Self-Directed Brokerage Technology: Main Street and Active Investor Preferences

By Alexander Camargo, Analyst, Wealth Management at Celent

Bio: Alexander Camargo is an analyst at Celent with the Securities & Investments group and is based in Celent’s New York office. Mr. Camargo’s current research focuses on wealth management technology in North America and in Europe. Mr. Camargo has covered topics extensively on digital strategies for wealth managers, wealth management trends, retail brokerage, financial planning, client reporting, and cost basis regulations/technology. Mr. Camargo’s expertise in behavioral analytics informs his analysis of the retail investor sentiment and trading preferences. Mr. Camargo has been quoted regularly in the media, including Thomson Reuters, Bloomberg, Dow Jones, Barron’s, Wall Street & Technology, Financial Planning and the Financial Times. He has received a B.A. from Yale University, received a post-baccalaureate at Columbia University, and earned a Master’s of Science at City University of New York.

Technology is at the heart of the self-directed brokerage world. Although investors are certainly price-sensitive, a brokerage cannot truly differentiate itself without putting its stamp on the user experience.  As such, trading platform technology should be a top priority among brokers. This is true for all types of platforms, including those geared toward “Main Street” investors.

When it comes to active investors (three to 10 trades per month), they occupy an interesting space – they are more knowledgeable than your Main Street investors, but have yet to fully immerse themselves in the trading universe to the extent of active traders (10+ trades per month). As such, platforms geared toward this group must serve as a bridge between the simple traditional investor platforms and the highly technical active trader platforms. They must be robust enough to serve as an introduction to tools and products that an active trader uses, but keep some of the simple UI principles that govern traditional investor platforms. In order to appeal to this group, platforms must go beyond the standard four order types (market, limit, stop-loss, stop-limit). Increasingly, active investors require conditional orders, where an order is automatically placed when a specified condition is met. Secondly, active investors increasingly require some portfolio analysis tools with technical indicators (although they will use fewer indicators than the active trader). More advanced charting tools with candlesticks, real-time market information and premium research are becoming increasingly necessary, since the active investor has some familiarity with options. From an education standpoint, active investors will consult peer-driven content, utilize portfolio analysis tools, and consult videos for learning more advanced options strategies.

All of these tools, however, must be balanced by an easy to use interface. Unlike the active trader platforms where streaming quotes and very strong charting tools tend to make the active trader platform look “busy,” the active investor platform is cleaner and simpler. They tend to feature an initial dashboard that investors customize such that their most frequently used tools can be selected from the initial log-in.

It is important to note that platforms for the “Main Street” investor should not be overlooked. Compared to the active trader or even the active investor, this investor is less picky about technology; nonetheless, brokers need to ensure that they are offering the right technology.  As I mentioned in my previous blog, Main Street investors are increasingly turning to hybrid channels of service that will allow them to maintain self-directed accounts, but receive basic guidance. To support this service, platforms should include basic portfolio analysis and performance reporting, combined with retirement calculators and goal tracking. From an order standpoint, “auto invest” capabilities complement the above tools. Auto-invest allows users to schedule payments of any dollar amount on a  weekly, monthly or quarterly basis.

Below is a summary of investor expectations by customer segment.


































One last point I would like to make. As firms consider their wealth management strategies, they must come to terms with increasing demands that the firm “go where the client is.” Technology has evolved in such as way that two clients with the same level of wealth may demand different service models; one may want a full advisory experience and another may desire a self-directed account. This is blowing up traditional segmentation strategies. Further, it means either building or buying more technology, increasing operations costs. The bright side, however, is that a holistic wealth strategy where self-directed brokerage is integrated alongside retail banking and managed products will allow firms to capture more assets and provide a 360-view of an investor’s wealth. Source: Celent

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