The State of Online Brokerage Platforms

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28 January 2015


Celent conducted a study of the US online brokerage industry, focusing on the self-directed market and identifying major trends and developments for trading activity, core capabilities and differentiators, and brokerage technology. This report, The State of Online Brokerage Platforms, is a summary of Celent’s findings.

The US self-directed brokerage market continues to evolve in the post-financial crisis world. The wealth management industry faces an unprecedented shift in assets between generations, increased regulation by authorities, client demands for advanced multichannel services, transparency, and quality customer service amidst the digital evolution both within and outside the financial services sector.

“Despite unpredictable and challenging economic conditions over the past several years, the US self-directed market has shown moderate growth in 2014,” says Isabella Fonseca, a research director with Celent’s Wealth Management practice and coauthor of the report.

“Leading US equity indices continue to improve since 2009, while volatility in the S&P index has fallen since the same period, indicating that investors have overall become less fearful and less uncertain in the market. This is further supported by improving DARTs numbers and an increasing number of customer brokerage accounts at major brokerage firms,” adds Ashley Globerman, an analyst with Celent’s Wealth Management practice and coauthor of the report.

Online brokerage firms continue to enable the self-directed investor by building out their offerings, including asset classes, client education tools, and trading platform functionalities on multiple channels.

“As the profile of the average self-directed retail investor expands and retail investors demand a more streamlined and client-centric service, firms are faced with the task of honing their core capabilities and offering peripheral services in order to attract and retain clients,” says William Trout, a senior analyst with Celent’s Wealth Management practice and coauthor of the report.

The main findings of the study include:

  • Regulations, client expectations, and technology are driving change throughout the wealth management and online brokerage industries.
  • There is a general sense of recovery and growth in the market and at brokerage firms. Customer DARTs (including mobile DARTs) and the number of customer brokerage accounts are showing steady growth rates.
  • The US online brokerage market is highly fragmented; the number of trading platforms has expanded, and new firms have entered the market.
  • The self-directed investor population continues to outpace the non-self-directed investor population. The average profile of the retail investor is expanding as firms offer free, extensive education resources for the retail investor.
  • Social media and mobile channels are at the forefront of firms’ strategic plans.
  • Financial institutions interested in offering online brokerage services have the choice to work with a third party vendor or build their own online brokerage functionality. Clearing firms are posing challenges to existing trading technology providers by offering one-stop shops.

This report begins with a segmentation of the self-directed investor market, and follows with a placement of online brokers in a taxonomy that groups US brokerage firms by client segment. The study provides an understanding of developments and trends in the market in addition to identifying the major market players, their core capabilities, differentiators, and client types. Celent also provides insight into the channels served by these firms. The study examines platform development, including technology options for firms and evaluating the true “cost of free.” The report concludes with a prospective 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.