More Money Podcast - 122 How to Get Started with DIY Investing - Edward Kholodenko, CEO & Founder of Questrade

Episode Date: October 19, 2017

I chat with Questrade CEO and founder Edward Kholodenko about DIY investing, how to get started and why fees can affect your bottom line. Long description: DIY investing is becoming more and more popular, and it’s easy to see why. It puts the investor in the driver’s seat, having full control of what they’re investing in, and plus it doesn’t hurt that you can save a ton in fees.  In this episode, I chat with Edward Kholodenko, CEO and founder of Questrade, one of Canada’s leading discount brokerages. He shares his story of immigrating to Canada and starting Questrade from the ground up, and why he’s so passionate about empowering investors and educating them on how to do it themselves. You know the say, there’s no one that cares more about your money than you do. And that’s a big reason why I think DIY investing in index funds and ETFs is becoming more normal amongst millennials. We want to feel in control of our financial futures and we don’t want to just hand our money off to an investment broker and hope for the best. We want to know what’s going on so we can make sure we’re growing our money to it’s full potential. And the most common way to DIY invest is to use a discount brokerage, follow an investment plan like the model portfolios shared on the Canadian Couch Potato’s site or The Sustainable Economist’s site, and rebalance accordingly. To get you started, below are some helpful resources to continue your investing education. Helpful Resources Practical Index Investing for Canadians Online Course by John Robertson The Intelligent Investor by Benjamin Graham Millionaire Teacher by Andrew Hallam Full full episode show notes visit: https://jessicamoorhouse.com/122 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, hello, hello, and welcome to episode 122 of the MoMoney podcast. I am your host, Jessica Warehouse, as always. I mean, it's always me, but I still just like to remind y'all that that's what my name is. And welcome to another episode of the MoMoney podcast. Excited to have my next guest chat with me about something that I feel like a lot of us need to know more about. DIY investing, investing through a discount brokerage. I am talking to Edward Kolodenko. He is the CEO and founder of Questrade, which is one of the leading discount brokerages in Canada. And we talk all things investing, stocks, index funds, ETFs, how to get started on your own, if that's what you want to do. Because, you know, the benefit of doing that is you save a ton of money on fees and really just know exactly what you're investing into. And we also go into how he started Questrade, why he started it all those years ago, and why he's so passionate about teaching other people how to invest for themselves. So lots of great stuff in this episode coming up. But before I get to that

fabulous interview with Edward about investing, here's a few words about this episode's sponsor. Support for this episode comes from Credit Card Genius, the only tool that compares over 50 features of 150 Canadian credit cards using math-based ratings and rankings that respond to your needs instantly. Now you can get rewarded faster without all the headache. Visit creditcardgenius.ca to learn more. Once again, that's creditcardgenius.ca. Thank you, Edward, for joining me on the Mo Money Podcast. I am so thrilled to have you with me so we could chat about Questrade and do-it-yourself investing. It's my pleasure. Thank you for having me today, Jessica. You are so welcome. So you are the current CEO of Questrade, but you're also the founder.

I would absolutely love to first talk a little bit about your background and your story, because I know you're originally from Eastern Europe and you started kind of your entrepreneurial journey there and then eventually moved to Canada and then founded Questrade. So I'd like to kind of maybe get a little some insight into like, how did that happen? how did that come to be so like many canadians i i uh do have an immigrant background i i came to canada as a young as a young boy i was only six and so i grew up i grew up here and i got my education here in canada and as things were developing over eastern europe decided to go back and do some business over there. And that was really the beginning of my entrepreneurial career where I managed to think quickly on my feet

and adapt to a changing environment. And I think that uniquely prepared me for my current role as President and CEO of Questrade. What did you do when you went back to... Where in Eastern Europe did you start your entrepreneurship? I was born in Ukraine. Ukraine. Yeah.

When things were opening back up over there, I went back there. I built up a very good business. That's what really provided the opportunity and the seed money for what I'm doing now. Was it a similar business to what Questrate is today? Was it an online business or? It actually had nothing to do with financial services. Oh, really? Yes, we were in the textile business.

