Rocketeer #1: If interested read this article from CBS Marketwatch, we are sooo way ahead of the market in our thinking/acting...I hope you contact the columnist and confront him with THE FUTURE!
Monday, June 1, 1998ÿ
Part 1 of 3.
Conversations With America's Online Leaders:
Daniel O. Leemon, Charles Schwab's Chief Strategist.
Cyberspace Investing Revolution:
The Vision of Charles Schwab & Co.
Emerging New "Full-Service-Online-Discount-Broker-Advisors."
ÿÿÿÿÿ Charles Schwab has been on the leading edge of "The Revolution" since the mid-70s.ÿ First: Schwab challenged Wall Street with discounting.ÿ Phase two: Schwab charged into pre-Internet electronic trading.ÿ Phase three: Web investing exploded with new opportunities. ÿÿ
ÿÿÿÿÿ Phase four, the Millennium Merger: In the next decade, the lines between "full-service" advisors and "online discount" brokers will totally disappear.ÿ
ÿÿÿÿÿ New technologies and the new do-it-yourself investors are already forcing Smith Barney and Schwab to compete on a level playing field.ÿ Soon, all distinctions will vanish.ÿ Before 2008, at least 50% of all investors will have online accounts, a critical mass that will control the world's financial markets. ÿ They dictate what Smith Barney and Schwab offer.
ÿÿÿÿÿ The Schwab team has a clear vision of the future of online investing.ÿ And we had the good fortune of discussing it with Daniel O. Leemon, Schwab's Chief Strategist, who gives us aÿ peek into the millennium.
ÿÿÿÿ PBF:ÿ Where's online investing headed?ÿ Charles Schwab says, "We believe that everybody can take control of their financial future and for over 20 years that belief has shaped the services we offer our customers."ÿ So what's ahead for 2008?ÿ Where is technology taking us? ÿ Will most investors be online?ÿ Is the power shifting from Wall Street's brokers to online discounters and the individual investor?
ÿÿ ÿÿÿÿDOL:ÿ I start with the demographics, and not just the demographics, but their attitudes. There are really two things going on at once:
ÿÿÿÿÿ (1)ÿ One: It's all about the baby boom. The baby boom, as they age into the over-45 category, start to have real money, and start to get at a point in their lives where they realize they can't re-earn that money.
ÿÿÿÿÿ If they aren't already thinking seriously about investing, they start to get very serious about it as they have real money and as they realize that they would not be able to re-earn that money.
ÿÿÿÿÿ How will the attitudes of the baby boom, and how they want brokerage services delivered, change the industry?
ÿÿÿÿÿ (2) The other is: How does technology facilitate the change? We've actually got a wonderful coincidence going on. ÿ Technology is able to facilitate exactly what it is that the baby boomers want.
ÿÿÿÿÿ Our demographic projections are pretty clear and pretty obvious: Most of the growth in investable assets over the next ten years will happen with people over 45 who have over a quarter million dollars or so in assets.
ÿÿÿÿÿ When you get to the attitudes, what you discover is that the baby boomers don't want to compromise. They want everything.
ÿÿÿÿÿ Everything?ÿ What's their priority?
ÿÿÿÿÿ They've been accustomed to control and they now need more help.
ÿÿÿÿÿ Probably the biggest central trend is that:
ÿÿÿÿÿ - they need more help, they want that help,
ÿÿÿÿÿ - but they don't want to give up control.
Most of the investable assets today among serious investors are with full commission brokers, and when you talk to their customers - and again we get a sense of how well are they being served and what are the attitudes - you get a very, very interesting dichotomy.
ÿÿÿÿÿ On the one hand, if you ask them about brokers generally, the customer is very clear that the full commission broker is:
ÿÿÿÿÿ - high-priced,
ÿÿÿÿÿ - is conflicted, and may or may not have good advice for them,
ÿÿÿÿÿ - and really doesn't have the kind of accessibility that they'd like.ÿ
ÿÿÿÿÿ On the other hand, when you ask the full commission broker customer, "How do you like your broker?"ÿ They like their broker. Their broker they find responsive. They like the fact that their broker knows who they are. They believe their broker is coaching them and helping them and giving them ideas.
ÿÿÿÿÿ So what's powerful about that to me is that the customer goes to the full commission broker because there's a level of personal attention and a level of personalized and customized information they get that's really very valuable to them.
ÿÿÿÿÿ We and the rest of our industry really need to listen to that message.
ÿÿÿÿÿ They know they're making all kinds of compromises in order to get that from the full commission broker, so we're starting to talk more and more about redefining full-service brokerage.
ÿÿÿÿÿ Schwab is redefining the full-service brokerage business?
ÿÿÿÿÿ People who are called full service brokers have never really been full service to begin with because of:
ÿ ÿÿÿ - limitations in access,
ÿÿÿÿÿ - because their information is proprietary,
ÿÿÿÿÿ - because their products are proprietary, and
ÿÿÿÿÿ - because their prices are high.
So we think the opportunity's there for us - given both the demographics and the technology - to provide that full service:
ÿÿÿÿÿ - at a reasonable costÿ
ÿÿÿÿÿ - to provide the personalization
ÿÿÿÿÿ - to reach out to customers
ÿÿÿÿÿ - to be able to look over their shoulders if they'd like
ÿÿÿÿÿ - to give them ideas if they'd like us to
ÿÿÿÿÿ - to help them understand how they're doing and what they could be doing better,
ÿÿÿÿÿ - without the compromises on price, on quality of the advice, on objectivity of the advice and on access of the brokerage firm.
