ParameterInsights is a boutique strategy consultancy that knows consumers and knows financial services, helping online brokerage firms to make more scientific and data driven decisions so they can grow and win. CEO Josh Book shared his firm’s latest data and insights about wealth management and the retail investing landscape, while exploring key trends in consumer behavior that are shaping the online offerings of retail brokers now and in the future.
1. The industry is experiencing a system type shock, and the impact is money inmotion and a catalyst to change. It’s reminiscent of 2008 crisis triggering outflowsfrom traditional advice to online brokers as consumers rushed to gain control,became aware of high fees, and reevaluated value propositions. We are seeingmoney in motion again, but this time with many more options on offer to theconsumer. Access to leading wealth management services has never been soavailable, there is a proliferation of ETFs for low cost portfolio building, along with low orzero commission and the advent of fractional investing which are lowering the barriersto entry. This all serves to empower individuals, many of whom may be new to savingand investing.
2. The overall result is a changing consumer profile that's providing firms with moreopportunity to shape relationships and grow. Yet many are still holdingmisconceptions and perceptions that inhibit better choices and identifying barriers tousage. Josh believes these are perceptive-driven and can be overcome. This newvariety of customer types engaging in self-direct investing has significant implicationson the range of trends and the need for more precise messaging and segmentationto make more informed roadmap choices. We might typically see the range frominvesting newbie, to the moderately informed but inexperienced wealth accumulator,to the sophisticated trader. Meanwhile, Josh stressed the importance of studyingconsumers based on attitudinal segments, comparing similarities and differences inattitudes, interests, preferences and values; these are the new basis for strategicmarketing and journey planning. For example, awareness among a newer consumertype his team calls "Digital Casting Call" may be best served by robo advice, is on therise and kicking the tires in self directed space.
3. Looking at usage and conversion data across brands through 2020... Canadianincumbent-led offers lead the way with Scotia iTRADE re-entering the top 5. It has beenan incredible story for CIBC Investor's Edge in Canada with dramatic improvementsconverting consumers to clients. There is massive competition in the USA withWellsTrade entering the top 5 for the first time. Robinhood is still converting effectivelythough there’s a large drop off from a year before while incumbent names are thrivingin the US, Fidelity and WellsTrade for example, perhaps initiated by the proliferation ofzero fees. Meanwhile they may be best positioned to manage through the volumesurges with strong workforce management procedures and the ability to readilydeploy educational efforts to their front line teams.
4. "Not knowing enough" is still a significant barrier. Education is a key theme withmany firms, investing in those programs, several with the support of Trading Central. Itis critical to be strategic though, otherwise there is a risk of alienating from specificsegments if we are not more sophisticated and take a simple “blast” approach. Joshpointed out that while many firms look at their own consumer data, it is also importantto look at broader consumer data to reduce blindspots and design more optimalinterventions, especially given the broader consumer types that are beginning toengage in our space.
5. Josh reviewed data on what service elements are driving satisfaction vspromotion. E.g. in 2019, the “availability of articles and blog posts” importance goingup vs “desktop” going down. 2020 data is being compiled as we speak and Josh invitespeople to reach out to him to take a look at it.
6. The positive news is that more people are testing out options for saving andinvesting which creates an exciting opportunity. The caveat is that firms failing todeliver a suitably modern client experience will lose out on growth opportunities overthe long term. Josh expects to see much more product and service convergencearound consumers to make sure they don't have suboptimal adoption of offerings forwhat could suit their needs better, hence the consolidation we see in the marketplaceof E*TRADE by Morgan Stanely, Schwab and TDA tie-ups, and so on. This delivers abetter chance to capture consumers and maintain lifetime client relationships.