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

Abstract

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

Media Contacts

North America (Boston)
Tylor Tourville
ttourville@celent.com
Tel.: +1 617 424 3284

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

Executive Summary

1

The Online Brokerage Industry

3

 

Definitions and Segmentation

3

 

Developments and Trends

5

 

Products

7

Client Segmentation

9

 

Product Preferences and Trading Behaviors

9

 

Retirement

10

 

Sizing the Market

11

Tools Changing Online Brokerage Technology

12

 

The State of Trading Platforms

12

 

Cloud

14

 

Mobile

16

 

Social Media/Community

18

Build of Buy Selection

20

 

“Stand-Alone” Online Brokerages

20

 

Bank Broker-Dealers and Full Service Brokers Offering Online Trading

21

The Bank Brokerage Market

22

 

Drivers

22

 

Common Technology and Asset Class Support

23

 

Strategic Challenges

24

 

Technology and Functionality Gaps

24

 

Advantages and Opportunities

25

Looking Ahead

26

About This Report

28

Leveraging Celent’s Expertise

29

 

Support for Financial Institutions

29

 

Support for Vendors

29

Related Celent Research

30

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