ÿÿÿÿÿ That's a tall order: How are you going to do all that?
ÿÿÿÿÿ Technology's obviously going to facilitate all of it.
ÿÿÿÿÿ We're only just in the very, very beginning of what specifically the Internet can do for investing. So far, the Internet has been a place to go check quotes and trades.
ÿÿÿÿÿ Ten years from now, quotes and trades are going to turn out to be a very, very small part of what the Internet is actually able to do for investors.ÿ The Internet is going to be much more about being able to consistently reach investors with information that:
ÿÿÿÿÿ - they would like to have to make decisions and choices
ÿÿÿÿÿ - that reaches them in a timely fashion
ÿÿÿÿÿ - is tailored to them
ÿÿÿÿÿ - and being able to have that with a much greater degree of personalization and outreach.
ÿÿÿÿÿ So you have this demographic and attitudinal trend where you've got more and more people who want
ÿÿÿÿÿ - help and advice
ÿÿÿÿÿ - but they don't want to relinquish control and
ÿÿÿÿÿ - they don't want to make those compromises they made with the full commission broker.
ÿÿÿÿÿ And we've got the technology coming up that actually enables those desires to be fulfilled in a pretty uncompromising way.
ÿÿÿÿÿ So it's an exciting future for us and an exciting future for our industry.
ÿÿÿÿ A Forrester Research study predicts that the broker of the future, in 2003, is going to be less sales-oriented and more of an advisor - a CPA, entrepreneur, engineer or MBA rather than salesmen. Further, they predict that the full-service brokers that now handle an average of 75 clients will, in the future, be handling 250 clients, thanks to technology. But won't that increased load actually make it more difficult to give personalized attention?
ÿÿÿÿÿ Let me back up and give you our overall perspective on this.
ÿÿÿÿÿ The key attitudinal dimension when you come to investors lays out on a scale from the "self-directed" investor on one end and the "delegator" on the other end.
ÿÿÿÿÿ [1]ÿÿ The "self-directed" investor is the classic discount broker customer who basically says, "Give me access to the market and get out of my way."
ÿÿÿÿ ÿ[2]ÿ The "delegator," which is all the way over on the other end, is someone who says, "I really would like you to do this for me. I'd like to know who you are and I'd like to check in once in a while, but I'd really like you to do this for me."
ÿÿÿÿÿ [3]ÿ The "validator:" Most customers, in fact, are in the middle. Those are people who want to have a lot of direct control but do want some help making suggestions and again validating what they're doing, telling them if that makes sense to them.
ÿÿÿÿÿ So, when you get to the delegator, at that far end of the scale, that delegator actually wants personal contact. That delegator is typically an older investor.ÿ Typically can be a wealthy investor, although they don't have to be.
ÿÿÿÿÿ And that delegator wants a face-to-face with someone who is really customizing for them, who knows their age, their tax situation, very specifically, and knows how many kids they have and what their attitudes are about spending it before they die versus transferring wealth, etc.
ÿÿÿ ÿ How can an online broker best serve the "delegator?"
ÿÿÿÿÿ The way we cover that piece of the business at Schwab is with independent investment managers who, again, are unconflicted and we think are a pretty fair value. They typically charge 1% to 1.5% of assets.ÿ They will sit down with you and actually manage that money for you under a limited power of attorney, under the guidelines that you and they put together.
ÿÿÿÿÿ When you get away from the delegator,ÿ you're talking less and lessÿ personal and customized, and you're talking more and more personalized. So you're talking about investors who in a sense will take the final step of customization themselves.
ÿÿÿÿÿ We could be doing a lot better with those people than we are today by understanding not just risk and age and wealth, but more about their investing style and their level of investing sophistication. And I don't think you need to come to them with, "We've just done five weeks of work on your portfolio and here it is."ÿ
ÿÿÿÿÿ We can come to them with much more of a "personalized" approach that says:
ÿÿÿÿÿ -ÿ "We know you aren't interested in fixed income, so you won't see any of that when you come to the Schwab home page."
ÿÿÿÿÿ -ÿ "We know that you tend to like aggressive growth equity funds, so you'll actually see a lot of information about those."
ÿÿÿÿÿ -ÿ "And we will help you figure out how well you're doing in selecting your mutual funds, whether you are tracking against your goals over time, if you have goals for wealth accumulation or paying for college or something like that."
ÿÿÿÿÿ And all of those services can be delivered with technology.
ÿÿÿÿÿ Ultimately you get to what the technologists and the marketers call "Segment of One" marketing.
ÿÿÿÿÿ One of the great misconceptions in our industry is that investing is incredibly complicated....
ÿÿÿÿÿ Wall Street lives by that myth....
ÿÿÿÿÿ ....and that investing needs to be very, very different.... person to person....
ÿÿÿÿÿ Please join us tomorrow for part 2 of our interview with Daniel O. Leemon, chief strategist for the Charles Schwab organization, discussing the cyberspace revolution, as technology and the new do-it-yourself investor force Wall Street into discount brokerage.
ÿÿÿÿÿÿComments? Please e-mail Dr. Farrell.
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