Welcome to VantagePoint - Scivantage's Corporate Blog

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.

When we talk about diversification in the self-directed market, we tend to think about firms expanding their asset class support. However, there are a number of ways in which the self-directed market has become more diverse. Traders have access to new asset classes (such as FX, futures, and international equities) and platforms, more women and Gen Y’ers are becoming investors, and new service models are emerging.

In 2012, Celent conducted a study on the self-directed market. One of the main findings of this study was that although equities, mutual funds, ETFs, and fixed income products are most commonly traded, options and retirement products have become increasingly common. Investors were also asked which products they would like access to, if currently not available through their broker. The results illustrated that investors are looking for greater access to international equities and FX. Such demands have driven the development of new platforms and tools for the investors.

In addition to more products, we are seeing demographic changes in the self-directed population. Over the past 18-24 months, the population is getting younger and has a greater proportion of women. This increase in female participation has occurred among both married and single women. The married group tends to be worried about retirement and is very much involved in family finances and supplementing incomes, whereas the single group is concentrated in the 25-35 age range. Additionally, the new group of younger investors is driven partially by macro-economic realities. Many Generation Y’ers have watched their parents delay retirement due to the Great Recession and inadequate savings. As such, they are hoping to learn from these mistakes by setting more cash aside. However, this age group has spent the majority of its adult life with near-zero interest rates on savings accounts, and therefore must invest (and invest early) to see any return and avoid their parents’ dilemma.

Most disruptive to the market has been the increasing diversification of service models. Driven by retirement planning demands and a desire to protect themselves against lower commissions  and trade volumes, self-directed brokers have expanded their offerings to include related banking and investment solutions such as checking, money market, and savings accounts. There has been a particular emphasis on retirement (both products and tools/services), and on fee-based managed account services among the larger online brokerages. The expansion into managed accounts represents an important shift in the online brokerage world. Alongside pure play self-directed accounts, several online brokers are now emphasizing financial expertise and advice. As such, firms are able to offer pure play, discretionary, and “hybrid” versions of service.

This “hybrid” service model, targeted specifically to the mass affluent customer segments, allows investors to solicit financial advice from experts while maintaining self-directed accounts. Advisors create or validate portfolio analyses and asset allocations, or make investment recommendations via phone or branch, to supplement the investor’s self-directed tools. These advisors also highlight or market fee-based services around education and retirement planning.

On the other hand, many bank brokers are enhancing online trading tools to stem asset outflow to discount brokers. Thus, we are seeing a “great convergence”—whereas many large online brokers are now adding banking, managed account, and hybrid advisory services to their traditional online brokerage tools, bank brokers are coming from the other end of the spectrum. They already offer banking, full service advisory, and managed account products, and are now looking to enhance online brokerage offerings. Ultimately, online brokers and bank brokerages will enter the same market from opposite ends; both types of brokers hope to offer a low cost channel of service for the mass affluent customer who is predominantly self-directed, but who also requires some guidance. Given that mass affluent and high net worth (HNW) clients often have more than one type of account, these firms will focus on cross-selling into various accounts and service models. In essence, these new models of service are breaking down traditional segmentation models, pushing firms to be where the customer is.

With so many new product demands, demographic changes, and service models, the self-directed market is a constantly evolving one. Having a clear strategic vision and leveraging technology will be vital to success.

During our recent webinar, “The Race for Self-Directed Investors: Developments in Online Trading Among Brokers and Banks,” several trends were discussed related to the self-directed investment channel and mobile trading. To continue the discussion, we’d like to hear from you on the following three questions.

Guest Commentary by Scott Stathis, Managing Director and COO, BISRA (formerly Kehrer-LIMRA)

Over the past three to five years, we’ve begun to see the bank channel’s fractured approach to providing wealth management offerings evolve from “lip service” to more of a formal strategy. Banks have realized that having a wealth management offering is not just a value-add, but is a necessity in order to remain competitive in today’s marketplace. To achieve a truly integrated wealth management offering, firms need to leverage cross-departmental selling as a way to retain existing clients and to gain new customers.

Although certain roadblocks still exist – such as the innate silos of the banking institutions – it is possible to build a model that delivers a truly unified experience.

