Retail Brokerage Trends & Strategies

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5 March 2003


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.

"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.
The Changing Face of Retail Brokerage -- 1980s - 2000s
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 for more information.