UK online stockbroking business models are floundering as today’s sites under-serve the needs of mainstream investors, who will comprise 80% of the nation’s 2.4 million expected online traders in 2005. According to a recent Report from Forrester Research (Nasdaq: FORR), a new breed of investment sites — wealth managers — will emerge, wooing mainstream investors with portfolio consolidation, analysis and advice.
“The UK online stockbroking market has proved tougher than expected. UK online stockbrokers are struggling to make their business models add up, with fewer online customers and higher customer-acquisition costs than anticipated, and few sources of revenue other than volatile trading commissions,” commented Charlotte Hamilton, analyst at Forrester’s UK Research Centre. “By 2004, nearly all new customers will be from the mainstream — investors who trade less often, have less appetite for risk, invest more of their assets in funds and want more decision support than the early adopters of today.”
“Most of today’s execution-only online stockbrokers are poorly placed to serve these mainstream investors. The bare-bones trading platforms that firms offer give little reassurance about security, education about investment risk or help with investment decisions. Also, few offer online customers channel choices other than the Web — such as access to branches in the high street.”
Forrester asserts that wealth managers will consolidate customers’ investments using nominee accounts — giving investors a combined net-worth view of investments. Stock- and fund-performance charts will evolve, letting customers analyse and model portfolios and create their own benchmark indices. As well as portfolio analysis, mainstream investors will require decision support for investing online. Wealth managers must offer educational tools to help less-experienced investors and build advice tools helping customers choose investments.
Forrester believes firms attempting wealth management must meet a number of tough criteria. Wealth managers must partner with multiple vendors and other financial-services providers to build online tools, broaden the product range and expand across channels to reach more customers.
“Many of today’s undifferentiated, execution-only stockbroking sites won’t survive — becoming extinct or succumbing to industry consolidation,” Hamilton concluded. “Those that remain will assume one of three roles: compete against private banks and portals in online wealth management; adopt a niche role serving active or high-net-worth online traders directly; or act as a white-label stockbroking platform, offering their online broking services to other sites.”
For the Report Overhauling UK Online Investing, Forrester spoke to 27 of the 29 firms that offer online stockbroking in the UK — including banks, online-only and multi-channel stockbrokers.