Deconstructing the Silos

If financial institutions are still operating in “silos of distrust” they will never be able to provide truly integrated offerings and customers will take their assets elsewhere.  Most electronic brokerage firms, such as Fidelity and Schwab, have posed threats to the regional banks with their sophisticated, integrated but primarily online and call center offerings. Bank have a competitive advantage at the higher end of the market considering the extent of personal service they can offer, but given that silos still exist in many of the banking institutions, transferring information to clients amongst various sectors can by extremely difficult and creates challenges related to providing a seamless integrated offering to wealth clients.

Clients are not only in need of information from multiple departments within their wealth management provider, but they are now expecting it as they demand more control over their investments. “The reason we got into online investing is that some of our clients thought it was important,” noted Bill Benjamin, president of U.S. Bancorp Investments, in a recent Forbes article. “All of our clients want to be able to access information, research and trading.” We’ve seen this trend continue to develop and specifically, U.S. Bank has increased its online offering and is leveraging Scivantage’s technology for its web-based online investment platform. The reverse is also happening and online brokerages are launching banking offerings to meet client demands.

Cultural and informational silos create a fragmented offering, hindering different arms of the bank to interact and limiting cross-sale revenue growth. Cross-departmental, education is a key piece of the puzzle when it comes to creating a unified offering, and employees can learn from one another through planned cross-departmental interactions and presentations. Once each department appreciates and trusts the value proposition of the other amazing things start happening!

One way to break down these walls is to have each department critical to the integrated wealth management offering create a “value proposition roadshow presentation” that they present to each of the other departments. The goal is to create an environment which appreciates teamwork, enhances trust across departmental boarders, and encourages an integrated approach thereby enhancing the client experience. Sophisticated technology can also obviously help facilitate this dynamic. For example, an online brokerage is a profitable asset for banks and brokerages, and can also be leveraged for attracting new business – both within existing clients and new users. In fact, according to a recent Aite Group research report, 44% of Gen-X and Gen-Y investors surveyed shifted assets to another investment firm or switched investment providers due to availability of online tools.

Developing Best Practices to Maximize Profits

Although many banks follow their own unique strategies, there are some common themes that are evolving which we hear about when having discussions with program leaders at leading banks. We’ve seen a focus on increasing the accuracy of client segmentation and the mapping of cost effective tiered levels of services to each segment.

Inbound requests used to go directly to an advisor. Now inquiries may be vetted by a licensed platform rep, through the call center, or even via the online channel, thus leaving advisors to focus on the higher-net worth segments.

Additional strategies banks should consider include:

-  Building a reliable, efficient, and institutionalized customer profiling system that enables the institution to place clients in the correct segments in the first place.
-   Increase profitability by focusing on optimizing the cost-effectiveness of each delivery channel mapped to each client segment.
-   Leverage a technology platform that allows the bank to deliver consolidated financial information to clients which enhances the customer experience.
-  Measure the success of your integrated wealth management offerings by tracking and measuring the referral intensity between departments involved in the wealth management offerings.

An Integrated Future

The most commonly identified driver for banks who are currently focusing on providing robust online investments operations remains client retention, according to a recent Celent report. An integrated wealth management strategy that includes online offerings is imperative, as it will increase client retention, draw in new business, and position the bank as a full-service firm able to meet and exceed customers’ wealth management and banking expectations.

Scivantage is honored to be acknowledged for the second year in a row by Financial Technologies Forum, LLC for our contribution to the securities trading and operations space. Scivantage Maxit® has been shortlisted by FTF for this year’s BEST COMPLIANCE SOLUTION FOR OPERATIONS.

Being recognized for our work on the continued development of Maxit, the industry’s only fully automated cost basis reporting solution, is a testament to the hard work and dedication of our team.  As previously reported, Maxit clients had a 100% success rate in getting their IRS Form 1099s out to investors on time both for 2011 and 2012 tax years.  This success is due both to emphasis we put on delivering high-quality, accurate data to our clients, as well as to the commitment our dedicated employees regularly demonstrate.

Voting for the FTF News Technology Innovation Awards will take place online from April 9-April 30, 2013 at 6PM EST.  Voting is open to all qualified registered subscribers to FTF News (subscription is free).

The winners are ultimately up to you, so please be sure to vote today!

The full-service brokerage model is in the midst of evolutionary change. Financial institutions are breaking down the siloes that have kept their banking and wealth management businesses separate and realizing the importance of integrating the two in order to deliver a unified experience to the customer.  The wealth management model of the future will deliver full-service advice more effectively and efficiently through a financial advisor and an online platform that delivers mobile and social capabilities.

