*******************************************************************************
Please click the image above to view the table of contents for Tiburon's Online Brokerages Research Report |
|||
Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its newly updated research report on Online Brokerages. This research release summarizes some of the report's key findings.
The purpose of this report is to provide readers with an initial overview of the online brokerage industry, including discount brokerage firms’ offerings, as well as those from online-only firms and direct access brokers. The catalyst of this report's publication is simple: online brokerage firms are undergoing a renaissance. This report addresses the leading online brokerage firms' strategies on branch expansion, financial advisor custody & referrals, banking, & other businesses that have emerged as a crucial ingredient to the profitability formula of the revived industry, with specific attention being paid to the big five firms (The Charles Schwab Corporation, Fidelity Investments, TD Ameritrade, E*Trade, & Scottrade). This is Tiburon's third draft of this report.
Tiburon's first draft of this report was published in 2000; that version bundled online brokerage with online tools & advice, online banking & mortgages, & online insurance. It focused primary on developing an organized structure for the report and establishing profiles of the hundreds of complex online financial service companies.
Tiburon's second draft of this report was published in 2006; that version updated many of the findings since the internet revolution had faded and this industry was left for dead.
This is Tiburon's third draft of this report; it focuses on unbundling Tiburon's equally thorough online tools & advice, online banking & mortgages, and online insurance research reports. This version also tightens the storyline, coordinates it with the findings from other Tiburon research reports, and adds substantial detail to the profiles of leading firms, specifically core Tiburon clients The Charles Schwab Corporation, Fidelity Investments, & TD Ameritrade.
Key Findings
This report has a long list of interesting facts to share:
Market History
- During the era of the emergence & growth of consumer use of the web, the discount brokerage business was forever redefined as an online business
- The leading discount brokerage firms such as The Charles Schwab Corporation and Fidelity Investments focused on online investing starting in the mid- to late-1990s period
- In 1999, it was suspected that as much as a third of full-service brokerage customers also had an overlapping online brokerage account
- The wireless revolution for financial services began in the back office; the number of industry employees using enterprise wireless applications grew from 5,000 to over one million between 2000 and 2002
- Commissions charged by the top ten online brokerage firms fell off a cliff between 1996 and 1998, and then leveled out a bit until 2000
- A lot of the cheap trade prices available to investors through online brokerage firms were made possible by the proliferation of ECNs at the time, which were often owned by discount brokerage firms
- For those clients that couldn't get enough action during the day, after hours trading became more readily available at leading online brokerage firms
- As an eventual sign of the depressed initial public offering market, The Charles Schwab Corporation and TD Waterhouse sold Epoch Partners to Goldman Sachs in 2001
- Online brokers spent huge sums on advertising to increase brand recognition in the period before 2000
- In 2000, online financial advice sites were on the rise as there was a tremendous unaddressed need in the middle market for affordable comprehensive advice
Market Growth
- The number of discount brokerage firms has now slipped below the 50 mark, down about 35% from the peak of 77 in 2002
Leading Online Brokerage Companies
- Because of its dominant mutual funds, 401K, and clearing units, Fidelity Investments dominates the Big Five in nearly every category when it comes to total business
- The big five online brokerage firms account for 80% of the market share
- Fidelity Investments leads the online brokerage firms in number of accounts, helped out tremendously by its direct mutual fund sales that are counted in its online brokerage figures
- Fidelity Investments not only leads the online brokerage firms in assets as well, helped greatly by its dominant clearing & other businesses, but can be considered the largest financial services firm in the world with nearly $2.5 trillion in assets
- Online brokerage firm trades are less dominated by the Big Five firms, with each of the top firms and all the rest having about equal share
Key Issues
- Surprisingly, only half of online brokerage firms now offer online bond trading, which has remained consistent three years running
- Despite the clear liability concerns, offering futures is likely a good business move for online brokerage firms, due to their likely fat margins and parallel appeal to active traders
- Looking past the noise of the entire industry, it is crucial to realize the traditional product offers of the Big Five are nearly identical, with some gaps in the offering of futures
- Firms continue to be segmented based on price, with expensive online brokerage firms, moderately priced firms, and deep discounters
- Free equity trades have even become a reality again, and they are coming from an unlikely source – the banking channel
- Among the Big Five firms, Scottrade offers the lowest flat market order commission to clients at $7, 30% lower than its nearest competitor
- Online brokerage firms declined from 57 to 55 total firms due to consolidation in the industry, most notably, Brown & Company and Harris Direct were acquired by E*Trade
- Online brokerage firms must compete fiercely to attract active traders; while they only make up 20% of the market, they transact nearly all of the trades
- The evolving nature of the online brokerage business will result in a vast majority of industry revenues generated from everything but the core trade commissions that used to be its bread & butter
- Online brokerage firms’ alternate sources of revenues include those from advice, ancillary businesses, fees charged clients other than trade commissions, and from other revenues
- Direct access online brokerage firms provide software based direct access to liquidity pools, often resulting in cheap & fast trades
- The share of firms offering free NASDAQ Level II quotes has tripled in three years and is set to explode; the share not offering this capability even for a fee has been cut by 25% over the same span
- In response, online brokerage firms are going about delivering advice through four methods, including online, on the telephone & in branches, through advisor referrals, and by way of acquisitions
