Referencing research on online trading platforms and investor trading behavior, the report, commissioned by Scivantage, offers implementation strategies for the best-practice development and enhancement of a self-directed trading platform
Scivantage®, an independent financial technology provider with proven expertise in online brokerage, tax and portfolio reporting and wealth management applications; Aite Group, a leading independent research and advisory firm focused on business, technology and regulatory issues and their impact on the financial services industry, and Riperian, an advisory and consulting firm focused on online brokerage strategy and implementation, announced today a new report titled, “Extend your Wealth Management Business with Online Brokerage.” The research, commissioned by Scivantage, focuses on the latest trends and new technologies driving dramatic change in the online brokerage model, particularly for banks looking to capture a greater share of their clients’ investment assets.
Based on Aite Group’s survey of more than 1,000 U.S. investors who hold a minimum of US$25,000 in investable assets and have access to online trading capabilities, as well as responses from a second survey of 400 U.S. financial advisors, the report leverages Riperian’s online brokerage consulting and implementation methodologies to deliver a tactical framework for a self-directed online brokerage platform that delivers the best client experience.
“Banks and brokerage firms that do not offer a self-directed trading platform are leaving money on the table and exposing themselves to the risk of seeing their client assets depleted as baby boomer clients draw down on assets to fund their retirement and younger clients prefer to invest or bank with a firm that offers online brokerage capabilities,” said Sophie Schmitt, Aite Group Senior Analyst, Wealth Management. “Not only will those financial institutions gain direct revenues from this new service, but they will also benefit from increased revenue in their traditional business as more clients come to view their financial institution as their primary financial services provider.”
“Most bank brokerage firms do not yet support an independent self-directed channel,” said Jim Goodwin, President, Riperian. “At best, customers can receive access to basic online capabilities through the clearing firm's client portal, but few advisors promote this capability. Banks and brokerages that do not address their clients' self-directed investing needs are missing opportunities to deepen these relationships and capture a larger share of assets and revenue.”
The report includes business planning requirements around calculating the revenue opportunity of a self-directed online brokerage platform, and presents financial institutions with a framework for developing a platform that provides a seamless client experience. Additional highlights from the report include:
- As investors bring more investments to their bank, their perception of the bank as a primary investment provider grows; from 8% of baby boomers without investments (outside of 401K assets) at their main bank to one-third of baby boomers who hold at least half of their investments at their main bank
- Gen X and Y investors are more likely than baby boomers and silent generation investors to see banks as a primary investment provider; three-quarters of Gen X and Y investors who indicate that all of their non-401K plan investments are held with their main bank see the bank as a primary investment provider
- Close to 70% of Gen Y investors indicate that they trade online frequently while just over 30% of baby boomer investors say the same
- All groups stated either paying no or low banking fees, as well as having to pay the lowest trade commissions, were the two features/functions that influenced their online trading platform selection decisions
The report also identified building an account opening process as an essential component of a self-directed investment platform. Firms that still require clients to open an online brokerage account through a call center or at a branch indicate that they are not able to fully support their clients' self-directed needs. This gap in online capabilities can limit account opening volumes and will require additional staff to handle paper-based account opening.
“With increased competition from traditional and online brokerage firms, banks are being challenged to retain and grow their client relationships,” said Chris Psaltos, Vice President, Product Management, Scivantage. “The self-directed investment channel is an important, and often overlooked, component of a profitable bank brokerage business strategy. Banks that are able to execute on the promise of a unified investment experience will benefit as next generation assets continue to be an important element of long-term growth.”
Editors’ notes: For the purpose of this study “Gen Y” are those investors between the ages of 21 and 31; “Gen X” are those investors between the ages of 32 and 46; “Baby Boomers” are those investors between the ages of 47 and 65, and the “Silent Generation” are those investors over the age of 65.