How Questrade turns its underdog status into a strength

Surrounded by competitive offerings from the big banks, this discount trading platform has had to compete on speed and customer service

 
Canada’s Best Managed Companies
Questrade

(Jenn Roberts)

Launching a business is never easy. There are long hours, sleepless nights, tortuous negotiations with lenders, massive uncertainty to contend with and maybe a near-death experience or two. And that’s if all goes well. In his career as an entrepreneur, Edward Kholodenko faced even more challenges on top of that: government putsches, the fall of communism and financial calamities. “I ended up cutting my management teeth in an environment that wasn’t very structured,” Kholodenko says. But those turbulent formative years contributed to both a level-headedness and a stubborn belief that any business challenge can be overcome.

Today, Kholodenko is the president and CEO of Questrade Inc., which he founded in Toronto in 1999 with three partners. The company is best known for its online trading platform, which allows self-directed investors to buy and sell stocks, currencies and other securities, as well as manage their own portfolios. Questrade’s whole existence is predicated on providing a low-cost alternative to services offered by the country’s dominant banks, instilling the company with an underdog, gatecrashing mentality. To compete with the giants, Questrade maintains an almost fanatical focus on its customers. In an interview, Kholodenko finds a way to turn just about any question back to the needs of Questrade’s clients. It’s a reflex that speaks to more than a desire for good press. Every aspect of the business—its products and services, the focus it places on technological advancement, and even its emphasis on internal teamwork—are all done to help the client. “We don’t have 15 layers between us and the customer,” says Stephen Graham, the company’s chief operating officer. “We force ourselves to always see everything through the customer’s lens.”

To mount a challenge against Canada’s banks requires a certain intestinal fortitude, so it helps that Kholodenko’s formative entrepreneurial days occurred in eastern Europe as the Soviet Union was falling apart. After earning a degree in geography from the University of Western Ontario, he decamped for Ukraine in 1991. The economy in eastern Europe was slowly liberalizing, and Kholodenko figured he could find success as an entrepreneur thanks to his business education and language skills (his family emigrated from Ukraine when he was five years old).

Kholodenko started a textile distribution company but contended with new governments and currencies as the Soviet Union collapsed along with hyperinflation. After eight years in Ukraine, Kholodenko was married with a child, and decided to return to Canada—just as stock trading was moving online.

Kholodenko was fascinated by the trend (CNBC was one of only two English-language channels he received at his apart in Ukraine). He and his business partners in Canada purchased a high-speed Internet line, essentially setting up an online trading floor in an office. The high-speed connection, which is necessary for trading, was still too expensive for most households, so dedicated clients had to do their buying and selling on computer terminals at the Questrade offices. The company hadn’t been around long before the tech bubble burst and the terrorist attacks on September 11 ground markets to a halt. “I’ve had setbacks before, but this was tough,” Kholodenko says. “We’d really just opened the doors.” What it taught him was that Questrade had to change its business model and diversify its client base in order to grow. Luckily, home Internet use was on the rise, and the company built out an online model, obtaining an exclusive licence for trading software from Charles Schwab.

Since then, the company has grown to oversee roughly $4.5 billion in client assets. Questrade no longer licenses software from Charles Schwab, having realized the importance of owning its technology to allow for greater control over the customer experience. Every product or service Questrade rolls out follows a mantra called the “four Es”: Any new feature has to be easy to use, easy to understand, easy to buy and easy to be serviced. “Everything we do, we do with that in mind,” says Christine Day, Questrade’s chief information officer. An early innovation that proved popular with clients was the Mutual Fund Maximizer; Questrade essentially rebates a portion of most mutual fund trailer fees (which are notoriously high in Canada) to the client. “The banks have very deep pockets and way more resources, but we’re scrappy,” Day says. “We have to find different ways of doing things.”

Sometimes Questrade has no choice but to try something new. A few years ago, the firm that cleared trades for Questrade when markets closed went out of business. The company could either migrate to another clearing house (which it had done in the past) or remake itself to clear its own trades. That way, it wouldn’t have to rely on a third party again. The only problem was that process could take more than a year. Questrade only had three months—otherwise, the company couldn’t offer its trading services and customers would be left in the lurch. “Everybody immediately had a burning platform,” says Day, who handled the transition. She credits this sense of urgency for motivating staff to complete the changeover in just three months in 2013, but also a sense of optimism burgeoning in the organization. At the time, the company was already riding high after a number of proprietary software deployments. “Optimism is something that grows on itself,” Day says. “You kind of start to believe you can do anything.”

For Questrade, the country’s incumbent banks it set out to challenge remain a threat, particularly around retaining talent. Peruse reviews of Questrade on Glassdoor, a site where current and former employees anonymously share their reviews of companies, and the one knock that occasionally surfaces is that salaries and benefits are not quite as robust compared with competitors’, allowing banks to poach talent. “If the banks need a particular type of skill, they have lots of money to throw at it,” Kholodenko says. “We’re still a young company trying to compete with them.”

To retain its workforce, Questrade heavily promotes the firm’s culture. “Do you want to work in a very large organization, where you may not be able to make much of a difference? Or do you want to work at Questrade, where we’re all about making change in the financial services industry?” Kholodenko says. He also insists Questrade is a simply a more enjoyable place to work.

That’s partly by design. As the company grew, it spread out over three different floors in an office complex in north Toronto, and Kholodenko found he was no longer able to recognize every employee. Now each department has a budget for team events—whether it’s zip lining or axe throwing—to build camaraderie outside the office. Questrade also puts a strong focus on agile management, a common practice in technology companies that brings together people from different areas of the company to work in small teams to quickly roll out new features while constantly iterating. Not only does that foster team spirit, but the constant tweaking of features also benefits the client, Kholodenko says.

Questrade is far from the only discount broker in the market these days, and all of the big banks offer low-fee alternatives for investors, too. The company is still holding ground, though. Surviscor, a business analysis firm in Ontario, ranked Questrade the fourth best online discount broker in Canada last year in partnership with MoneySense magazine. (The firm conducts surveys of online brokerages and monitors customer service semi-annually.) Glenn LaCoste, president and CEO of Surviscor, says Questrade has improved the user experience in the past few years so its various websites have a unified feel, and it excels at investor education through the short explainer videos it produces. “It’s awesome to show people why they’re trading the way they are and to help the do-it-yourself investor understand [concepts],” LaCoste says.

Questrade hopes to find similar success in the portfolio management space. Almost two years ago, the company quietly rolled out a new product called Portfolio IQ. It’s a pseudo-robo-advisory service; clients fill out an online questionnaire that helps determine their risk tolerance, but real humans manage portfolios behind the scenes. A new crop of fintech startups are challenging the incumbents with similar low-cost services, and the banks aren’t standing still, either. In January, BMO was the first of the Big Five to launch a so-called robo-adviser.

Although Questrade isn’t divulging many details yet, the plan is to make a bigger play for the portfolio management space. Hiring Graham as COO earlier this year is part of that strategy. He’s a marketing veteran and previously served as CMO at Maple Leaf Foods after its 2008 Listeria crisis. Questrade is in a unique position, he argues: It’s not a slow-moving behemoth, like established financial services companies, but it has been around longer than a startup. “Customers want to deal with an established player,” Graham says. “We have all of the things startups don’t have.” That includes a track record and brand value, which certainly helps when acquiring new customers.

As far as Kholodekno is concerned, as long as the company stays focused on the needs of those customers, Questrade can’t lose. “We always look for pain points for clients or something that doesn’t feel quite right,” he says. “That’s constantly the question on all of our minds.”


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