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Stock markets signs at BMO InvestorLine, the online brokerage arm of the Bank of Montreal, on King St. in Toronto

Fernando Morales/The Globe and Mail

When stock-trading volumes jumped last March, online brokers should have been more farsighted about building their capacity to serve clients online and by phone.

But the rush to trade stocks lately is like nothing we have seen before – a trading tsunami that keeps building intensity.

Online brokerage BMO InvestorLine reported late last week that trading volumes were tracking at levels two times higher than the previous week, which itself was a record. “It’s a continuous surge,” InvestorLine president Silvio Stroescu said in a mid-January interview. “Momentum continues to build.”

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The latest Globe and Mail online brokerage ranking zeroes in on phone response times, and the average for the 12 firms was a dismal 92 minutes (check the ranking for firm-by-firm data). Heavy social media-driven trading of GameStop and other stocks last week contributed to website outages at some brokers, which means clients couldn’t access their accounts or place trades.

InvestorLine says January was a record high month for trading volumes, with levels that were 30 per cent higher than in the first three months of COVID-19 and more than two times peak trading volumes for a typical registered retirement savings plan season, which is basically the first two months of the year. During peak COVID months in the spring, volumes were two times higher than typical months and 66 per cent higher than RRSP season peaks.

The last big surge of trading that gummed up broker websites was in 2018, as investors jumped into cannabis stocks. What’s different today is how excitement about stocks is luring newcomers to online investing.

InvestorLine says its new account applications are running at levels 2.5 times those a year earlier, and requests to transfer money into InvestorLine accounts are five times higher than pre-COVID levels. In the first nine days of January, InvestorLine processed more fund transfer requests than it did in all of January, 2020.

Part of the strain on brokers can be explained by the background of new clients. “A lot of the new clients that have joined us are new to investing as well,” Mr. Stroescu said. “There’s obviously a learning curve – an educational component.”

As part of its work with online brokers, the U.S. consulting firm Dalbar Inc. audits the quality of conversations between clients and reps at online brokerages. Anita Lo, vice-president at Dalbar’s Canadian operation, said one recent exchange highlights how green some investors are.

The call was from a person who had a big gain in the price of a particular stock and wanted to take profits. “He didn’t understand that he would have to sell some of his shares,” Ms. Lo said. “The representative said, ‘Sir, you would have to sell some shares.’ The customer said, ‘No, I’d just like to take some money out. Just send me a cheque.’ ”

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Representatives are also on the phone helping existing clients who want to get more aggressive by trading options or using borrowed money through margin accounts. They are also fielding calls from people anxious for a status report on their account transfers.

Mr. Stroescu said InvestorLine will soon have 40 new reps ready to handle phone calls (they now have 183 full-time employees) and more new workers will be coming onstream. What took so long? The process of bringing in this new cohort actually began last October. It takes that long to recruit, hire, train and license a live rep.

Brokers could and should do better in connecting clients to their accounts and to their staff. But what’s happening today is as much an investor problem as a broker issue. Too many people are trading stocks, rather than investing sensibly.

It’s all very similar to conditions back in 1999, when a mania for technology stocks drew in small investors and swamped brokers. The popping of the tech bubble in 2000 ended that problem in a hurry.

It’s widely said these days that COVID-19 is an amplifier of societal trends and personal emotions. COVID has juiced the stock market, in part by keeping people at home and in need of distraction.

The obvious question for online brokers: What will happen if COVID is still around when the next stock market correction happens? Let’s hope brokers do a better job planning for this alarming possibility than they did in preparing for today’s trading mania.

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