Online Financial Services Falling Behind the Phone

The telephone has surpassed the online channel as the most common channel used by brokerage customers for purchasing a number of investment products, according to research by Harris Interactive.

The online poll of more than 2,900 consumers with brokerage accounts found a shift compared to a March 2000 poll when the Internet was the preferred channel among brokerage customers for purchasing margin accounts, stocks, stock options and money market accounts. Among brokerage customers who have obtained each investment product, top products purchased online by brokerage customers include:

  • Margin accounts (53 percent of those who obtain margin accounts do so online), down 10 percent since the March study
  • Stocks (40 percent), same as the previous study
  • Stock options (34 percent), down 6 percent since the previous study
  • Initial public offerings (27 percent), down 3 percent since the previous study
  • Money market accounts (21 percent), down 18 percent since the previous study

The results also show that a larger proportion of brokerage customers use the online channel for margin account purchases than in-person or telephone methods. The only product that the largest proportion of brokerage customers are purchasing in-person are CDs (51 percent).

Although brokerage customers are using the online channel for a number of product purchases, the telephone is currently the preferred method for purchasing a number of products, including corporate bonds (71 percent), initial public offerings (55 percent), U.S. treasury or municipal bonds (43 percent), stock options (41 percent), money market accounts (41 percent) and mutual funds (41 percent).

“The resurgence in the use of the telephone over the last quarter as the preferred method of purchasing investment products has been substantial,” said Lisa Fader, director of financial services research at Harris Interactive. “Perhaps the overall decline in confidence within today’s marketplace has caused investors to turn to their brokers rather than rely on their own judgment over the Internet while making important investment decisions.”

The desire for expert advice, the downturn of the stock market or the burst of the dot-com bubble may all be playing a role in the resurgence of the telephone with investors. Earlier research by Cyber Dialogue suggested that despite their expansion of services to include banking and other financial services, financial institutions are not saving on customer service because consumers continue to use online and offline channels.

According to a financial services report by Jupiter Research, financial services firms may have been caught focusing more on expanding online and wireless products than improving their existing Web sites for customers. According to the report, “Integrated Finance: Composing a Symphony Out of the Discord,” four times as many CEOs said they are more interested in increasing their mobile and online offerings, than did the number that said making their sites more user friendly is a priority. Jupiter analysts warn that financial services businesses will lose major market share if they fail to offer integrated, customized and simplified online offerings that better suit customer needs.

“Major financial institutions are in a race to outdo one another by developing new online and wireless products to gain market leadership, but are leaving usability and customer satisfaction in the backseat,” said James Van Dyke, Jupiter analyst. “For financial institutions, the key to winning in this economy is to simplify and integrate basic services, such as banking and lending, insurance, investment and payments.”

Jupiter analysts found that there is a clear disconnect between the products that online institutions are building and the services that their customers are seeking. Financial institutions that address this disconnect will see more than their fair share of online asset growth.

A Jupiter consumer survey found that customer service (52 percent) and federally insured accounts (59 percent) are the most important qualities consumers look for when choosing a financial services provider. Only 7 percent of consumers cite availability of promotions as important criteria for selecting a financial provider. While many financial institutions focus on features, consumers’ demands largely fall in two basic categories: trust and convenience, and Jupiter analysts caution that new features produce only complexity, which is fundamentally at odds with the desired goal of customer convenience.

“As leading financial companies remain obsessed with first mover advantage, their failure to integrate services, content and advice is preventing customers from realizing their time-tested goals of trust and convenience,” Van Dyke said. “Those institutions that fail to effectively merchandise a widening array of multichannel offerings will be left with a shrinking base of customers.”

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