We're the largest distributors of fabric, of textiles in Ukraine and one of the largest in Russia by the time I was done. Wow. So what made you decide, you know, when you eventually moved back to Canada, what made you decide to make such a... Those are very different industries and very different businesses. What made you make that switch? Being an entrepreneur, you look for exciting things and look for new opportunities. And that's really what I do. I build businesses. And I became very interested and fascinated by the markets while i was still

in ukraine the tv we watched was cnbc of all things because it was one of the few english channels available to me when i was there and i became very fascinated very interested in the markets and when i came came back home to canada i decided that that's something that I wanted to pursue. Interesting. So did you, like, so that was kind of like the basis for your financial background? Because I know it's, that's interesting, because I feel like a lot of people, you know, specifically in my generation, being millennials, you know, they can kind of get a handle on their finances in terms of budgeting, and you can have the day to day management. But when it comes to like investing, especially do it yourself investing, it seems like a totally different

world and totally scary. And so they don't even try. So what made you start, you know, kind of jump into that like full force and then be kind of, you know, become one of the kind of the leaders with Questrate in, you know, helping people, you know, through your brokerage to like invest completely on their own. So I think the question is, what gave me the confidence? Yeah, absolutely. But as I said, entrepreneurship is in my blood. And if I had enough confidence to go to Eastern Europe, a place where there really wasn't established laws

and established ways of doing business, and I had to really learn on my feet and try and figure things out. Just to give you a glimpse, we had runaway inflation while I was there, about 10,000% annually. Wow. And so you really had to figure out how you're going to do business in an environment like that. So being in an extreme environment, kind of thrown into the fire, I developed, I think, a pretty decent capability of being able.

We were successful there, and I figured, well, you know, entrepreneurship is entrepreneurship. You build a business, and you take it from there. You follow passion. You find something you're really, really interested in, which I was extremely interested in trading and do-it-yourself type of investing, bringing a different kind of product to Canadians, really disintermediating the middleman and bringing lasting value to what it is that they're doing. And that was something

that I was very interested in doing and really taking on the status quo. And that's what we've done. And so you founded Questrade back in 1999, which sounds like a long time ago. So much has happened in the financial industry since then. So much has happened within technology itself. What did Questrade look like back in 1999? And how would you say are some of the significant points where it's evolved to kind of keep up with technology and just like what people expect from like a financial service

so back in 99 when when the idea first first uh started to take shape and i incorporated what is today quest trade it still took us about a year and a half to get all the licensing to get get up and going so we didn't actually open open our doors as an operating company until it was probably June of 2001 when we placed our first trade. So it took quite a while to get that up and going. By the time we had done that, the world around us had changed. And so we had to adapt our business plan. What was once a brokerage that catered to very, very active traders

now became the business plan was to make it available through high-speed internet to most Canadians from their homes. And the technology really enabled us to do that. Because that technology had changed all around us where we were capable to transmit data at very high speeds into a person's home, which you couldn't do that before when I first had the idea. You could only do that with high speed lines into an office, but it became cost effective to do that into people's houses. And so that's an example of how technology has really changed. And since then, of course, new ways of interacting with web browsers, with websites, things were much more basic back then.

So today we have much more advanced technology, which allows us to provide a much better client experience. And building on that experience, coupled with the service and the value that we provide uh to Canadians has really propelled us to be the fastest growing online broker in Canada we're very proud of that those achievements absolutely um so yeah you mentioned a couple times value and I know um I've seen like some of your ads on the subway that really kind of emphasize um the importance of understanding that you are paying fees if you, you know, are with, you know, say a traditional bank or, or whatever, and you're, you're buying mutual funds, you're paying quite high fees. And this has actually become, you know, a lot more prevalent. People are, you know, talking about it more, especially since CRM too. And why do you find that, you know, like fees are so important for people to really understand, like, how does it

