Retail Financial Services In 1998
Harvard Business School
9-799-051
December 16, 1998
Retail Financial Services in 1998
Delivery of retail financial services in the US was undergoing substantial realignment. With the relaxation of regulatory constraints on traditional financial intermediaries—banks, mutual funds, insurance companies, and brokerages—products and services were becoming increasingly similar.
Banks and insurance companies were selling mutual funds, and Fidelity and Schwab were offering a full line of banking products and services, although unbundled and separately priced. Investment advice, once the hallmark of full-service brokers, was being offered by almost everyone in some manner. (See Exhibit 1 for a list of product offerings in 1986 and 1997 of some of the world’s largest financial institutions.)
At stake was the $27 trillion of invested household assets, growing annually at 10%, only 27% of which was professionally managed in 1995. With the emergence of 401(k)-based retirement plans and the growing personal responsibility for retirement finances, US consumers were becoming increasingly interested in capital markets, albeit at an unsophisticated level. A dizzying array of products and services, and abundance of information in the popular press and on the Internet, had intensified consumer choices. With 20% of investors generating 80% of the profitability in retail financial services markets, financial intermediaries were focusing on two key segments: high net worth investors (the baby boom generation which stood to be the beneficiary of an estimated $10 trillion dollars in assets by the turn of the century), and technologically savvy investors who made their own decisions and executed them online.
Ten years ago, there were expectations that a “supermarket” of retail financial services would emerge with firms such as Sears, American Express, Prudential-Bache, and others, vying for customer control. In 1998, Sears was no longer in the business, American Express had retrenched,
9-799-051
December 16, 1998
Retail Financial Services in 1998
Delivery of retail financial services in the US was undergoing substantial realignment. With the relaxation of regulatory constraints on traditional financial intermediaries—banks, mutual funds, insurance companies, and brokerages—products and services were becoming increasingly similar.
Banks and insurance companies were selling mutual funds, and Fidelity and Schwab were offering a full line of banking products and services, although unbundled and separately priced. Investment advice, once the hallmark of full-service brokers, was being offered by almost everyone in some manner. (See Exhibit 1 for a list of product offerings in 1986 and 1997 of some of the world’s largest financial institutions.)
At stake was the $27 trillion of invested household assets, growing annually at 10%, only 27% of which was professionally managed in 1995. With the emergence of 401(k)-based retirement plans and the growing personal responsibility for retirement finances, US consumers were becoming increasingly interested in capital markets, albeit at an unsophisticated level. A dizzying array of products and services, and abundance of information in the popular press and on the Internet, had intensified consumer choices. With 20% of investors generating 80% of the profitability in retail financial services markets, financial intermediaries were focusing on two key segments: high net worth investors (the baby boom generation which stood to be the beneficiary of an estimated $10 trillion dollars in assets by the turn of the century), and technologically savvy investors who made their own decisions and executed them online.
Ten years ago, there were expectations that a “supermarket” of retail financial services would emerge with firms such as Sears, American Express, Prudential-Bache, and others, vying for customer control. In 1998, Sears was no longer in the business, American Express had retrenched,