Discount brokerages in Canada have seen a surge of new customers in the last year, as disenchanted investors take their portfolios online and into their own hands.
Nearly a third of Canadian discount brokerage customers surveyed by J.D. Power and Associates said they have been with their primary firm for less than a year.
The large percentage of investors migrating to discount brokerages is a “true demonstration of the growth within this channel,” said Lubo Li, J.D. Power's senior director.
Discount brokerages, which allow clients to do their own trading with no advice or help from a live broker, are appealing because of their lower cost.
The J.D. Power survey found that while the lower trading fees are an important driver of the rapid growth of discount brokerage firms, new investment products such as Exchange Traded Funds (ETFs) - investment vehicles that are more tax efficient than mutual funds, as well as easy to own and to assemble into a portfolio - are also attracting business that might have traditionally gone to mutual fund companies.
Investors surveyed were also attracted by the improved web technology and online trading, which make transactions almost instant and more secure.
The J.D. Power survey looked at investor satisfaction with their discount brokerage firm when it came to interaction, account information and statements, trading charges and fees, account offerings, information resources and problem resolution.
Despite the do-it-yourself appeal of discount brokerage trading, it found that interaction with clients – which includes both trading and customer service components – is the most important factor driving customer satisfaction. And while most clients do their trading online, they rely on the telephone and in-branch channels for their customer service needs.
“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,” Mr. Li said.
The study is based on responses from 2,696 investors who use investment services with discount brokerage firms in Canada. The survey was conducted in May, 2009.
Roma Luciw is a writer and web editor of the Globeinvestor.com personal finance site. Please send any comments and story ideas to rluciw@globeandmail.ca.
