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The pandemic-driven investing boom may cost the online brokerage industry some of its best customers.

Brokers, notably the big bank-owned firms, have been unable to handle the volume of phone calls from clients. Long waits are common and some callers are being cut off before speaking to anyone. Who are all these people calling a brokerage, where low commissions are made economically possible by providing services primarily online?

Most of the complaints I’m getting about online brokerage phone service are from retirees, the people with the biggest accounts and a need to stay on top of their registered retirement income funds, which are subject to mandatory withdrawal rules.

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Bad phone service sounds like a joke problem at a time when a pandemic-driven investing boom has increased demand for digital investing channels such as robo-advisers, investing apps and online brokers. But bad phone service is pervasive and it’s causing some online brokerage clients to consider full-service human advisers as an alternative.

A recent edition of the Carrick on Money e-mail newsletter (subscribe here) included a poll about online brokerage phone service. Of the 950 people who answered a question about whether they’ve had trouble reaching their broker by phone, 687 said yes. True, people mad at their online broker were most likely to participate in this poll. But 72 per cent having trouble getting through by phone is a big problem.

Here’s an even bigger worry, if you’re an online brokerage. Almost 40 per cent of the people who answered a question about whether they would consider switching to a human adviser said yes. Just more than 15 per cent said they are planning to close their online brokerage account and move to a full-service firm.

Some nuggets on the extent of bad phone service: 58 per cent of respondents said they have had to wait 90 minutes or longer to speak to a representative, and 39 per cent said they have had calls cut off by their broker before anyone answered.

A sampling of complaints I’ve received from readers in late 2020 and early 2021:

  • One reader tried to sell a bond in his portfolio and received a message to call the broker’s bond desk; he spent 10 hours over five days in early January trying unsuccessfully to get through.
  • Another reader said he spent more than two hours waiting to get through to his broker, only to be told his “call could not be completed, please call back later.”
  • Still another reader said his broker’s online chat service has been offline, and response time for e-mails is listed at five business days; the wait by phone took one hour and 45 minutes.

There are signs brokers are making a little progress in better handling phone volume. A few readers have written favourably about their firm’s call-back option, where you leave your phone number and an agent gets back to you later. Some brokers are hiring new staff and training them as quickly as possible.

Part of the reason why broker resources are stretched to the limit is that a bull market has stoked demand to set up online investing accounts and trade stocks. A sharp pullback for the market might help quiet things down, especially if it’s not followed by the kind of rocket-like recovery that took shape last spring.

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On social media, you’ll find comments that delays in answering phones shouldn’t be a surprise to investors using a cheap online investing service. But online brokerage clients can still pay plenty, even if trading commissions are cheap.

For example, brokers charge stiff fees to clients moving money in and out of foreign currencies such as the U.S. dollar. While paying little or nothing to clients holding cash in their accounts, some brokers charge 4 per cent and more to customers borrowing money for margin investing. Some firms also make money by directing client orders for U.S. stocks to certain third-party market players.

As for the old-school alternative, human advisers may answer calls right away, but they won’t be a comfortable fit for many online brokerage clients.

Most online advisers have no minimum account size, whereas the best advisers typically look after clients with large accounts. Advisers can easily charge as much as 1 per cent to 1.5 per cent of a client’s assets a year, while online broker commissions top out at $9.99 a trade and several firms offer some degree of zero-commission trading for exchange-traded funds.

Plenty of advisers advise and plan in a way that more than justifies the fees they pay, but many are just salespeople who provide only modest value, if even that, over the order-taking function of online brokers.

The fact that many online brokerage clients are thinking about switching to advisers tell us something more than simply that investors are frustrated. In a digital world, you can still lose your best customers with bad phone service.

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