The banks lead the way, now the independents are following suit. What has ensued is an all-out online trading price war.
Shocking the market, Royal Bank of Canada threw down the gauntlet in January by slashing its discount brokerage commissions to $9.95 flat per trade. Soon after, rivals such as Toronto-Dominion Bank and Bank of Nova Scotia sprung into action and matched the offer.
Because the big banks carry such weight in Canada, it was arguably only a matter time before well-known independents did the same. On Friday, Vancouver-based Qtrade Financial Group fell in line and slashed its trading fees. In an attempt to give itself an edge over the Big Six banks, Qtrade now changes a maximum $8.75 flat rate commission, about $1 less per trade than most banks.
The price war is partly spurred by an attempt to attract younger clients. Historically, this demographic had to pay higher trading commissions because they didn't meet the requirements to qualify for low fees, such as maintaining hefty account balances.
But there's more to it than that. Before RBC slashed its fee, there hadn't been a major commission change in Canada in close to a decade, said Qtrade chief executive officer Scott Gibner. South of the border, meanwhile, some companies had gone so far as to flirt with zero-commission trades – though many of these aggressive players have since retreated.
Even though Canada was overdue for some action, RBC's fee cut caught the market by surprise, Mr. Gibner said. And while most major discount brokerage players reacted quickly, Qtrade took its time. The reason, he added, was to see how the market shaped up. "When the dust settled, we looked around and thought, 'How are we going to best position Qtrade'?"
The answer to that question was, price. Discount brokerages love to tout their equity research and online analytical tools, and while these things do matter to clients, "price, has, and always will be, an extremely important part of [their] decision," Mr. Gibner said. The extra bells and whistles are simply what help you stand out once you're on a level playing field in terms of fees.
With prices all but settled, the key now for discount brokerages of varying stripes is to keep their high-end customers. Last week Canadian Imperial Bank of Commerce's new CEO said the U.S. is starting to see high-net worth investors move away from online trading toward more personalized full-service advisory models, dubbed "high-touch." The banks are trying to replicate that trend here, and that means it could suck some of the most lucrative clients away from the online platforms.
But Mr. Gibner said there will likely always be some room for high-net-worth investors in the discount brokerage arena. Although they are keen on good service, they also love to have a little play money on the side, and that cash is usually put in an online account.