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A Contributed Column by Gomez Analyst Shalin Patel
A Contributed Column by Gomez Analyst Shalin Patel
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Industry Voice: Introducing & Setting Active Investors' Expectations

So-called "day traders" are still responsible for a potent percentage of trading activity. And brokerage firms are spending feverishly to attract and retain them.

The 80-20 rule is alive and well. Although the number of extremely active investors has spiraled downward, so-called "day traders" are still responsible for a potent percentage of trading activity. And brokerage firms are spending feverishly to attract and retain them.

To appeal to this lucrative segment, firms are introducing advanced trading functionality active traders have come to expect -- some via browser-based platforms and others via proprietary software that sits on the trader's PC.

These services differ by information-delivery speed (software-based environments are usually faster if high-speed Internet connections are used) and sophisticated analytics (software-based platforms usually have the edge), among other features.

But before we delve more deeply into the distinctions, it is important to explore industry best practices for setting active investors' expectations. Below are a few strategies uncovered during research we conducted for our latest report, How to Target and Attract Active Traders:

--Make descriptions succinct and accessible. MyTrack, a software-based trading system, provides prospects with a clear, concise and bulleted list of services directly on the homepage. Prospects are thus not required to sift through numerous pages of information to find basic site amenities, such as service features, functionality and commission schedules. This also helps set expectations up-front concerning what the firm has to offer.

Larger brokerage firms, such as Schwab, E*Trade, Fidelity, and Ameritrade, provide a range of products and services catering to various investor segments, making it difficult to provide targeted information that meets the needs of each investor type. Schwab is one of the few diversified firms, however, that nicely promotes its active trader services directly on its homepage. The firm also neatly explains the service's benefits one click off the homepage.

On the other hand, while Ameritrade offers information on Ameritrade Advantage services on its homepage, the firm makes it tough to find information on its highly active trader software, Ameritradepro, at Ameritrade.com; prospects must search the "What's New" section in the Service tab or know the URL of the active trader software site, Ameritradepro.com, to find it.

--Make the most of interactive demos. Interactive demos and free trial memberships help prospects understand site layout, services and functionality. However, many firms fail to realize the importance of using these functions to properly set active trader expectations.

In fact, a common shortcoming of smaller firms is their lack of an up-front interactive demo. Instead, firms such as MyTrack provide prospects with a simulator. This requires prospects to enter their personal information in an application form and download the software to get a glimpse of available services.

Firms such as E*Trade and Schwab provide interactive demos, but fail to provide free trial memberships, which would give prospects multiple methods of evaluating their active trader offerings. Notable exceptions include Ameritrade, Tradescape, and CyberTrader (Schwab's direct-access offering).

--Display minimum requirements. Active trading firms further set expectations by displaying the minimum requirements up-front. By doing so, less serious prospects will not waste their time or the firm's resources by applying for an account or scouring information at a service where they do not pass muster.

Most of the firms we analyzed properly present minimum requirements data on the homepage or before customers begin the application process. For example, Ameritradepro provides a detailed fee schedule with the minimum requirement to open an account, as well as the per-trade fee schedule. RJT, the broker-dealer direct access trading firm recently purchased by TD Waterhouse, also displays minimum requirements prominently on its Web site.

Schwab, on the other hand, hides its minimum requirements at the bottom of the page in small font, making it difficult to read. Prospects will most likely pick up the phone to obtain this information.

Active online traders are interested in using software or browser-based tools to gain an advantage when trying to beat the market. Offering sophisticated functionality within an active trader platform is important, but getting prospective clients to effectively use the tools requires properly setting expectations up-front.

Providing clear and concise product information, an intuitive demo and clearly elucidated minimum requirements goes a long way. In fact, appropriate expectation setting and effective messaging should be a top priority in today's difficult market environment. Accomplishing these not-so-trivial tasks will help active firms more effectively convert prospects into clients. Interestingly enough, this shouldn't require advanced technology or a heavy marketing investment. It is basic blocking and tackling.

The next column in this series will focus on the differences between software- and browser-based platforms -- a topic we further dissect in How to Target and Attract Active Traders.

Shalin Patel is an analyst who follows online brokerage and insurance services at Gomez, Inc., a Waltham, MA Internet quality market research and consulting firm. Patel can be reached at [email protected]

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