Mark, good morning. Who do you listen to?
>>How's the Online Brokerage Industry Doing ? Depends Who You Ask
On the heels of a sell-off and a raft of complaints about its
advertising practices, the online brokerage industry faced more
scrutiny this week as a result of a new report from Jupiter
Communications. Was the news good or bad? That depends on where you
looked.
CBS MarketWatch posted an unquestioning report that recapped Jupiter's
sunnier predictions. Online brokers will lead growth in the
financial-services sector, with assets in online accounts hitting $3
trillion in 2003, up from $415 billion in 1998. In five years, the
report went on, 41 percent of U.S. households with stock investments
will have online trading accounts.
But Jupiter's news wasn't all positive. It also predicted that the
number of trades per household would drop. MarketWatch soft-pedaled
the downside, but other outlets homed in on the fact that fewer trades
will mean that brokers will be more dependent on revenues from fees
and other services. Already the slowdown in online trading has sent
some brokers running for the scissors, according to Barron's Online.
Firstrade dropped its market order commissions to $6.95, while E-Trade
has offered a break to active traders who make more than 75
transactions in a quarter.
The slowdown in trades leaves discount brokerages especially at risk
if the market tanks, according to News.com's Sandeep Junnarkar.
"Brokers that insist on catering to [people who trade stocks daily or
weekly] are going to be fighting for a smaller and smaller market -
not just market share," Gomez Advisors analyst Chris Musto told
News.com. Musto added that the sector is likely to undergo major
consolidation and a shake-up.
The Jupiter report offered more grim news about online brokerage
firms' revenues. Interest, fees and other services will represent 80
percent of online brokerage revenue in 2003, up from 36 percent in
1998, according to the report. But services are costly to offer. "It's
not cheap to have brokers on call," Jupiter Research analyst Robert
Sterling told Junnarkar. "It's difficult to pay the cost to have
real-estate, financial- and estate-planning, and mortgage experts on
call."
For an industry that will depend more and more on services, it's not
doing a very good job connecting with customers. Only 39 percent of
financial-services sites responded to customers' inquiries in one day,
according to Jupiter. Retail shopping sites are much more responsive,
getting back to two out of three customers within one day. "Key
players are going to have to think more like retailers and invest in
the infrastructure to help support a more mainstream customer base,"
Sterling told ZD Interactive Investor's Tiffany Kari. << |
