The Questrade Business Model – How Does Questrade Make Money?

Executive Summary:

Questrade is a FinTech company that provides online brokerage and wealth management products primarily to Canadian customers.

Questrade makes money from trading fees, subscriptions, management fees for its managed portfolios, and administrative fees.

What Is Questrade?

Questrade is a FinTech company that provides online brokerage and wealth management products primarily to Canadian customers.

Users can either invest by themselves or take advantage of Questrade’s robo advisor that builds a portfolio on behalf of the account owner.

Traders can purchase and sell a variety of financial assets, including company shares, exchange-traded funds (ETFs), currencies, mutual funds, and more.

Additionally, Questrade provides traders with a variety of tools, including watchlists, alerts, investment reports, and dozens more, to aid them in their decision-making.

For anyone wanting to invest more passively, Questrade also provides managed portfolios in which it invests on the client’s behalf.

All of the above-mentioned products are made available via a number of different accounts, namely tax-free savings accounts (TFSA), registered retirement savings plans (RRSP), registered education savings plans (RESP), or accounts where users can trade on margin.

These accounts are all insured for up to $10 million. Apart from those trading accounts, Questrade also provides users with dozens of training materials to allow them to make more educated financial decisions.

Questrade itself can be accessed by visiting the company’s website or by downloading its mobile app (available for Android and iOS devices).

A Short History Of Questrade

Questrade, which is headquartered in Toronto, Canada, was founded in 1999 by Edward Kholodenko and three unnamed business partners.

After having earned a degree in Geography from the University of Western Ontario, Kholodenko decided to move to Ukraine in 1991.

The Soviet Union had just collapsed and Kholodenko figured, who is of Ukrainian descent and moved to Canada at the age of five, that this would provide him with a unique opportunity to start a business – which is exactly what he did.

He ended up launching a textile distribution company that would primarily deal with other Western companies but take advantage of the cheap labor cost.

However, he eventually grew tired of running the business after having to deal with rampant corruption as well as a deflating currency.

After more than eight years in Ukraine, he decided to pack his bags and return to Canada, taking both his wife (who now works for Questrade) and child with him.

At the time, trading just came online and quickly managed to take North America by storm. Companies like E*Trade were able to onboard millions of customers as a result of that trend.

To capitalize on that trend, Kholodenko and his three business partners set the business up in 1999, at the absolute height of the dot-com bubble.

They then purchased a high-speed internet line and created an online trading floor in the tiny office that they rented in Toronto.

Prospective customers had to then conduct their trading activities within the brokerage’s offices because high-speed internet, which was required for trading back then, was still too expensive for most Canadian households.

Unfortunately, not long after, the firm had to go through two major crises. First, the tech bubble burst in March 2000. Then, the terrorist attacks on September 11 happened, which both caused markets and trading activity to crater.

As a result, the founding team was forced to raise their first round of funding to keep the company afloat. In early 2002, it raised an undisclosed sum from BEST Funds.

During the coming years, the team continued to bootstrap the company and even navigated it through challenging times like the 2008 financial crisis. In 2012, the company had to face another crisis after its clearing partner declared bankruptcy, which forced the company to do the clearing itself.

Despite the setback and other problems, such as suffering hefty DDoS attacks for multiple days in June 2017, Questrade continued to thrive. By the beginning of 2018, the company had close to $8 billion in assets under management (AUM).

In November 2018, the company received a $2.9 million fine after it settled with Canadian authorities over its sale of eight ETFs to WisdomTree Asset Management. The regulator alleged that Questrade failed to mention a possible conflict of interest after selling the mentioned ETFs in July 2017.

Better times would soon come, though. In 2020, interest in investing literally exploded as a result of the coronavirus pandemic. Stimulus checks and an increased amount of time certainly accelerated that trend. Trading platforms like Robinhood or Wealthsimple were able to exponentially increase their user base.

Questrade was certainly no exception. The company was able to grow its AUM from $8 billion at the start of the pandemic to over $25 billion by the end of 2021. The continuous growth even enabled it to pour millions into TV ads during which it took shots at other industry giants such as the Royal Bank of Canada.

Today, over 1,200 people are employed by Questrade which operates multiple offices in countries such as Armenia, Brazil, and Canada.

How Does Questrade Make Money?

Questrade makes money from trading fees, subscriptions, management fees for its managed portfolios, and administrative fees.

Let’s take a closer look at each of its revenue streams in the section below.

Trading Fees

The bulk of the revenue that Questrade generates comes from charging fees for executing trades on the platform.  

As previously noted, users can buy and sell a variety of financial assets, including stocks, ETFs, options, currencies, and more.

Selling or purchasing a share, for example, costs anywhere between $4.95 and a max of $9.95, depending on the number of shares traded.

For currency conversions, the company charges around 175 basis points, which is equal to about 1.45 percent per trade.

Unlike its U.S.-based counterparts, Questrade has to charge users a fee because the practice of payment for order flow, which online brokers like Robinhood or Webull utilize, is banned in Canada.

As a result, every trade that is executed on the platform incurs a fee. A detailed overview of those fees can be found here.

Management Fees

While the transaction fees are part of its trading accounts, Questrade also imposes fees on its managed accounts.

The pricing is pretty straightforward. For accounts with balances below $100,000, it charges a monthly fee of 0.25 percent. Anything above incurs a fee of 0.2 percent.

Those fees are in line with similar robo-advisor services such as Betterment or Wealthfront. Fees can be lowered by linking accounts from family members or by deducting them from one’s tax bill.

Subscriptions

Another source of income for Questrade is the various subscription fees it charges for enhancing its trading tools.

More precisely, traders pay a monthly fee to get access to market-level data from stock exchanges based in America and Canada, including the NYSE, NASDAQ, TSX, and many more.

These fees range from CAD$19.95 to CAD$89.95, depending on the type of data package a trader chose.

Consequently, the higher the fee, the greater the number and depth of data that is being granted. Alternatively, users can also purchase individual packages if they seek to monitor a single exchange or indices.

A detailed overview of the subscription fees can be found here.

Administrative Fees

Lastly, Questrade also imposes a variety of administrative fees to keep user accounts up to par with existing laws and regulations or transfer funds.

For example, Questrade charges users between $25 to $100 to de-register accounts such as the previously-mentioned RRSP or RESP.

Furthermore, users also have to pay for a variety of transfers. For instance, a wire transfer denoted in USD costs $30.

Lastly, Questrade also imposes fees on various verification procedures such as $20 for retrieving a document or $35 to deliver something via a special courier in Canada.

A detailed overview of its administrative fees can be found here.

Who Owns Questrade?

Questrade, in all likeliness, is still majority-owned by its co-founder and long-time chief executive Edward Kholodenko.

To this date, Questrade has only done one round of equity funding throughout its existence. In 2002, it raised an undisclosed round from BEST Funds according to Pitchbook.

Other than that, Questrade has raised three more rounds of debt funding in 2013, 2015, and 2019, respectively.

Normally, debt is not exchanged for equity and it can thus be assumed that Kholodenko retains a large share in the company.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.