Average activity in online brokerage accounts has declined by 42% over the past year according to a survey of US investment firms conducted by Deloitte & Touche.
The volatility that began in Spring 2000 has fundamentally altered the dynamics of the online securities industry, says the consultancy. In contrast to last year when fear of system outages and a limited talent pool were among the greatest concerns of discount and full-service online brokers, this year's participants cite the change in investor psychology as their primary concern, says Deloitte & Touche.
The survey suggests that online brokerages are responding by changing their business models to provide investors with financial information and advice, quality customer service, an array of products and innovative technology to gain competitive advantage, thus making the differences between them less distinct and quantifiable.
"Competing on price isn't enough anymore," says George Simeone, a partner in Deloitte & Touche's financial services industry practice. "The bear market has caused online securities firms to change their focus from generating trading volume to capturing longer-term investors with high-value accounts."
Of the discount firms surveyed, 46 percent note that high-quality customer service is central to their positioning, while 31 percent cite low-cost services as important.
The survey also finds that investors are more interested in professional support to manage the fluctuating market conditions than they were a year ago. While 83 percent of full-service firms offer this capability, only 31 percent of discount firms can provide the same.
Survey results suggest that discount firms are seeking to differentiate themselves from their full-service competitors by offering innovative technology. A larger percentage of discounters, compared to full-service firms, offer wireless access, streaming quotes and electronic communication networks (ECNs). For example, 77 percent of the discount firms offer real-time streaming quotes compared with none of the full-service firms interviewed; and ECNs are available from 79 percent of discount firms, while only 33 percent of their full-service counterparts have this offering.