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Joe Stensland, Scivantage
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Emergence of the Cross-Channel Brokerage

Self-service expectations are increasingly becoming the norm for financial services and brokerage, just as it has in banking.

Joe Stensland
Joe Stensland

Over the past few years, the brokerage industry landscape has changed dramatically with the unprecedented consolidation of some of the largest wealth management franchises, the emergence of new independent brokerage firms, increased regulatory scrutiny and the explosion of online technologies. These industry changes have added more challenges for financial institutions in retaining their clients and maintaining profitability levels.

Aite Group points out in a research report titled "New Realities in Wealth Management: Has the Dust Settled?" that pure-play online brokerage firms have captured more than 1 in 6 retail investment dollars since the global financial crisis, while traditional and full service brokerages have struggled to retain assets. With the greater acceptance of active investing through popular advertising and marketing campaigns from firms such as Charles Schwab, E*Trade and Fidelity, market players are experiencing a "chasing the E*Trade baby" phenomenon when it comes to technology they provide to retail investors. By 2012, the active investor market will reach 16 million investors, making up 40% of the growing self-directed market, according to a recent Celent research report.

Fueled by the rapid growth of mobile technology and the ubiquitous nature of doing business online - from paying bills to ordering takeout, investors' demands have never been higher for more control over managing their money. Self-service expectations are increasingly becoming the norm for financial services and brokerage, just as it has in banking.

The emergence of the new self-directed market, combined with the demands of an increasingly educated and technologically savvy investor, is driving a new cross-channel service model and as a result, two historically segmented markets - online brokerage and full-service advisory firms - are on a rapid path to convergence.

Crucial Turning Point

With just the right market conditions, investors have begun to increase their expectations of firms and advisors. Through a combination of several factors, such as market volatility that led to poor performance over the last several years); access to convenient, fun and user-friendly technologies like smartphones and tablets; and an increased knowledge of market activity through engagement with news and media, we have reached a culmination of events for a new generation cross-channel brokerage.

Twenty-first century consumers are notorious for a desire to consolidate their relationships and simplify tasks in order to meet a broader set of personal goals and demands. Financial relationships are no exception to this one-stop-shop mentality. The explosion of Internet use alone has challenged traditional relationships, leading to the decrease in physical bank branches as a result of online account access or the change in the role of customer service that has evolved to an online chat or email exchange.

To date, full-service firms have responded by providing complete advisor access combined with an online site for limited self-service. Alternatively, online brokerages are ramping up their advice product offerings to extend the attractiveness of their overall value proposition.

Natural Evolution

Over the last several years, investors have become more sophisticated by opting to trade more complex asset classes outside of equities, such as options, bonds, foreign exchange and commodities. In light of the convergence of the institutional and active investor profile, it is no surprise that the online brokerage and the full-service firm would pick-up similar characteristics to fulfill investors' need for a one-stop shop. With the active investor seeking more online services to meet a demand for increased transparency and control and technology as the No. 1 enabler, the emergence of the new self-directed market has created a convergent path for full-service firms and online brokerages.

As a part of this evolution, investors are requesting features such as mobile and online trading and transactional functionality, background information and more robust content. To fulfill this need, full-service firms are looking for technology that will enable them to offer functionality that was traditionally marketed through the online brokerage channel, but now available through a partial self-service model. Firms that customarily have not allowed direct investor trading are getting their feet wet by providing online account services, which allow clients to access statements and ultimately play a bigger role in their account maintenance.

On the other hand, online brokerages are beginning to provide services that investors used to get from their advisors, while still offering tools that they can use themselves.

Closing the Generational Gap

The wider adoption of the active investor mentality is fueled by a combination of available consumer gadgets such as easy-to-use smartphones and tablets, as well as the educational tools accessible to any willing investor. Though increasingly sophisticated, these investors are still seeking advisor assistance in the form of consultation and execution. These factors combined make sense for a younger, technology savvy audience, but it is actually the pre-baby boomer generation that has really embraced this model. We have seen an increasing trend toward senior investors moving from RIAs to partially self-directed accounts and this cross-generational acceptance is just another leading indicator of the natural evolution and longer-term impact.

Providing mobile access for end-users is another differentiator that not all firms and brokerages have, but that many have started to explore. Online brokerages in particular need to distinguish themselves in this way and have a head start in the market by already offering this multi-channel service to meet demand from a new generation investor and to grow revenue.

The Post-Convergence Landscape

In an age where the consumer is king, online brokerages and full-service firms are slowly adjusting to capture the market share of the sophisticated active investor and the walls that for so long separated these segments are now being torn down. Historically segmented, the roles of the fully advised and self-directed investor are blurring and it will be only a short-time before we see all full-service firms and online brokerages executing a cross-channel offering to retain and grow their client base. However, firms will need to strike a balance between the clients who still want an advisor and those who do not - all brokerages will need to be multi-channel to support a broader need from the active investor.

Though this convergence trend is still developing, it will help firms of any size meet the need of a wider audience. Clients will feel more empowered given direct access and involvement in their account and firms will have a competitive advantage by retaining clients through controlled content and increased touch points. Larger players will be able to come across more nimble by providing internet services on-demand and subsequently smaller players will be able to punch above their weight by providing cross-channel services. With both firm types positioned to emerge on the leader board for the new cross-channel brokerage, it will be interesting to see who ends up on top.

About the Author: As SVP, Managing Director of Wealth Management Solutions, Joe Stensland is responsible for overseeing the product and market strategy for Scivantage. Joe brings to Scivantage a proven track record in successfully launching, growing and managing technology products in the financial services market.

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