Online broker a price-cutter
New entrant claims industry's lowest transaction fee
January 24, 2001
Barry Critchley
Financial Post
GlobalNet Financial.com Inc. (GLBN/NASDAQ), a Nasdaq-listed company, is expected to announce today that Canada has become the newest member of its family of global discount brokerage operations.
GlobalNet Financial's local subsidiary, Canada Invest Direct Inc., has a simple strategy to achieve its game plan. Through its Web site (CanadaInvestDirect.com), it intends to charge the lowest fees of any discount brokerage firm in the country.
The game plan amounts to an experiment in supply and demand -- two words that are never very far from the lips of most economists.
"We will charge a minimum of $22.95 a transaction," said Peter Jones, president and chief executive at Canada Invest Direct, "an amount that makes us at least $7 a transaction lower than the industry's leading players."
For those transactions where a client would pay above the minimum amount, the online broker will charge 2¢ a share, subject to a maximum of $99.95 a transaction.
"Nobody else charges 2¢ a share," said Jones, adding that Canada Invest Direct is a member of both the Investment Dealers Association of Canada and the Canadian Investor Protection Fund.
(An allied Web site, CanadaInvest.com, is 100%-owned by GlobalNet Financial and provides investors with investment ideas, local news, investment tools and real-time quotes.)
Jones said that the $99.95 maximum fee will be a key part of its marketing plan. A maximum was imposed "because it doesn't cost us any more to process a trade of 100,000 shares than one for 1,000 shares."
Jones said the company's game plan is "cheapest is the best" for a straightforward reason: "We felt there was a niche in the Canadian market," given that the largest competitors (Action Direct, TD Waterhouse and E*Trade) all charge the same price. "And they compete on content and service," he said.
Jones argues that CanadaInvestDirect.com's content and service are as good as what the competition offers.
"No investor is required to make a sacrifice [when they decide to use our online service]." He said that investors probably wouldn't open an account unless there is a pecuniary motive to do so.
In terms of service, Jones said: "Each member of our customer service team have been in the investment business for more than 10 years. They aren't a bunch of kids. They know the business."
---
Today's announcement is the climax of about two years of work and about $5-million of startup expenditures.
CanadaInvestDirect.com started as a joint venture between GlobalNet Financial and First Marathon Securities.
GlobalNet Financial defines itself as an international financial portal providing online financial news, investment tools (including research reports) and transaction services through a family of Web sites.
Some of those transaction services include online brokerage, insurance, foreign exchange, mutual funds and initial public offerings.
In all, the company has almost 20 such Web sites, in the language of the home country. The local Web site has been open since last May.
When National Bank acquired First Marathon in the summer of 1999, the Quebec-based bank's securities unit, National Bank Financial, inherited the 50% stake in the venture.
That 50% ownership stake complicated matters a little for National Bank, which already had its own 100%-owned discount brokerage unit.
So, to uncomplicate matters, GlobalNet Financial will acquire the 50% owned by National Bank. (The transaction is subject to the normal approval from the regulatory authorities.) It will then try to find a partner.
---
Running Canada Invest Direct is a big switch for Peter Jones. For the past 30 odd years, he has been focused on investment banking.
For most of that time he was with CIBC World Markets, including stints in Calgary and London. Then he moved to Salomon Brothers before joining First Marathon about six years ago, where he ran the investment banking operations.
When National Bank acquired First Marathon in mid-1999, Jones was one of six FM staffers required to sign a one-year employment contract. He resigned last November.
bcritchley@nationalpost.com |
