The brokerage industry has entered a period of profound change, characterized by fundamental shifts in consumer behaviors and an evolving financial ecosystem. Today, major headwinds are forcing industry players to do more with less. Price compression—a trend that has accelerated in the past several years—has contributed to shrinking margins and uniformity among offerings, making it challenging to create a distinctive value proposition that isn’t predominantly derived from competitive pricing. Recent recession fears have also caused the Federal Reserve to cut interest rates, eating into many firms’ net interest revenue.

This challenging environment has compelled many institutions to diversify their businesses in search of new revenue. Full-service firms with traditional high-touch services are moving downstream, introducing self-directed trading capabilities and robos. On the other end of the spectrum, movements from discount brokerages signal an expansion into financial planning. Startups as well are finding innovative ways to deliver scalable services that leverage existing ecosystems.

As the barriers between traditional business models deteriorate and more organizations expand into adjacent lines of business, the digital brokerage experience will become the crucial factor as firms seek to differentiate themselves. Elevating the experience demands a deep understanding of investor preferences and the willingness to reimagine how products and services are packaged and delivered to consumers.

For over 25 years, Corporate Insight (CI) has published competitive research on the brokerage industry, benchmarking the digital brokerage experience and fielding investor surveys to understand how the industry and investors are evolving in real time. Using these insights, we’ve crafted six digital mandates to help brokerage firms better compete in this rapidly changing marketplace.

  1. During times of crisis, introduce dedicated resource centers and communicate proactively to anticipate client needs
  2. Introduce scalable digital products that democratize financial guidance
  3. Integrate the digital experience to own the entire financial relationship
  4. Surface ESG/SRI features and products to attract the new generation of values-conscious investors
  5. Create a mobile investing experience that serves as the primary point of entry
  6. Adopt new investing education techniques that reimagine traditional approaches

During times of crisis, introduce dedicated resource centers and communicate proactively to anticipate client needs

As the COVID-19 pandemic sends markets reeling, brokerage firms face mounting investor concerns and increased call center inquiries. Given call centers’ limited capacity, firms must manage this influx of client requests by proactively communicating their available support and by funneling investors to digital self-service resources. A successful communication approach leverages all available channels (i.e., email, secure site, public site, mobile) and takes on a reassuring yet informative tone. Email is the best medium for communications on most topics—such as clients’ digital resources, available relief measures and the firm’s community support initiatives—while secure site messages are best kept concise.

Ally employs a comprehensive COVID-19 communication strategy, leveraging various formats and delivering targeted messaging in its emails. The firm has sent emails on its relief programs and digital self-service features as well as market volatility, health and safety tips, and even advice on how to have fun in quarantine. These reassuring emails cement the firm as a trusted partner and source of reliable information.

Ally Secure Site Banner (Top), Relief Measures Email (Middle) and COVID-19 Email (Bottom)

Firms should also consider introducing dedicated resource pages that consolidate their messaging and serve as centralized crisis communication centers. Ally Invest, Betterment and Fidelity offer impressive combinations of navigational assistance and embedded resources in their COVID-19 information hubs. Ally’s in-depth, vertical-by-vertical summaries and service changes centralize key details in one location, ideal for time-constrained or confused clients. Betterment’s embedded series of video commentaries addresses pertinent topics to help relieve digital advice clients’ fear of investment losses. Interestingly, Fidelity embeds its virtual assistant in its resource center, where it serves as both a navigational guide and a relief outlet for overworked customer service lines.

Fidelity Resource Center Virtual Assistant

Introduce scalable digital products that democratize financial advice

Digital advice solutions (aka robos) are now a permanent fixture among the investing landscape. With modern interfaces and low fees/minimums, these products attract one of the largest and significantly underserved segments: the mass affluent. Through automation, robos have increased access to investment strategies and advice traditionally reserved for the high-net-worth. For brokerages, these products are a cost-effective solution for managing smaller portfolios at scale. They require less overhead due to their automatic management of portfolios and—for brokerages that double as asset managers—robos can serve as a new distribution channel for proprietary products. Incumbent firms have the upper hand here, as CI’s Digital Advice Monitor Investor Survey found that 42% of digital advice customers learned about their robo service through an existing relationship with the firm. Unfortunately, investors attracted to these products maintain higher expectations for the digital brokerage experience, and most incumbent offerings fall woefully short in delivering this.

