Earlier this year, Isabella Fonseca of Celent and Chris Psaltos, VP of Product Management at Scivantage, hosted a webinar in which they discussed the recent Celent report, The State of Online Brokerage Platforms. A key finding of the report is that online brokerage platforms are generally healthy, with numbers of both users and revenues up over the past few years. This growth is a result of ongoing shifts in the self-directed investor market, which is defined as a group of investors who choose to make their own trades rather than relying on an advisor. This group has grown year-over-year, and brokerages have been racing to capture market share.
In this competitive market, brokerages are under increasing pressure to differentiate their offerings. To that end, several firms have introduced free, in-depth educational programs and visual tools to foster investor empowerment. These resources recommend best practices for investing and portfolio management, and empower investors to direct their own trades with more confidence – something the self-directed investor market needs more of as it assumes a new demographic composition.
Increasingly, women, millennials and senior citizens are also becoming self-directed investors. Previously, these groups were beyond the scope of brokerages’ target market, as they typically had less investable wealth, lower net worth, and, consequently, less profit-generating potential for brokerages. Now, self-directed investment platforms have lowered the cost to brokerages who want to serve this group of investors, allowing these platforms to empower new investors.
Brokerages have realized, however, that they cannot win the business of these groups in the same way as they win the business of the traditional self-directed investor, the profile of whom still skews toward a male in his mid-40s. The new classes of investors, including women and millennials, are more risk-averse and value professional resources that they can draw on while directing their own investments. Their distinct behaviors and consumption patterns include greater self-reliance and less of a desire to sit down with an advisor, according to the Celent report. As such, providing high-quality resources and online tools is critical to appealing to these groups’ preferences while earning their business.
According to the report: “Firms are providing a wide range of free, in-depth investor education programs ranging from traders’ glossaries, tax advice, market intelligence reports, in-person seminars, student trading labs, and webinars, among others. For example, one major brokerage firm presented over 500 webinars in 2014, a 20% growth from the previous year.”
The key to building investor confidence is to provide educational resources that include jargon-free tutorials and short videos designed to help novice investors apply newfound expertise. However, firms should also recognize that members of these groups are not uniformly novice, and should tier their offerings accordingly. As an example, brokerages could offer more experienced investors webinars or opportunities to try out simulation-oriented tools.
Celent expects these resources to become the standard as the self-directed investor market grows and continues to evolve. Forward-looking brokerages should be keen to reallocate budget to developing and improving their educational offerings as well as intuitive tools and a clean online client experience. Scivantage offers a range of products that can assist with that realignment from a visual user interface to automated account opening and intuitive portfolio analytics. Additional future developments will provide even more robust educational tools and user experience benefits critical to winning market share.
For a more in-depth exploration of the changing self-directed market, watch our webinar here.