Ten years ago, James Sbrolla was pounding the table in frustration as he tried to get a service rep on the phone. The minutes ticked by, costing him thousands of dollars in lost profits as his online investor firm failed to fill his order at the opening bell and the stock began to rise.
The drama played out over 45 minutes, and when he eventually got a person to shepherd through his order, the stock price had risen more than 10 per cent. He says he still managed to make a profit on the trade, "but it wasn't worth the aggravation."
What a difference a decade makes. Today, online investing brokerages, from the giants run by the major banks to smaller independent players, all tout the immediacy of their online transactions as one of the benefits of their service.
And as Canadians have grown more comfortable with the Internet, whether buying music and books or doing their taxes, the online brokerages have seen their businesses flourish, especially within the past 24 months.
"It's been a fascinating couple of years, no doubt about it," says Connie Stefankiewicz, president and chief executive officer of BMO InvestorLine, the online brokerage arm of the Bank of Montreal.
New accounts were up well over 100 per cent in BMO's fiscal year ended Oct. 31, the biggest increase ever, she says.
"It's astounding, because previously the biggest year was 2000 in the tech bubble, and we've had nothing close to it since then."
The surge kicked in during September and October of 2008, as the global financial crisis really took hold. At BMO, it was such a dramatic increase that the firm polled its new clients to ask why.
"The No. 1 reason they gave us was they just felt that given the market environment they needed to take more control of their financial investments," Ms. Stefankiewicz says. "It was surprising in the midst of that turmoil - Lehman Brothers had just collapsed - that they would want more control."
It's a sentiment that other online brokerages found as well. Over the past year at Qtrade Investor, assets increased more than 100 per cent, and trading volumes rose more than 50 per cent, says Scott Gibner, chief executive officer of Qtrade Financial Group.
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"A lot of people saw their portfolios were not moving in the right direction and thought it was right for them to take more control," he says.
Qtrade has landed at the top of The Globe and Mail's annual ranking of online brokerage firms for several years, thanks largely to its use of technology and growing supply of equity research. The independent Vancouver-based firm says it has almost 100,000 online accounts, and it has also expanded to become more than an electronic brokerage, turning itself into a full service operation with additional features such as managed accounts, insurance services and wealth management.
Similar to many people using online brokerage accounts, Mr. Gibner sees value in a hybrid approach that combines discount services and premium offerings.
"I expect the [growth]trend in online accounts will shift back slightly, because an investment adviser brings a tremendous amount of value," he says.
Toronto resident Mr. Sbrolla is an example of an investor using both online and full service brokerages. A former investment adviser himself, and now a consultant for the green-tech industry, he says it's important for people to assess what they are getting from each type of service.
"Are you paying an adviser to add real value, or just to carry out order execution?" he asks. With today's online technology now offering almost instant-fill of orders, it no longer makes sense to pay a professional broker to simply carry out your trades. They need to bring real value, "otherwise they are just an expensive clerk," he says.
One thing that has helped make online brokerages so compelling is the flurry of ideas and financial information now available in the media, from 24-hour business channels such as BNN to financial blogs and websites.
In the late 1990s, brokers at different firms used to share research with each other so they could provide their clients with more information, Mr. Sbrolla says. "Today, investors are bombarded with information. I mean, where aren't they getting ideas from."
One area where professional management can still add real value is helping investors balance portfolios. A fundamental law of investing says it's imperative to include a variable percentage of fixed income products in portfolios.
Online brokerages offer a selection of corporate and government bonds on their sites. Qtrade, for example, aggregates its bond inventory with other online services to give clients a better selection. BMO InvestorLine posts a selection of issues on its site, but customers can also call to access a bigger selection of bonds available through the broader financial group overseen by the Bank of Montreal.
Regardless, the majority of transactions online involve the buying and selling of stocks. "We have the lowest percentage of assets in fixed income securities," Ms. Stefankiewicz says.
The volume of financial information broadly available today has given retail investors a sense of empowerment and confidence about managing at least portions of their own portfolios. But that doesn't mean there aren't still a significant number of investors who park their money in an online brokerage account and then fail to invest it.
Online brokerages have different strategies for handling these dormant accounts. At BMO InvestorLine, the firm tries to re-engage clients who haven't logged into their accounts in a while through phone calls and even direct mail. "We encourage them to log on and see how they are doing, and we say to them that if this isn't working, we suggest you consider working with an adviser," Ms. Stefankiewicz says.
Experience shows that the best way to make sure that all the thousands of Canadians who are opening online trading accounts actually use them is to engage new clients at the very beginning with smart tools and research, she adds.