really, you know, affect their investments? And why do you feel that Questrade is kind of, you know, a possible solution for that issue? So today, life expectancy being where it is, it's growing quite a bit. And so people are going to need more money well into their retirement as they reach retirement age. When you're starting younger, it doesn't really matter at any age because today the time horizons are 30, 40, 50 years if you start young enough by the time you get to retirement. When those time horizons are so large and you take the effect of compounding,

today, the average investor, what do they do? They go and they buy a mutual fund. Mutual fund, typically, you don't see, but inside those mutual fund fees that you pay, and they're embedded inside the mutual fund, so they affect Canadians' returns. And so the returns are then depressed by the level of those fees that they pay. And the fees are typically a range, but it could be up to 2% of their annual, of the holdings that they have in the mutual fund, regardless of whether their holdings go up or down.

And so when you take the value of that and you compound that over time, over 30, 40, 50 years, that effect becomes huge. And so we started looking at that and started thinking, well, how can we do this better? How can we make Canadians' retirement much better? How can we let them keep more of their money? And so that was really the idea behind our portfolio IQ what it is that we're doing for Canadians that don't really have the inclination or the time or want to do things themselves and place the trades themselves for Canadians that really want someone else to manage their finances manage their account but to do it very responsibly and allow them to

keep much more of their money up to at least you know within 30 more absolutely yeah i think that is you know definitely the argument there is you know well you're paying higher fees because you're getting someone to actively manage it they're taking care of you they also offer you know financial planning services and and all that kind of stuff what is your kind of rebuttal to that? Like, personally, I am more of a fan of, I mean, obviously I have a person, you know, I love personal finance. I love educating myself and trying to do it myself. But what about, you know, lots of people do kind of like having someone else like take the blame or be responsible for kind of their investments.

And so that's why I think lots of people are afraid to kind of maybe go the DIY route because they like the idea of someone else kind of they're protecting or looking after having the best interest for their investments. So that's great. And at Questrade, you can have the best of both worlds. If you'd like to keep something in a product where you want to take care of that yourself,

as you say, DIY, in your self-world and place your own trades and be responsible for your own investing, that capability is available. We also have the capability to manage your investments completely and to do that actively because the way that we do that is we invest into mutual funds, not mutual funds, in ETFs. Rather than mutual funds, we invest into ETFs. ETFs is what we would call the new mutual fund today. Yeah, they're definitely more popular, aren't they?

A much lower version, exactly. A much lower version provides you can invest into different industries, into different sectors at a much lower cost because we are doing that and we're doing that and we're balancing that automatically in our clients' accounts, depending on the level of risk tolerance that they're looking for. So what they would do is they would go online, answer a series of questions that would determine what their risk tolerance is and their time horizon. And based on their answers to those questions, we would determine what is the best portfolio of ETFs to put them in. And then we manage that portfolio actively based on our view of the market, where things

are going. So we're taking some responsibility for that, for sure. Yeah. So that sounds very similar to a typical robo-advisor, would you say? Or what would be the difference between that? And you're talking about Portfolio IQ? Is that what you're talking about? So the managed service is called Portfolio IQ.

Right. And Portfolio IQ, you're quite right. It's very similar to the robo-advisory services that are out there. Personally, I'm not a big fan of the robo term because... No one likes it. No one likes that term. We have real people that are doing the work. Well, yeah, I think that, yeah, the difference is,

and I think that's where the confusion lies, is robo advisor is a term that us Canadians use and then Americans use, but they're very different depending on, you know, if you're in the States or if you're in Canada. That's right. That's right. We have real people that are doing the work that are, and available.

All you need to do is put up the phone or chat with us and, and we have people available to talk to talk to Canadians. So since, you know, kind of robo advisors are becoming way more popular in Canada, especially over the past couple years, and it looks like you have, you know, kind of your kind of answer to that. What would differentiate, you know, Portfolio IQ with Questrade with some of the other kind of robo-advisors out there like Wealthsimple or JustWealth or whatever? Well, for one, we are actively managing the portfolios. The other ones, from what I know, are actually putting them into passive indices. And certainly it's a lower cost alternative than the mutual fund. Canadians need to ask, what kind of returns is it that they're getting from their service? Just as they would hold their advisor responsible,

so should they hold the robo-advisory service responsible for the returns that are there. And so we post our returns on our website. And we typically, over time horizon, we beat the benchmarks. We're ahead of the benchmarks on most of the, I think all the different portfolios over time. So I would recommend that Canadians go and they check that and make sure and ask questions and hold their advisor responsible, whether it be a physical advisor or a role advisor responsible for returns that they get.

