Offline Brokerages May Suffer

A study by Cyber Dialogue and Booz-Allen & Hamilton found that consumers today rely significantly less on the traditional offline broker structures for their transactions.

According to the “Cybercitizen Finance” study, the increasingly content-rich offerings now available online are equal to, and in some cases surpassing, traditional brokerage firms for research, transaction execution, and overall service.

“The only advantage left for the traditional firms is advice, and the online firms are closing fast in that area too,” said Booz-Allen & Hamilton VP Grande Bucca.

There are more than 500 brokerage companies on the Internet, the study found. By the end of 1999, an estimated 10 million brokerage accounts will be able to trade online, nearly double the current number, according to the study.

Despite the tremendous growth in this market, only 6 percent of investors are currently trading online, but more than half (58 percent) are either currently using the Internet, or plan to go online within one year. Of those respondents to the survey that trade online, 78 percent rely on their own research, compared to 60 percent of offline traders. Only 25 percent of those trading online said they wanted detailed research to make investment decisions, and 39 percent believe that low fees are important when choosing where to trade.

The study indicates that the vast community of small to medium-sized brokerage firms are likely to suffer if they are not able to sustain an attractive cost structure, high levels of service, quality offerings, and advice for full-service investors in the future.

“This study underscores the increasingly important role of online brokerage offerings as an alternative to the traditional broker network and could foreshadow dramatic changes in the brokerage industry,” Bucca said. “The implication is that unless full-service firms begin to realign their services to include high-quality online offerings, investors who believe they are not getting personalized service from their brokers will quickly become candidates for these hybrid, direct competitors.”

The study is based on in-depth interviews with 1000 Internet users and 500 non-users. Respondents were asked about their use of online and offline financial services. It was fielded in the second quarter of 1998.

Other findings of the survey include:

  • 23 percent of the offline population said they require broker interaction
  • 52 percent of offline believe online research is as good as offline
  • 50 percent believe low fees are important when choosing where to trade

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