- Online brokerage firms have swept money market balances into their bank divisions, to improve revenues on cash balances by loaning the money out rather than charging a couple of basis points
Future Predictions for the Online Brokerage Industry
- In the near future, there are seven expected developments the online brokerage industry, including mergers & acquisitions activity and emerging venture capital opportunities
Growing Personal Computer, Internet, & Broadband Usage
- The number of personal computers in circulation will likely reach 570 million by 2013, up over 100% since 2007
- 80 to 100 million personal computers will be sold each year from 2008 to 2013, up 5% per year
- The number of internet connections should rise to 264 million by 2013, up 25% since 2007
- The share of US population with internet connectivity will reach 83% by 2013, up from 70% in 2007
- The number of broadband connections should rise to 251 million by 2013, up 50% since 2007
Rising Online Financial Services Activity & Parallel Need for in Person Advice
- The number of online tools & advice firms will steadily grow to 182 by 2013, up 15% since 2007
- The majority of financial services transactions will likely move to the web over the coming years, including brokerage, banking & mortgages, and insurance
- Future movement in the investment market will continue to swell the ranks of the Validators segment
The Increasing Dominance of the Web in Online Brokerage Transactions
- The number of households trading online will rise dramatically in future years
- Trading of securities online will account for nearly all trades placed in the near future, either by do it yourselfer investors at home, or by advisors serving their clients still uneasy with the online investing model
Continuing Mergers & Acquisitions Activity in Online Brokerage
- There are four advantages of scale moves in the discount brokerage market that will drive further M&A activity in the future, including increased commission revenues, improved margins, upgraded customers, and added cross-selling opportunities
- Through mergers & acquisitions, the number of online brokerage firms will continue to dwindle
- There are four motivations for consolidation moves in the discount brokerage market, including economies of scale, upgrading customers, branch expansion, and business expansion
To better understand the developments for Online Brokerages, executives can purchase Tiburon's Back to the Future: The Re-Emergence of the Online Brokerage Industry research report where the key findings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com or 415-789-2540.
Additional Information
The following links will open specific pages on Tiburon's web site:
*******************************************************************************
Tiburon Strategic Advisors
Tiburon Strategic Advisors, based in Tiburon, CA, was formed in 1998 to offer market research & strategy consulting services to all types of financial institutions and investment managers:
- The firm has served over 300 corporate clients and completed over 1,100 projects since its founding, and today, its knowledge base includes mutual fund distribution, separately managed account programs, alternative investments, wealth management, insurance products, banking services, the fee-only financial advisor market, the CPA firm market, the family office market, & various international markets
- Tiburon holds a series of CEO Summits semi-annually for its executive-level clients. Tiburon CEO Summit XVI is scheduled for April 15-16, 2009 at the Ritz Carlton Hotel in New York, NY, followed by Tiburon CEO Summit XVII, scheduled for October 7-8, 2009 at the Ritz Carlton Hotel in San Francisco, CA. Attendance is by invitation only and attendance at each Summit is managed to between 100 and 125 senior industry executives. Visit the CEO Summits section of Tiburon's web site for details on current and past CEO Summits, including attendee lists, meeting agendas, & highlights. Please contact Tiburon's Managing Principal Chip Roame at CRoame@TiburonAdvisors.Com or (415) 789-2541 if you are a Tiburon client and have an interest in attending a future Tiburon CEO Summit
- Tiburon has published forty-seven ~300-400+ page research reports, which offer detailed analyses of growing business segments; each is available for $5,000; these reports can be ordered by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540
- Tiburon offers an annual research report access program, whereby dozens of clients receive all Tiburon reports published within a year for $25,000; clients can subscribe to Tiburon's 2009 Research Report Access Program by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540
- Tiburon also offers a database access program, whereby it shares its 300,000+ person industry executives contacts database with dozens of clients for $25,000 per year (distributed quarterly); clients can subscribe to Tiburon's Database Access Program by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540
- Tiburon offers thirteen online business benchmarking tools that are available to all types of financial advisors in an effort to help them benchmark their business practices and build more successful businesses. The sites include www.BrokerBestPractice.Com for wirehouse & regional brokers, www.FABestPractices.Com for fee-based financial advisors, www.IndependentRepBestPractices.Com for independent reps, and www.PrivateBankerBestPractices.Com for private bankers. Almost 5,000 advisors have used these tools. By completing one of the online surveys, financial advisors can access a FREE copy of the relevant comprehensive Tiburon research report, which summarizes and analyzes the collective results
- Tiburon's weekly research releases, like this one, are emailed for free to interested industry executives, media representatives, conference planners, and individual financial advisors. Over 55,000 industry executives now receive these releases. Feel free to sign up to receive future research releases at Tiburon's web site (www.TiburonAdvisors.Com) if this release was passed to you by a colleague and you would like to receive them directly in the future
- Tiburon plans to expand its workforce in 2009. Specifically, the firm plans to add two-to-three incremental principals (the most senior role at the firm) and several more research managers in 2009.
- Tiburon has built three executive programs (CEOs-in-Residence, Financial Advisor Roundtable, and Consulting Fellows) in an effort to bring the experiences of additional senior level industry executives to Tiburon clients. Feel free to contact any of the members of Tiburon’s executive programs directly or ask that they be included in any ongoing Tiburon project.
*******************************************************************************