No, absolutely. I completely agree. So I'd like to talk a little bit more about who is like the typical kind of DIY investor that you see using Questrade. You know, I feel like kind of like the perception as you have to be a very advanced investor to even kind of go that route. And that's why I think a lot of people, especially my age, you know, will opt for, you know, mutual funds with a financial advisor at a bank or, you know, a typical kind of robo advisor, because it seems a little less intimidating. So for you, like, I think, honestly, and that used to be my old perception, too, is, you know, people that use online brokerages, they're the people that buy stocks and they're just like on their phones all the time and they're day trading and that's a bit of a misnomer certainly

we have very very active traders um but we also have investors that invest for for the longer term they they put their money into uh good quality stocks and then and they wait so we do do run a gamut of different kind of investors. And we have, interesting thing is that we've got different software platforms for each one of those types of investors. So depending on how you like to invest or trade, we have an appropriate platform for you with a different level of sophistication. We have different platforms or the same platform and you can configure a lot of the platforms with a level of sophistication

that you would like they're completely customizable so somebody somebody who would who wants to trade very actively that option is available to them but also someone someone who, say, doesn't want to be as active, doesn't need to be on their phone all the time, wants to place a trade once in a while, that option is available to them as well. And many people can take advantage of the fact that you can have a completely managed service and a do-it-yourself service, two different accounts.

And if you'd like to leave some money in one account and put some money in another account, where in one account you can experiment a little bit with not a lot of money, if you're not, and try and get some confidence in what it is that you're doing. And then the other account can be fully managed completely hands-off. Going back to kind of just being that DIY investor, what do you find are some of the reasons why people choose to go that route? And what are some of the risks involved? I think that's like the big question that lots of people ask. If I go that route, will I lose all my money?

So why do people choose that? People choose that because they love independence. They want to be responsible for their own investment decisions. And really, why would you want to leave something so crucial to somebody else to decide for you how it is that you want to do? Do they really have your best interests at heart? And if the answer is yes, then you need to ask questions about the returns that you're getting.

Are they beating their benchmarks? How much are they charging you for that type of service? The ones that want to do it themselves, really, they want to take their financial future into their own hands. They want to be responsible for their own investments. And frankly, they have an interest in the market, in stocks. Now, you don't have to necessarily trade, but you can invest very passively if that's what you choose to do. But again, there's those that feel more comfortable having someone else do it. And we have an answer to that. And we think that

with our Portfolio IQ product, they'll retire at least 30% healthier. Yeah, absolutely. So I bet you have a ton of data from all your customer base. What do you find are some of the trends that you're seeing some of the DIY investors are doing you know we talked a little bit about how ETFs are you know becoming a lot more popular and I'm seeing that too but what do you see that lots of your kind of customers are doing are lots of them kind of going just you know they are kind of focused on stock is it just kind of you know know, a variety? Well, Equestria, we have a free to buy ETF service. So all the ETFs listed on North American exchanges are completely free to purchase.

Okay. And we have seen a tremendous, tremendous lift in terms of interest in ETFs over the years. So people are looking at different kinds of ETFs and really trading more and more in the ETF space, for sure, and investing there. That's interesting. And we kind of talked a little bit about how Questrade is an answer to invest with lower fees, but obviously Questrade also has fees. Do you want to kind of talk to what kind of fees people can expect if they wanted to use that kind of platform? There's different kind of fees. We have fees in terms of certainly there's commissions, but all of these things are available on our website. The fees range anywhere from $0.01 a share to $9.95. Depending on how a client would like to route their trades,

