The Toronto Star, Tara Perkins, 22 June 2006
The online discount brokerage industry has been more successful than many people anticipated, says the head of TD Waterhouse discount brokerage in Canada.
A darling in the late 1990s, the industry was pummelled by the bursting of the tech bubble, and took years to pick itself up and brush the dirt off.
At the peak of early 2000, online retail traders accounted for nearly one-third of the trading volume on the NYSE and Nasdaq. That figure remained at about 10 per cent from 2002 to 2005, according to a report by consulting firm Celent.
But John See, president of TD Waterhouse discount brokerage, argues that there is evidence that assets in self-directed accounts held up as well as, if not better than, assets in accounts managed by advisers.
And now, the firm's trading volumes, assets under administration and deposits all significantly exceed even the peak periods of 2000, he said.
According to Investor Economics, assets in the retail online discount brokerage industry in Canada rose from $123 billion last March to $155 billion this March.
Over the same period, assets with full-service brokers rose from $547 billion to $644 billion.
Now, as the baby boomers push into retirement, a growing number of investors with both time and money on their hands will ensure the industry's future success, See said.
"For the wealth-management industry in general, the prospects are extremely strong in the next several years," he said. Within that, he expects self-directed investing will grow at a quicker clip.
The size of TD Waterhouse's asset base has increased more than 30 per cent over the past two years, See said.
Connie Stefankiewicz, president and chief executive of BMO InvestorLine, said both the number of clients and the assets coming in have increased over the past six months.
The industry's average client is about 45, male, and highly educated, she said. There is a larger proportion of entrepreneurs and self-employed individuals.
There's still a perception that online traders are day-traders, but "that's not the reality today," Stefankiewicz said. "The vast majority of clients of online brokerages are long-term investors."
The price of trading for long-term investors — those who don't trade often — has remained fairly steady for the past few years, Stefankiewicz said, at about $25 to $30 per trade.
But the price for active traders, who make more than 30 trades per quarter, has fallen to about $9.95 or $10 per trade, she said.
While American investors have traditionally benefited from the massive scale of U.S. online discount brokerages, in Canada, "pricing and commission rates for active investors have come down to the rates that were only available in the United States until about a year ago," See said.
Active traders are a lucrative market segment, according to Celent. They not only trade more frequently, but have higher than average balances and trade on margin more than other investors.
While fees are important to active traders, "with the commoditization of trading, it is imperative that firms stay competitive in the advice and guidance area if they want to provide a compelling offer to the majority of retail investors," Celent said in its report.
"It is a very competitive market because clients are very demanding," said Stefankiewicz. "We are continually looking at opportunities to enhance our site," she added.
Focus is shifting beyond tools and resources to guidance and validation, she said. Not advice, but good information.
See said that "every single day, some new things are coming on board."
As Celent put it, "to the creative go the spoils."
The online discount brokerage industry has been more successful than many people anticipated, says the head of TD Waterhouse discount brokerage in Canada.
A darling in the late 1990s, the industry was pummelled by the bursting of the tech bubble, and took years to pick itself up and brush the dirt off.
At the peak of early 2000, online retail traders accounted for nearly one-third of the trading volume on the NYSE and Nasdaq. That figure remained at about 10 per cent from 2002 to 2005, according to a report by consulting firm Celent.
But John See, president of TD Waterhouse discount brokerage, argues that there is evidence that assets in self-directed accounts held up as well as, if not better than, assets in accounts managed by advisers.
And now, the firm's trading volumes, assets under administration and deposits all significantly exceed even the peak periods of 2000, he said.
According to Investor Economics, assets in the retail online discount brokerage industry in Canada rose from $123 billion last March to $155 billion this March.
Over the same period, assets with full-service brokers rose from $547 billion to $644 billion.
Now, as the baby boomers push into retirement, a growing number of investors with both time and money on their hands will ensure the industry's future success, See said.
"For the wealth-management industry in general, the prospects are extremely strong in the next several years," he said. Within that, he expects self-directed investing will grow at a quicker clip.
The size of TD Waterhouse's asset base has increased more than 30 per cent over the past two years, See said.
Connie Stefankiewicz, president and chief executive of BMO InvestorLine, said both the number of clients and the assets coming in have increased over the past six months.
The industry's average client is about 45, male, and highly educated, she said. There is a larger proportion of entrepreneurs and self-employed individuals.
There's still a perception that online traders are day-traders, but "that's not the reality today," Stefankiewicz said. "The vast majority of clients of online brokerages are long-term investors."
The price of trading for long-term investors — those who don't trade often — has remained fairly steady for the past few years, Stefankiewicz said, at about $25 to $30 per trade.
But the price for active traders, who make more than 30 trades per quarter, has fallen to about $9.95 or $10 per trade, she said.
While American investors have traditionally benefited from the massive scale of U.S. online discount brokerages, in Canada, "pricing and commission rates for active investors have come down to the rates that were only available in the United States until about a year ago," See said.
Active traders are a lucrative market segment, according to Celent. They not only trade more frequently, but have higher than average balances and trade on margin more than other investors.
While fees are important to active traders, "with the commoditization of trading, it is imperative that firms stay competitive in the advice and guidance area if they want to provide a compelling offer to the majority of retail investors," Celent said in its report.
"It is a very competitive market because clients are very demanding," said Stefankiewicz. "We are continually looking at opportunities to enhance our site," she added.
Focus is shifting beyond tools and resources to guidance and validation, she said. Not advice, but good information.
See said that "every single day, some new things are coming on board."
As Celent put it, "to the creative go the spoils."
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Merrill Lynch analyst Andre-Philippe Hardy upgrades TD Bank from Neutral to Buy.;