The banking industry participants recognize that they are in the middle of a major industry shift, evidenced by the record number of attendees at our third invite-only bank-brokerage roundtable event, held last week. We brought together executives from banks, brokerages and other financial institutions in New York City to foster discussions about the opportunities a self-directed channel provides. We also spoke about the importance of enhancing the client experience in order to retain and attract investment assets, for example the evolution of the integrated wealth management service model and the technology behind it. This brings me to the next major theme discussed, which is the fundamental role technology plays in the online channel, which was also evident in the successful case studies that were presented.

One of the main points of focus for the attendees was the Gen X and Gen Y segments. Currently, banks are at a great advantage, as they hold the majority of the Gen X and Y investors’ money in checking and savings accounts. As this client segment amasses wealth over the next 10 years, banks should be prepared to offer brokerage services in order to retain these assets. In fact, younger generations are more likely to shift assets in favor of better online tools compared to older generations, according to Aite Group research presented by Alois Pirker and Sophie Schmitt at the roundtable.

Unless banks embrace the self-directed investment channel, they stand to lose out to competitors. Gen X/Y assets are predicted to grow to $18.3 trillion by 2020, according to Scott Stathis, Managing Director and COO at BISRA, who moderated the session. With this much at stake, the banking industry cannot idly sit on the sidelines.

We hope to continue this discussion in future roundtables and online in our LinkedIn group – The Bank Brokerage Executive Forum.

Find out more about our brokerage solution – Scivantage Investor.

For banking and brokerage institutions alike, continually improving the client investment experience is an essential element in gaining or maintaining a competitive edge.  In today’s social savvy marketplace where one user’s negative story quickly and exponentially spreads, a seamless client experience is no longer a nice-to-have.  Be it through a uniquely branded, fully integrated online trading platform, or the result of accurate and timely 1099 reporting, a flawless and supportive client experience is now a necessity.

Stop by booth #403 at SIFMA Ops to hear about Scivantage’s latest developments for Phase III of the cost basis reporting requirements for fixed income and options, as well as our latest research on and solutions for the self-directed investment channel.

Interested to learn more about us prior to the show? Register for our upcoming webinar, “The Race for Self-Directed Investors: Developments in Online Trading Among Brokers and Banks” on April 24, 2013.

Our video interview series featuring financial industry analysts and technology experts continues with an interview with Isabella Fonseca, Research Director at Celent. In this video, Ms. Fonseca shares her ideas on how the wealth management industry can benefit from having a digital strategy.

Offering a self-directed investment channel is no longer an option – it has become an essential element to a comprehensive wealth management strategy. The latest research from Celent titled, “The Race for Self-Directed Investors: Developments in Online Trading among Brokers and Banks,” confirms the convergence of services and products within the online brokerage market, with once-varied firms now moving toward a similar set of products and services. How do you differentiate your firm from the rest?

Today’s investor is more sophisticated and demands a multi-faceted client experience. Referencing the latest data on the growing self-directed market, the increase in female investors and a growing percentage of active traders, Celent’s research indicates a core driver within the convergence remains a focus on client retention and experience. Beyond standard access to desired products and services, a complete client experience now involves seamless support, through a variety of methods including an integrated view of online, mobile, and social community channels.

Join industry experts Alexander Camargo, Wealth Management Analyst at Celent, and Chris Psaltos, Vice President, Product Management at Scivantage as they discuss the research data as well as the trends affecting the market, ultimately providing you with valuable insights into how you can leverage it to grow your online brokerage channel.

Key topics to be covered during this webinar include:

• •   Industry Trends: The number of self-directed accounts continues to increase, despite challenging market conditions for retail investors. Full service and bank-brokers with an integrated online brokerage platform have enhanced their offering and provided a unique branding and trading experience to clients.
• •   Business Strategies: High trading volume and use of complex trading strategies make the active investor and active trader a very profitable segment for online brokerages, and tools to target these segments will be vital to capturing these clients.
• •   Technology Innovations: Among online brokers, mobile trades via mobile apps have more than doubled since the beginning of 2011. Whether connecting via computer, tablet or mobile phone, or to traditional support channel or social community, technology needs to support a seamless client experience.

You can register here for full access to listen on Wednesday, April 24, at 4:00 PM EST.

Featuring commentary from financial industry analysts and technology experts, our video interview series continues this month with an interview of Alois Pirker, Research Director, Wealth Management at Aite Group. In this video, Mr. Pirker shares his insights on how wealth management firms have adapted their processes to the demand for a combined/hybrid model, and discusses examples of firms that have done it successfully.