The retail brokerage industry continues to be battered by a complex and confusing series of challenges according to new research from consulting firm TowerGroup
TowerGroup says a collapse in pricing structures, reduced return on IT investments, shaken value propositions and an ongoing crisis in consumer confidence will change the way firms conduct their day-to-day business.
“Firms must make tough decisions as to where to deploy their IT dollars, as well as what strategies and what customers to pursue. They must re-invent themselves in a world where products are commodities and service is the new differentiator.” says Dennis Ceru, director of the Retail Brokerage & Investing practice at TowerGroup and author of the research.
The report identifies seven top business and technology drivers fueling this broad transformation:
- consumer confidence;
- rising compliance costs;
- the resurgence of online trading;
- technology for advisors;
- the impending wealth transfer;
- redefining value and core competency; and
- the need for financial planning.
The report says that consumer confidence remains a critical challenge for the retail brokerage industry. “Retail brokers must do a better job of responding with a shift in strategy that places renewed emphasis on maintaining customer relationships rather than selling proprietary products.” It adds that firms will no longer be able to get away with pitching products that serve the needs of the firm, “while not meeting the expanded needs of an educated, wary and regulator-assisted public.”
Ceru emphasized the need for firms to place a new emphasis on customer relationships that combines selling with personal financial consultation to meet clients’ needs. “Financial planning, portfolio allocation and advice tailored to each individual’s risk tolerance and life stage will become the hallmarks of the new full-service orientation, as firms are both pushed and pulled toward the brave new world of the retailing of brokerage,” he said.
In 2004, TowerGroup expects to see renewed vigour in wealth management, but with a shift in perspective. “Firms will begin to take a new view of technology’s role, as they realize that process as much as technology must be transformed to implement a holistic wealth management platform across ‘silos’ both inside and outside an organization,” says the report.
It finds that retail traders who use analysis technologies like advanced filtering techniques or idea-generation software trade 40% more on average. “Since these traders generate more than 80% of online trading revenues, leveraging technology to encourage active retail traders can clearly add to a broker/dealer’s bottom line.”