42% of digital advice customers learned about their robo service through an existing relationship with the firm.

Startups consistently outperform incumbents in delivering unique digital robo experiences that cultivate positive investment behaviors. Our digital advice investor survey found that—other than security—account information is the most important feature of the digital advice experience, with 85% top-two box ratings. Yet most incumbent firms tracked by our research service fall short in delivering robust account information. Betterment and Wealthfront rank first and second, respectively, in our benchmarking assessment due to their in-depth balance, activity and holdings details. Both startups seamlessly integrate useful site features too, such as goal recommendations and access to clients’ investor profiles.

Account information receives 85% top-two box importance ratings

Below is a list of the major features available from most digital advice websites. How important is each to you, personally?

Wealthfront stands out for its Path homepage tool that merges account information, goal planning, recommendations and projections into a single comprehensive view of investors’ financial lives. Our June 2018 report on aggregation-based portfolio analysis and goal-tracking tools found that the customizable Wealthfront tool simplifies goal planning by outlining important considerations and reveals key issues impacting progress that may not be readily understood by everyday investors. The aggregation-based tool also creates natural opportunities to encourage asset consolidation and position products and service as solutions.

Create a mobile investing experience that serves as the primary point of entry

The brokerage industry has moved beyond the era where mobile is viewed as a complement to the web. As more investors become mobile-first users and engagement with brokerage apps continues to rise, clients increasingly expect to have a robust suite of functionality delivered through an engaging and intuitive app, according to our October 2019 online versus mobile gap analysis report. While all of the brokerage firms we track now offer mobile apps, many still only serve as a secondary channel to the desktop. This treatment of mobile puts firms at a competitive disadvantage. In our 2019 investor survey, 50% of advised investors noted logging into their brokerage’s mobile app at least once a week. This number increases for self-directed investors (56%) and Millennial investors (67%). To satisfy these mobile-first users, brokerages must invest in app functionality, design and mobile marketing.

While all of the brokerage firms we track now offer mobile apps, many still only serve as a secondary channel to the desktop.

In our Brokerage Mobile Audit, only 22% of brokerage firms’ apps earn a Good rating or better. Year over year, these apps improve, but the supported functionality and design still falls short compared to out-of-industry leaders. To meet consumers’ increasing expectations, brokerages can focus on improving the consistency of account details across channels, designing trading experiences that incorporate desktop functionality but offer an intuitive flow and support useful cash management and savings features. In our frequent, comprehensive reviews of tactical changes and additions to competitor investing platforms, CI has observed that the most interesting mobile innovations have emerged in the design of task flows. The guided trading flow—as seen below in Robinhood’s options trading experience—resembles an e-commerce app, breaking down the steps of placing a trade into individual screens. This design reduces information clutter and expedites trading by distilling a complex task into bite-sized chunks that require one action at a time.

Digital platform integration efforts look to reduce the friction clients experience by establishing a centralized interface, which ultimately supports firms’ attempts to become the sole destination for clients’ money management needs. Over the past several years, major organizations such as Bank of America Merrill and JPMorgan Chase have invested in removing the digital barriers between product relationships. Startups as well have introduced new services that are effectively cross-sold within the authenticated site experience. This merging aligns with consumer preferences, as 61% of investors agreed or strongly agreed that they would like to have all or nearly all of their financial accounts with their main brokerage firm.

61% of investors agreed or strongly agreed that they would like to have all or nearly all of their financial accounts with their main brokerage firm.

