Boston-based TowerGroup is predicting a business model shift in retail brokerage as firms increasingly combine Internet discount and full-service offerings.
The research, conducted by analyst Ed Kountz, expects North American retail securities IT spending to reach $6.91 billion in 2001, a 22% annual increase, with approximately one third of this spending figure going to Internet-related front-end projects. A growing percentage of spending will occur among full-service and blended full-service/discount brokers, says Kountz, now that the limitations of Internet-only brokerage are becoming apparent.
This increase in spending reflects the need for multi-channel delivery, states the report, and corresponds with the rise of a new business model, dubbed "optimal brokerage" by TowerGroup. The new model combines Internet discount and traditional full-service brokerage elements, such as multi-channel delivery; standard Internet trading capability; additional products, tools, and services; and enhanced investor advice. The push toward optimal brokerage offerings is giving large retail brokers an incentive to expand the financial tools, product offerings and cross-channel connectivity they provide on tap, states the research.
Dennis Ceru, newly appointed research director of the online brokerage & investing service at TowerGroup, notes that the original concept of Internet brokerage - a self-directed investor making his or her own trades and decisions - is quickly shifting.
He predicts: "IT spending in 2001 by retail brokerages will be highest in areas like portfolio management, relationship management and decision support-areas where firms feel they can provide front-end value to their brokers, customers or both."