The Race for Self-Directed Investors: Developments in Online Trading Among Brokers and Banks

by Alexander Camargo,  Isabella Fonseca, March 25, 2013
Industry Trends
North America


Despite unpredictable and challenging economic conditions over the past several years, the self-directed market showed moderate growth of 5% in 2012. Much of this growth is due to an increasing number of active traders.

The first of several reports on the online brokerage industry, The Race for Self-Directed Investors identifies major trends and developments for trading activity, product preferences, and brokerage technology. Celent also explores the growth of online trading among the bank brokerage market segment.

The self-directed brokerage market continues to evolve as investors increasingly opt for greater control over their investments.

“The self-directed market never stays still. There have been a number of changes over the past 18 months. Some of these developments, such as the increasing number of women in the market and the gradual rebalancing away from traditional investors and toward active investors and traders, are continuations of existing trends,” says Alexander Camargo, Analyst with Celent’s Securities & Investments Group and coauthor of the report. “Other trends, however, are more disruptive. Mobility and social media have come of age and are legitimate channels among online brokers. HTML5 and more advanced cloud-based trading platforms are just beginning to have an impact.”

As banks focus on integrating channels and capturing more of their existing clients’ assets, online brokerage has become an attractive opportunity.

“As bank brokers continue to restructure their wealth management businesses to complement more nuanced segmentation and service models, online trading becomes a pillar of these strategies,” says Isabella Fonseca, Research Director and coauthor of the report. “These banks can leverage existing infrastructure and business lines to build a ‘hybrid’ service model. This model will likely include online trading, plus in-branch representatives and call center PINs for investors seeking simple guidance. Such services are vital for existing retail banking clients, who want a self-directed account, but the luxury of low-cost advice.”    

This report begins with a segmentation of the self-directed investor market and a taxonomy of US online brokerage firms by client segmentation. The study provides an understanding of retail investor preferences and a breakdown of customer groups with details on investment objectives and trading strategies. Celent also provides an estimate of the current and future self-directed investor population. The report presents a look at common order types and functionalities supported at online brokerage firms and online trading functionalities supported at clearing firms.

Celent provides a look at emerging technologies such as use of the cloud, mobility, and social media, and follows with a breakdown of build vs. buy decisions for both stand-alone online brokers and bank broker-dealers. The study examines the bank brokerage market, looking specifically at drivers, technology, challenges, and opportunities as they relate to online trading.

The report concludes with a look at the future of the online brokerage industry, the growth of the various retail investor categories, and what online brokerages can do to differentiate in the marketplace.

This 34-page report contains five figures and 12 tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary


The Online Brokerage Industry



Definitions and Segmentation



Developments and Trends





Client Segmentation



Product Preferences and Trading Behaviors






Sizing the Market


Tools Changing Online Brokerage Technology



The State of Trading Platforms









Social Media/Community


Build of Buy Selection



“Stand-Alone” Online Brokerages



Bank Broker-Dealers and Full Service Brokers Offering Online Trading


The Bank Brokerage Market






Common Technology and Asset Class Support



Strategic Challenges



Technology and Functionality Gaps



Advantages and Opportunities


Looking Ahead


About This Report


Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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