From the client perspective though, the experience is still fragmented. This is due in large part to missing information brought on by the lack or inadequacy of still-necessary aggregation features: to truly own the entire relationship, brokerages must closely align the products and services they offer within their digital properties and make up for product gaps by providing robust aggregation capabilities. In our digital benchmarking assessments, only 27% of firms provide top-tier aggregation capabilities. Avoiding these enhancements leaves brokerages vulnerable to the consumer-facing brands that have begun emerging in financial services. Tech-savvy firms like Apple, Amazon and Uber have the intuitive interfaces that command intense brand loyalty. Serving as the gateway to new financial products, they threaten to disintermediate brokerage firms.

Adopt new investing education techniques that reimagine traditional approaches

A major challenge in the brokerage industry is converting novice clients into knowledgeable investors. Traditional approaches to education consist of static text resources and short online courses, requiring investors to dedicate a significant amount of time to learning. New, contextual approaches to learning reimagine investment education and embed learning in investor activities.

Two existing examples of this include Robinhood and Merrill. Robinhood’s options trading experience (shown above) uses accessible language in explaining calls and puts. Investors are shown example strategies that they can quickly understand and act on. Merrill’s suite of Story tools is another innovative approach to education. The firm’s Portfolio Story describes investors’ portfolio holdings and performance in a narrative format. A dynamic Portfolio Briefing video walks users through portfolio details, allowing them to pause and engage with the graphics.

Surface ESG/SRI features and products to attract the new generation of values-conscious investors

In a recent Edelman poll on the United Nations’ Sustainable Development Goals (SDGs), the communications firm found that more than nine in 10 Millennials and Gen Z are overwhelmingly concerned about the human causes of climate change, with pollution (65%), deforestation (53%) and greenhouse gas emissions (46%) topping the list. When positioning themselves for future success, brokerages cannot afford to ignore the rapidly growing wealth and influence of these younger generations. The Millennial demographic counts itself approximately 83 million members strong and stands to reach an estimated annual net income of $8 trillion by 2025. To attract these value-conscious investors, firms can enhance the visibility of their ESG/SRI products and features.

To surface ESG/SRI-related offerings, brokerages can repackage existing content or add dedicated research features. Our September 2019 report on ESG/SRI investing found that thematic investing centers, such as E*TRADE’s, serve as a top-down investment screener. Ten themes display with short descriptions that—when clicked—lead to a list of relevant investment options. Fidelity takes a similar approach by incorporating a thematic filter in its stock screener. These approaches can raise awareness of these investment options to existing clients.

New product packaging is another approach firms can take to embed values-based investing into their offerings. While much more complex than simple research features, many digital advisors have adopted thematic portfolios to provide mass-affluent investors with options that align with their values. These products typically carry higher fees (due to underlying expense ratios) but help to differentiate the robo firm among a highly saturated marketplace. Morgan Stanley’s Access Investing stands out for offering an Impact Portfolio that invests in companies with strong orientations toward environmental, social and governance factors. In addition to its Impact Portfolio,  Access Investing includes the ability to allocate a portion of your portfolio—Impact or otherwise—to a specialized theme, such as Climate Action, Gender Diversity and Robotics + Data + AI.

What does all of this mean for brokerages?

The brokerage industry has reached an inflection point where product breadth and pricing no longer create opportunities for differentiation. The digital brokerage experience is now the essential element in cultivating investor awareness and growing wallet share. CI’s six digital mandates offer a starting point for brokerages to accelerate digital initiatives that meet and exceed investor expectations and transform existing value propositions.

  1. During times of crisis, introduce dedicated resource centers and communicate proactively to anticipate client needs
  2. Introduce scalable digital products that democratize financial guidance
  3. Integrate the digital experience to own the entire financial relationship
  4. Surface ESG/SRI features and products to attract the new generation of values-conscious investors
  5. Create a mobile investing experience that serves as the primary point of entry
  6. Adopt new investing education techniques that reimagine traditional approaches