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 / First Quarter 1997 / Issue 6(originally published by Booz & Company)


Shifting Competition in the Brokerage Industry: New Imperatives for Full-Service Firms

For the full-service firms, logical target customers include planning-based investors who are attracted to packaged products, as well as those who are more oriented toward individual stocks. A further subset of planning-based investors -- people who invest in no-load mutual funds -- also should be considered a viable and valuable customer group.

To appeal to these investor groups, full-service firms should aggressively market the value they can add as a total-service provider. Understanding a client's goals and risk tolerance, developing investment strategies consistent with those goals and measuring performance against the goals will be critical to delivering on the full-service promise. In addition, the value of personalized service and individual attention, the convenience of bundling products together and the availability of research material are strengths and capabilities that should be actively promoted.

Enhancing product breadth, including offerings in the no-load mutual fund category and goal-oriented programs, is also critical. Most importantly, full-service firms must proactively manage client relationships to ensure that the value of their complete range of capabilities is being utilized and appreciated. These firms need to establish and deliver high service standards, and also initiate loyalty programs to help retain key customers.

Ongoing cost management is imperative, too, as customers become increasingly aware of the more cost-effective alternatives. Thus, full-service firms are faced with the challenge of reducing costs while enhancing operating efficiencies. They must pass these improved economics on to customers in the form of lower commissions or discounted fees in order to reduce the visible price disadvantage with specialized providers.

Superior service is now a basic requirement for all brokerage firms. Customers expect access to investment and account information 24 hours a day, 365 days a year, across a variety of channels. The full-service firms have to enhance their direct channels to offer these service levels. In addition, customer expectations will continue to become more demanding regarding transaction execution cycle times and the time it takes to resolve problems, as well as the rate at which those problems occur.

In conclusion, full-service firms must aggressively focus and manage their business to remain competitive in the coming years. As investor sophistication and expectations grow, customers will demand more from their investment service providers. The key for brokerage firms will be to respond to those types of investors who can benefit and derive value from the firms' core strengths, leading to profitable and sustainable customer relationships.

Reprint No. 97102

Peter C. Davis, Peter C. Davis, a vice president with the banking and capital markets group at Booz-Allen & Hamilton, specializes in banking strategy, governance and organizational structure. He has led numerous assignments for leading money center banks, investment banks, capital markets firms and brokerages.
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