Integration Key to New-Style Brokerage, Study Finds

The price wars behind them, leading brokerages are now competing for customers based on service and cross-channel integration - and information technology spending in 2001 will reflect that, according to a study released last week from Needham, Mass.-based TowerGroup.

What's the reason? With some brokers charging $5 or less per trade, prices can't get much lower. Also, there's a limited number of customers who want no-frills, bare-budget trading.

"The self-directed channel is a very small proportion of the overall market," said study author Edward Kountz, an analyst at TowerGroup. "Firms are looking for ways to establish themselves in other market segments, and, clearly, the way to do that is through additional service and support."

As a result, he said, TowerGroup expects retail brokerages' IT spending next year to concentrate on front-office applications.

Specifically, brokerages will be investing in portfolio management, relationship management and decision management tools - both for the retail user and the financial professional.

Part of the reason for this shift, Kountz said, is the influence of multichannel delivery - investors expect to be able to reach brokers in person, by phone, on the Internet and through their wireless devices.

"The role of the retail broker is evolving into that of a trusted financial consultant," said Kountz.


Brokerages' IT Spending


Spending will be concentrated on serving customers in 2001 (in billions):













Source: Towergroup, Needham, Mass.

The best example of this new kind of "optimal" brokerage, Kountz said, is Charles Schwab & Co. in San Francisco.

Schwab offers not only do-it-yourself online trading but also access to advisers, research, planning tools and even bricks-and-mortar branches. The most recent addition to Schwab's line of services was last week's purchase of Chicago Investment Analytics Inc., a private research firm that specializes in quantitative investment research.

"This will help our clients make better decisions," said Schwab spokesman John Sommerfield. "It's not just execution of trades anymore."

The same model - a wide spectrum of services across multiple channels - is being applied at Fidelity Investments in Boston, which has 77 investor centers, more than 3,000 call center representatives, a computerized voice-response system that works via voice recognition, touch-tones and wireless and Internet access.

Another example of this multichannel, multiservice approach is eTrade Group Inc. in Palo Alto, Calif., which is opening an investor center in New York and offering investment advice through a partnership with Ernst & Young International.

But, "other firms are at a lesser stage of development," Kountz said.

Citigroup Inc., for example, just launched its CitiTrade online brokerage service, which offers a variety of financial planning tools. However, New York-based Citigroup is bucking the integration trend by keeping CitiTrade accounts separate from those in its other brokerage unit, Salomon Smith Barney Holdings Inc.

That was a mistake, said TowerGroup analyst Larry Tabb. "It's very difficult for that model to be successful," he said. "What you're seeing is that all the large online brokerages are rushing to create a full suite of services - everything from discount trading to private banking."

Copyright © 2000 IDG Communications, Inc.

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