structure, like most major Canadian discount brokerages, is similar to Disnat's — in the $29 range, and can go into the single digits for multiple or bigger volume trades.

Like most financial services, Canadians tend to pay a premium for fees compared with our American cousins. Industry experts say we pay more because our market is about 90 per cent smaller than the U.S. market. Single digit trading fees are common for U.S. discount brokers.

Helpful hints

However, J.D. Powers cautions investors not to get too hung up on fees — suggesting investors often get what they pay for. If you shop around, it's possible to save five or ten dollars on a trade, but in the end it could be a loss when you factor in the value of a good support system and good research and tracking tools.

For example, QTrade Investor charges a flat fee of $19 for equity trades in accounts with less than $50,000 in assets and $9.95 for trades in accounts with more than $50,000, yet QTrade ranks second lowest in overall satisfaction in the J.D. Power survey.

On the other side of the coin, J.D. Power also cautions against getting too comfortable with the discount brokerage arm of your primary bank. Many investors are lured to their bank's discount brokerage with lower fees for all services — a sort of umbrella rate. In addition, investors can get comfortable with the convenience of having their account details included in their online profiles along with their regular bank accounts, lines of credit, RRSP and TFSA accounts or mortgages.

Being comfortable with your bank's discount brokerage division shouldn't keep you from finding a better deal elsewhere — even if that means a small discount broker without a big bank affiliation. In other words; bigger is not necessarily better.

Using an example from the survey, Questrade - which advertises $4.95 stock trades - edged out the discount brokerage arms of RBC, CIBC, HSBC and Scotiabank in overall investor satisfaction.

Finally, J.D. Powers tells investors to read the fine print. Fees generally vary based on the size of the account and the frequency of transactions but there could be other hidden fees. Investors could also be tempted to overtrade to take advantage of cost savings and trade themselves right out of the money.