Key Drivers and Strategic Response
Pricing, technology and product improvements are the biggest drivers of market share growth for the online brokers. Regulatory ChangesRegulations like Dodd Frank Act have brought in sweeping changes to for the entire financial industry and have even touched Online Brokerages, these regulations are set to alter the market structure and hence would even impact the way brokerages carry out surveillance. Cost-basis reportingBroker dealers and their clearing firms will soon have to report the clients’ cost basis in different investments, beginning in 2011 and continuing through 2013 depending on the investment type. The online brokerage platforms will need to be ready to comply with these regulations.
| Most of the regulatory changes focus towards increased reporting requirements and better surveillance. Most of the players in online brokerage space has started to gear towards these changes and are set to spend a major chunk of their IT budget in getting complaint with the law of the land. It is estimated that the IT spend across the industry(SRO, exchanges and Online brokerage) for setting up surveillance alone would be in upwards of $4 Billion as one time setup fee and around $2B for maintenance.
| Tapping in to the Mass Affluent Market: Mass Affluent market i.e. investors with less than $1 million in investible assets have been a forte of warehouses. However the recent financial crisis has made them unhappy with their financial advisors.
| Self-directed business model of online brokerage firms, with their low fees and the latest consumer technologies, such as mobile access to brokerage accounts and social networking, has gained traction among these consumers. The research by Aite group states combined market share of assets among the four wirehouse firms slipped 1.1 percent in 2009 and 2010, while online broker market share jumped 3.0 percent during the period, according to the report. Wirehouses now...
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