there could be what we call electronic communication network fees involved. If clients trade on margin, they're borrowing money from us, so there could be margin interest. So all these of fees are disclosed uh certainly on our website and i would recommend people to go to question.com to look at that in much more detail absolutely um and you know say you know you know i do find that lots more people especially my age are you know getting a bit more interested in doing DIY investing. They want to kind of give it a chance. They want to do something different than, say, their parents did who just invested in mutual funds for their retirement. What would you say

would be a good avenue to go or good resources to check out in order to kind of start that education? I think that's always kind of the hardest thing. People are really, they don't know where to start to educate themselves. They don't want to make a mistake. They want to use, you know, a brokerage and do DIY investing the right way. So what would you suggest would be kind of a good route? Like, for instance, like how did you kind of, like you started watching, you know, TV to kind of, you know, start your education. What would you suggest for others? There's so many good resources available on the internet. Yeah.

Sometimes too much. Your show is a good start. But we do have on our website and certainly on our YouTube channel, there's a lot of good videos that we show about how to place different kinds of trades, what kind of strategies are available. Option strategies are also very interesting to many people. How to use those option strategies properly. There are many, many good websites available on the Internet. And the more reading that you do, I think the better.

And just start following companies and generally the financial news is a very good start. Yeah. Just putting that into your kind of daily routine and knowing what's going on with the markets. That's for sure. So kind of to wrap up, what do you kind of foresee for Questrade? You've been around since 1999. We're in 2017 now. What do you foresee for say the next you know 5 10 20 years in terms of question in terms of and in terms of the business like do you do you kind of already have a game plan for how it's going to continue to continue to evolve based on what you've seen other kind of fintech companies do so i i think the business in general is going to evolve as the technology improves if there's a business that deserves to

be digital, it is the financial services business. Financial services has always been, through millennia, a very physical type of business. And now with the technology available to move that into the digital age and to really provide a better platform and a better experience for clients to make it much more seamless and a better experience for clients to make it much more seamless and smoother, and not to mention have them keep more of their money, make it much smarter. There's a lot of places where, you know, even with artificial intelligence, with the evolution of that, with that being applied to financial planning

or taxes, things like this are going to evolve. And Questrade is certainly going to keep taking advantage of that and pushing the envelope in terms of applying technology to make Canadians' financial lives much more easier and more secure. Absolutely. Well, thank you so much, Edward, for taking the time to chat with me. I appreciate your insight and hopefully this will kind of be some motivation for some people to not be so afraid to kind of take the leap

and educate themselves more about investing and specifically do-it-yourself investing. Thank you, Jessica. I really appreciate it. And that was episode 122 with Edward Kolodenko, CEO and founder of Questrade. If you want to learn more about everything we talked about, more about Questrade, Edward, DIY investing, you better check out the

show notes for this episode. You can check them out at jessicamoorehouse.com slash 122. And before I get to a few other things, here are a few words about this episode's sponsor. A big thank you to Credit Card Genius for supporting the Mo Money podcast. If you're not aware, they are the only tool that compares over 50 features of 150 Canadian credit cards by using math-based ratings and rankings that respond to your needs instantly. Now you can get rewarded faster without all the headache. If you want to find the best credit card for you, make sure to check out creditcardgenius.ca to learn more. Once again, visit creditcardgenius.ca to learn more. So thank you again for listening to

this episode. And just a friendly reminder that I am running a contest right now that you may want to check out. Again, some details about how to enter the contest are in the show notes, jessicamorehouse.com slash 122. But basically, I'm giving away $25 Amazon gift cards. And all you really have to is give me a review on iTunes. Let me know what you think about the show. Of course, visit the show notes for details on how to actually enter. I need your contact details and I need a screenshot of your review so I know who you are and what you said. And I will be drawing winners every single month throughout the season. So make sure to check out the show notes for more details and I hope you enter.

Okay. Well, thank you again, again, again for listening. I will see you back here next Wednesday with a fresh new episode of the Mo Money Podcast. This podcast is distributed by the women in media podcast network find out more at women in media.network