By: Larry MacDonald

Bear markets have often been times when investors swear off stocks. But this time around, online discount brokerages are reporting sizable jumps in clientele during one of the steepest sell-offs in decades. Scotiabank’s discount broker, for example, racked up 60% growth in accounts over the past year. Other major online brokerages were not far behind.

Some observers have speculated that this trend represents a shift to do-it-yourself investing. Disenchanted with the losses they were incurring, investors are “firing” their advisors and venturing out on their own. Or they are dumping mutual funds with their high fees for exchange-traded funds and stocks. But a survey of 65,000 investors earlier this year by J.D. Power & Associates (for its Full Service Investor study to be released June 24) found a different explanation.

In a mini-whitepaper released today, J.D. Power says the trend is driven more by the desire of investors to diversify over investment channels. That is, investors at full-service brokers are increasingly opening up accounts with online discount brokers: in last year’s survey, 25% of full-service investors reported using an online brokerage firm whereas in this years’ survey, the percentage using an online brokerage had jumped to 36%.

Why so? The mini-paper postulates that the bear market has spawned a new frugality, “a situation in which an investor might call their advisor to get recommendations on portfolio mix and stock selection, but then turn around and place their order online for $9 or $7 per trade rather than spending $250—or 2% of total transaction value—by trading through an advisor.” In a bull market, investors might not mind full-service commissions but when they are losing money, that extra trading charge could become painful enough motivate opening up an account with an online broker.

Below follows an interesting chart from the mini-white paper: “Investment Advisory Services Used By Investors in Canada.” The 41% “None’ category includes investors i) who do not have investable assets other than employer pensions and stock plans or ii) do not use investment advisory firms.

I would have liked to have seen on the chart a separate number for those not using an advisor – i.e. exclusively a discount online broker. But elsewhere in the document, it says the percentage who fall into this category (if I understand right) is 16% — which the document says was still on the low side (I guess they mean in relation to other countries).