Tag Archives: online broker

Future of online trading: App stores for investing

It’s been a truism that the secret to runaway success in technology has PlatformLeadershipBookalways been in platform building.

I learned about the intricacies of building platform leadership from a book by the same name, “Platform Leadership” which I read during my MBA. The book by Gawer and Cusumano detailed how Cisco, Intel and Microsoft drove industry innovation by building a robust, standardized technology platform other leading-edge products could plug into.

The premise of the book was powerful: companies that could create products/services that served the center of a powerful ecosystem of ancillary items built on top of these products become extremely valuable.  Think Intel Inside and Microsoft’s dominance of the OS.  Presently, think of what Salesforce.com is doing with its platform as well as Apple’s iPhone App Store.  By creating a platform around which 3rd party developers are incentivized to design and build products, these companies have created something much more valuable and harder to displace than a mere product.  They’ve created a platform.

Investment field riddled with platforms

The investment field is riddled with platforms, too.  Bloomberg runs an empire based on an install-base of thousands of terminals in most of the leading investment institutions around the world.  You want to reach institutional investors with financial content? Gotta work through Bloomberg.  Yahoo Finance is the granddaddy of financial websites, far and away seeing more pageviews than any of its competitors.  You want to reach the retail investor, gotta get on Yahoo Finance.

Platforms provide necessary structure to certain markets.  In the investment field, platforms like Bloomberg and Yahoo Finance serve to

  • Aggregate content: investors don’t have to hunt down information by doing hundreds of Boolean searches on the Internet.  By serving as content aggregators, the platforms serve as a clearing house and central node to consumer info.
  • Establish an orderly market: Platforms create order by creating certain standards for their products and partners.  Bloomberg and Yahoo Finance established syndication guidelines via which partners must comply to be on the platform.
  • Create viable business models: It’s not clear to me that many investment research products could survive on a standalone basis.  Investors don’t like to pay for content and by aggregating pageviews on a single site, Yahoo Finance actually creates a viable business model for their partners and shares it out with them.
  • Consolidates usage to make single a jumpoff point to reach users: By consolidating the market, making it orderly and putting viable financial metrics behind it, finance platforms are the gateway to the users.  It’s too hard, complicated and expensive to reach investors directly.  These platforms act as market makers for the investment content bringing suppliers and customers together.

Online Brokerages as Investment Platform

While reviewing a recent product/service that E*Trade launched last week, I stumbled upon the realization that online brokerages are doing the exact same thing that Apple is doing around the iPhone.

In fact, it’s a HUGE misnomer to call these firms “online brokers”.  What were once merely online trading systems, companies like Ameritrade and E*Trade are actually now in the platform business.  As this evolution develops away from just trading toward the development of a true investment platform, these firms are creating something so much larger than just online trading or banking services.  I like the term “investment platform”.

Ameritrade’s Premier Partners

platformpartners

Check out what Ameritrade is doing with its partner platform.  This page lists a handful of 3rd party applications that run on top of Ameritrade for clients to receive trading alerts, Jim Cramer’s wisdom, ongoing advice about when to sell and some nifty charting.

None of these services are completely groundbreaking in and of themselves, but Ameritrade is establishing itself as the nucleus of the investment ecosystem.  By allowing developers to build tools and hook them up to Ameritrade’s API, the firm is concretizing its position as the investment platform of choice.

You want to reach investors?  Gotta get on the platform.

While the platform provider has an unbelievable amount of power, on the other hand, having a platform enables software/services developers to effectively reach the investor smack dab in the middle of the investment process — something heretofore impossible to do.  Look to see a lot of services develop around this ecosystem.

It’s like milk — for everyone

It’s a boon for Ameritrade — they can provide more services for their client base without developing them in-house.  It’s a boon for consumers because they no longer have to wait on their broker to provide new services.  It’s a boon for software developers because a move toward a platform puts them in business.

Maybe this was self-evident.  Maybe others understood that this evolution was unfolding right in front of us. In fact, both Ameritrade and E*Trade have allowed 3rd party financial advisors access to their platform, technology, services and clients for years.  Yet, I think this is a huge breakthrough in the understanding of what the future holds for these particular firms, their clients and technology development. It’s the financial industry’s equivalent of a mash-up.

Exciting.

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E*Trade further blurs lines between full-service and DIY investing

Full(er) Service and DIY Investing: Investor Fork in the Road

There is no doubt we are witnessing a wholesale exodus of assets out of full-service brokers like Merrill Lynch and Smith Barney. These assets seem to be finding two very different types of homes:

  1. boutique investment advisory houses: Built by brokers/advisors who themselves have defected from the large wirehouses, these firms take service and advice very seriously. In some sense, they’re a further move into full-service. They are competing head-on with traditional brokerages by upping the ante on technology, service and investment advice.  Investors who feel slighted by their advisor and want the extra hand-holding find this model really attractive.  It’s interesting to note that many of these firms are being founded/built by traditional brokers evolving to this model.
  2. online brokerages: Firms like E*Trade and Ameritrade are taking the bulk of this business.  In the wake of the financial tsunami, some investors are looking to take back investment decisions and don’t want to pay someone else for underperformance.  Proof of this is in capital flowing to online brokerages.  E*Trade reported that it had net new accounts of almost 30,000 in the first quarter of 2009 with $3.5 billion in net new customer assets.

