Down time is good for educating investors

Eighteen months ago, it couldn't have looked more promising: Canadians were clamouring to join the burgeoning brigade of investors pouring their cash into online investor services....

Eighteen months ago, it couldn’t have looked more promising: Canadians were clamouring to join the burgeoning brigade of investors pouring their cash into online investor services.

But dizzying stock market routs in recent months both here and in the U.S. have sideswiped the online brokerage industry, and once generous marketing budgets have been chopped to the bone.

‘In this market, we have throttled back quite dramatically on the money we are spending,’ explains Paul Bates, president and CEO of Charles Schwab Canada, adding that his company plans to pinch its marketing pennies until at least the fall.

‘This is the time when simple grassroots work is done.’

Indeed, the stock market downdraft is forcing companies like Schwab to take a dramatically different approach to marketing their services.

For example, at a time when there is so much fear and loathing in the market, Schwab is hoping to reach out to consumers by hosting learning luncheons and evening informational meetings. Bates says he has made speeches to upwards of 15,000 investors over the past few months.

‘I’ve been in this business for 20 years and it’s the fifth time I’ve been through this [market volatility]. While the economic damage hasn’t been as great as it has been in other bear markets, psychologically it has been more damaging this time around,’ he explains.

‘In these kinds of markets, you have to be available to clients. You have to run your business just like a small business.’

Educating consumers is paramount to shoring up market share, he says.

The company’s most recent creative, for example, ran throughout the RRSP season and focused on an educational theme. Developed by Toronto’s Ambrose Carr Linton Carroll, the tagline was ‘creating a world of smarter investors.’ Print ads ran in both the National Post and the Globe and Mail.

Charles Schwab has also set up a service wherein analysts are available to comb through investors’ portfolios, giving advice as to how their holdings might be better managed


This approach – offering endless reams of information – is one that the company is hoping will be particularly effective with a target group that has largely educated itself in the ABC’s of the stock market.

Chantal Walker, head of marketing for Merrill Lynch HSBC Canada, says her company is also trying to allay investor fears by bombarding them with information. ‘Seasoned investors have seen it all before. But the man-in-the-street doesn’t necessarily understand what’s happened. Some people are shell-shocked,’ she says.

‘In this type of climate, you have to shift from brand building to more direct marketing. You really have to be out there in people’s faces. Offering research tools to these investors is key in this type of market.’

Booming markets have created a new cadre of investors over the past few years. This online investor is typically willing to take on more risk, and likes to build his or her own portfolio without the assistance of a broker, Walker says.

Consider this: more than 65% of Canadians have access to the Internet, and financial management ranks as the fourth most popular activity on the Web. Online assets are projected to soar to $600 million in 2005, compared with $105 million today, industry statistics suggest.

It’s little wonder then, that online brokerage houses are putting such a major emphasis on weathering the storm, given the future potential of their markets.

But while the number of online investors is growing – despite the current market volatility – the amount they are investing has shriveled, increasing the pressure to cut marketing budgets.

Bates says that over the past two years, the online division of Charles Schwab has typically earmarked 20% of its marketing budget for radio, 40% for print and an additional 40% for the Web.

But unless there’s marked turnaround in the markets, the company may not spend another nickel on marketing for the remainder of the year, Bates says. ACLC is being kept on retainer and it continues to work with Charles Schwab on updating brochures.

However, not every online brokerage house is taking such dramatic measures.

Colleen Preisner, senior manager of marketing and sales at RBC Investments’ Royal Bank Action Direct, says that her company hasn’t significantly revamped its marketing approach in the wake of all of the market volatility. The company is still airing its ‘Get in on the Action” commercial during NBA games, she says, adding, ‘We are staying the course for now.’

It’s much the same story at E*TRADE Canada. ‘I don’t think it’s the time to completely hide,’ states Colleen Moorehead, company president. ‘We need to keep talking to people when the market conditions aren’t good.’

The company is focused on

continuing to acquire more consumers right now and stealing away investors from competitors, she adds.

Over the past few weeks, the company has been trying to drive investors to its Web site through

tactical radio promotions and by running ads in major newspapers, which promote its new online investor game.

The game, called E*Combat, is designed to provide information and to help allay the fears of spooked investors, while helping them navigate through the particular challenges of a bear market.

‘We’re hoping to provide the training tools for investors in these kinds of market conditions,’ Moorehead says.

Meanwhile, Gomez, a financial firm that ranks e-businesses, rated E*TRADE Canada top among online brokers in its latest review, giving it 6.39 points out of 10 on a benchmark of factors including ease of use, customer confidence, on-site resources, and overall cost to the consumer. Enorthern placed second with 6.32 points, followed by TD Waterhouse with 5.96, BMO Investor Line with 6.08 points, Schwab Canada at 5.87 and Royal Bank Action Direct at 5.53 points. Merrill Lynch HSBC ranked 10th with 4.86 in the survey, conducted in winter 2000.