Retail Brokerage Trends & Strategies

March 5, 2003

Abstract

San Francisco, CA, USA March 5, 2003

US Retail Brokerage Tactics & Strategies: The Road to Redemption

Individual investors have sidelined at least US$500 billion, making the time ripe for retail brokerage firms to reposition themselves for the market痴 eventual rebound.

Under the current cloud of economic uncertainty and scandal, the one thing that is certain is change for the U.S. retail brokerage industry. Regaining investor confidence and cleaning house庸rom cost-cutting to breaking the ties that create conflicts of interest預re paramount but they will take time to achieve. In a new report, US Retail Brokerage Tactics and Strategies: The Road to Redemption, Celent examines the forces for short- and long-term change.

Redemption requires a new value proposition founded on transparency and objectivity. It also could involve some currently heretical ideas: all-in cost transparency and individual portfolio performance tracking. It could also involve some less controversial ones, such as expansion into banking, migration of low/unprofitable customers to remote channels, and loosening of broker-client ties to the firm痴 advantage.

The Changing Face of Retail Brokerage -- 1980s - 2000s

"Even though the road to redemption will be long and pitted with challenges, the race is already making the previously unthinkable happen. For example, Charles Schwab has begun to offer advice directly, Merrill Lynch has pushed itself into the top ten U.S. banks in terms of deposits, and several firms are considering tying the compensation of research analysts to the accuracy of their forecasts," said Alenka Grealish, manager of the banking group at Celent and author of the report.

A is available online.The report includes profiles of strategies being pursued by Citigroup (Salomon Smith Barney), Charles Schwab, and Ameritrade.

Factors 1980s -  Early 1990s 2000s
Pricing Transparency Limited to disclosure documents (no all-in cost provided in statements) Line-item disclosure of fees and commissions paid (e.g., part of 1099)
Performance Transparency Individual portfolio performance is not benchmarked Rise of benchmarking beginning with SMAs

Improved technology that allows for sophisticated performance tracking and benchmarking

Broker's Role Salesperson who usually offers advice on making relatively significant position changes

Close ties to the customer

Advisor expected to understand a client痴 entire financial picture and to develop long-term goals

Increasing presence of client teams

Broker-client ties loosened by increase in fee-based sales and team work

Level of Customization Function of time spent with and by broker

Limited by its predominantly manual nature

Less time-consuming for brokers thanks to automated, yet customizable analytical applications

Available to mass market through self-service financial analysis tools (e.g., asset allocation and portfolio re-balancing)

Level of Customer Service Limited by demands on the broker痴 time, which in turn has been consumed by administrative tasks Improved thanks to productivity-enhancing brokerage applications
Source: Celent Communications

of Celent Communications' Retail Securities and Investments research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.

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 subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

 

San Francisco, CA, USA March 5, 2003

Retail Brokerage Tactics  & Strategies 

Return to report Abstract

 

EXECUTIVE SUMMARY 3
PERFORMANCE BLACK SHEEP 5
  Eclipsed By Private Banking and Asset Management 5
  Disparate Performance Among Players 6
  Quest for the Golden Fee-Leece 7
AMERICANS SIDELINE THEIR MONEY 12
  Flight to Security: Bank Deposits 13
  Steady Rise of Mutual Funds and Fall of Stocks 15
CONVERGENCE BATTLE: BROKERS VS. BANKERS 17
  Multi-Product Strategy 17
  Multi-Channel Strategy 18
  Credible Threat to Banks 20
CITIGROUP: DEFYING PERFORMANCE GRAVITY 23
  Cultivating Top-Gun Brokers 23
  From Products to Relationships 24
  Costs: Running a Tight Ship 25
CHARLES SCHWAB: SPEARHEADING AN INNOVATIVE MODEL 27
  A History of Innovation 27
  Not Simply Everything to Everybody 28
  Natural Progression to Advice 29
AMERITRADE: DEDICATING ITSELF TO THE SELF-DIRECTED 31
  Building Scale and Cost Discipline 32
  Putting the Customer First 33
CONCLUSION: THE END OF RETAIL BROKERAGE AS WE KNOW IT 36

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