I’ve written about the emergent trend towards high end investment advisors and how traditional stock brokers are resurrecting themselves and building smaller, nimbler firms with their billion-dollar books of business.  I’ve spent less time discussing how online brokers are luring assets.

Online Advisoretrade_onlineadvisor

I had the opportunity last night to have a guided demo of a recently-launched E*Trade product, Online Advisor, with E*Trade’s Liat Rorer, VP of Investment Products.  Online Advisor, developed as part of E*Trade’s newly-minted Investor Resource Center, is a nifty little financial planner-in-a-box.

In a quick and easy 4-step process, Online Advisor: Continue reading

Schwab beginning to get the social nature of retirement services

Charles Schwab announced today that it was launching what it calls “Real Life Retirement(TM) Services”.  You can see what it looks like here (screenshot to the right).

schwab-retirement-services

Background info on the launch

From the press release:

“We have a different point-of-view from other financial firms in how we approach retirement. For most people, retirement isn’t about hang-gliding or hitting the golf course every day. People dream of balance – enjoying a comfortable lifestyle, covering healthcare costs, spending time with family and friends, and making sure they won’t run out of money,” said Mark Jamison, vice president, Charles Schwab. “We chose to build a service that addresses real life challenges people are facing today, which typically don’t involve a life sailing around the world,” he added.

Why now

Schwab conducted a pulse survey in the first two weeks of 2009 and found the following:

  • One in four (26%) adults surveyed ages 55-64 do not know whose advice to trust when it comes to retirement planning.
  • 33% of 55-64 year olds indicated they are confused about weighing the immediate marketplace alongside their long-term goals.

There is a lot of info on this site and much of it is traditional online brokerage marketing/services like portfolio review, retirement calculator, and a free consultation.  But there is something really interesting lurking beneath what’s going on here and it has to do with the social aspect of how Schwab is marketing itself.

You see, retirement investing is very much about allaying fears and how better to soothe anxious retirement investors than a channel to ask questions and to see what questions they should be asking by seeing what others are concerned with.

I’ll show you what I mean:schwab-retirement-questions
First note the question input box.  It’s friendly and accessible.  No login requirements and it’s open to non-Schwab account holders.

Second, I can peer into the other questions being asked.  Questions like “How are my expenses likely to change in retirement” and “How do I estimate health care costs in retirement”.  Because Schwab is a broker/dealer, the firm can’t respond directly to specific questions thrown at it but can address the general nature of the question.  Not perfect but definitely a step in the right direction.

What Schwab accomplishes with this launch

Schwab does a couple of things with launching this portal (again, you can see it here)

  1. Baby steps towards adopting social media: If social media’s success is built off an inherent voyeurism we all share, Schwab’s question/answer system enters the game.  Traditional online brokerages have been slow to adopt social media while upstarts like Zecco and TradeKing have been more aggressive in differentiating themselves as upstarts in a field that’s somewhat commoditized.
  2. Redefines how baby-boomers nearing retirement think about retirement: Baby boomers are using the Internet and when it comes to researching such anxiety-ridden issues like retirement, they are reaching out to one another for support.  Schwab leverages this trend indirectly via its ability to harness questions and publish the answers.  It’s good for investors and the questions in and off themselves are good content.
  3. Schwab gets great market research.  Much is discussed about social media’s ability to help get users smart fast.  Social media is totally about the publisher getting smart about what its readers/prospects/investors are interested in.  Schwab has a living lab to tap the collective interest of its constituents.  That’s powerful.

Let’s keep an eye on this space.  I expect to see a lot of activity as competition for investment assets continues to grow.

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Schwab no longer run by Schwab: discount broker pioneer steps down

“Fire your broker!”  How many of us remember those ads of yore that implored brokerage clients to fire their wirehouse broker and move over to Schwab (SCHW)?  They are indelibly imprinted on my brain, anyway.

Charles Schwab

What’s more is that the message as definitely driven the direction of the brokerage business over the past couple decades.  Industry studies show that retail brokers are finding it harder and harder to compete against online brokers.  So, Schwab was definitely onto something when he introduced the discount, DIY (do-it-yourself) model to investing.  It was revolutionary at the time.

Interesting to see that after founding the firm in 1971 and with a couple of stabs of having outsiders at the helm, Charles Schwab seems to be moving aside and empowering a new general to take the helm of the $26B financial services firm.

What’s interesting here is that new CEO Walter Bettinger II has been instrumental in refining Schwab’s

retail branch network and service centers.  Having a leader with a focus on the retail customer is not by chance.  After Schwab and other online brokers moved into full-services by providing banking, wealth management, and mortgage products, it seems that the aftermath of the popping of the debt bubble is leading to a renewed focus on retail.

This is a good thing for Schwab, its customers, and the industry in general.