Panel Discussion Recap – The Online Brokerage Industry: The Contest for Customers

by on May 05, 2014

I recently had the pleasure of moderating a panel discussion for the columbia_alumColumbia Business School Alumni Club of New York. The topic focused on the contest for customers in the online brokerage industry and featured four expert panelists from various industry leading online brokerage firms. During the discussion, a number of interesting topics were covered and I thought it would be useful to recap them here:


One of the major topics discussed was how online brokerages plan to address and capture the business of the newest generation to the investing world, the Millennials. The panelists noted that there are significant risks and hurdles with this segment of the population at this time. The Millennial Generation is considered to be much more sensitive to risk and volatility than its predecessors, and thus is a much more reactionary bunch. This generation is also distrusting of the bigger, old fashioned financial institutions, and is haunted by the financial crises of the 2000s. Finally, this generation still does not have a lot of investible assets. One panelist stated that there are roughly $37 trillion in current U.S. household investible assets, and that less than 10% of that is held by the Millennial Generation.

The panelists acknowledged that there is still a lot of business opportunity with this generation, and there are a few key factors for capturing some of their business. First and foremost, the biggest opportunity Millennials have for obtaining significant investible assets is through wealth transfer from older family members. The panelists revealed that they are placing a special focus on maintaining their relationships as best as possible with their current customers in hopes that Millennials who inherit the assets will keep the money with the existing firm. Additionally, the Millennial Generation is a very tech-savvy group, and the panelists all agreed that they must leverage mobile and social channels to address this generation using interesting and marketable content to advertise their products and services. Furthermore, the panel noted that they recognize that social channels are largely utilized by the generation as a medium to voice their opinions, so they need to take that into consideration when managing their social media presence.

Impact of Mobile Technology on Online Brokerage Firms

Mobile technology was another hot topic during the panel discussion, particularly how the migration to mobile platforms has impacted product offerings and strategies implemented by these online brokerage firms. One panelist noted that approximately 11% of his firm’s trades are completed through the use of the firm’s mobile application. Another panelist stated that over 300,000 clients use his firm’s mobile application on a weekly basis. A third panelist chimed in and stated that his firm actually sees more unique daily logins on their mobile application than their website. Mobile is still largely viewed as a secondary channel by the panel, however, and the main hurdle with respect to mobile is how to deliver a full trader experience, or even an active trader experience, on the limited real estate of a mobile device. The panelists noted that a key to addressing the mobile space is not lumping everything into one view, but instead viewing it as how to address active traders vs. average investors, and how to address platforms for mobile phones compared to larger tablets. When I asked the panel if any of them thought that the desktop computer would ever fully be phased out and replaced by tablets, one panelist gave a particularly interesting view. He noted that television never truly killed radio, and that radio just evolved and became utilized in a different manner. He correlated this to desktop computers vs tablets, and stated that as mobile technology grows, tablets will never fully replace desktop computers, but they will instead just change the way we utilize them and the role they play in the financial services world.

Industry Innovations on the Horizon

During a discussion about what new innovations may be on the horizon in the online brokerage world, the panel addressed another current hot industry topic: robo-advisors (which I think is an unfortunate designation, but it seems to be sticking) and algorithmic trading. Multiple members of the panel noted that these new robo-advisors are doing a good job of capitalizing on the current distrust of the big banks that still seems relatively prevalent among some segments of the population, particularly the younger generations. The panel was largely skeptical, however, of how large of a role these robo-advisors could truly play in the industry. They noted that while these companies tend to do well when the markets are surging, they do not predict they will continue to do as well once an inevitable market correction occurs.

It was also noted by one panelist that, as a general trend dating back before the dotcom bubble, investors tend to return to more traditional brokerage firms or more established online brokerages when the markets are performing poorly. This is because they seek stability and advice from these more established firms to help manage their portfolios during trying times. One panelist who works for a leading online brokerage firm mentioned that his firm actually tends to perform better in down markets, and that his firm was the beneficiary of over $50 billion in net new assets during the most recent financial crisis.

Another hot-button topic that came up with regards to industry innovations was how to provide a more personalized experience to customers. Online brokerage firms have millions of data points about the online tendencies and usage of customers, and they are trying to figure out how to turn all of that data into a personalized investing experience for investors. All of the panelists agreed that many of the top online brokerages offer similar online content and services to its customers, and that the differentiator is the experience delivered. The trick is finding a way to utilize all of the data that firms have and turn it into a more personalized online experience that provides clients with what they want and when they need it, as opposed to clients having to actively request or search for it – it is the next big thing in the online brokerage world.