The Power of Digital: Self-Directed Investing in 2020

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The self-directed retail investor market has faced tectonic shifts and become increasingly competitive as traditional brokerage firms and specialist, technologically- founded challengers battle for market share. One of the most critical differentiators for all brokerage firms and platforms is their digital proposition and utilization of today’s technological pillars of transformation. Firms’ digital initiatives that can ultimately create the ubiquitously sought-after “superior client experience” are driven by emerging technologies, such AI-powered insights, cloud computing, an open API architecture, and the strategic use of data and analytics, including ESG data ratings. While the mobile channel is not considered an emerging technology, Celent views it as a must-have for today’s brokerage firms. These technologies are interdependent and can improve performance, client experiences and innovation, and ultimately propel firms into the platform of the future.

One of the prominent challenges that brokerage platforms face today is how to remain competitive in an increasingly crowded marketplace while providing guardrails for their clients. How can brokerage firms go from a platform of today to a platform of the future that is coveted by tech-savvy, nextgen investors while being a trusted financial partner for the duration of a client’s financial life? Celent aims to address the necessary prerequisites for firms to deploy such technology and will provide recommendations for brokerage firms by asking key questions of consideration to help pave a forward-looking path.

This is the second report in a series of three studying the brokerage market in 2020.

Celent’s first report in this series, The 2020 Self-Directed Investor and Brokerage Market, studied how the move from low to zero commissions encouraged firms to differentiate themselves through the client experience and alternative revenue streams. Importantly, investors’ digital proclivity and demand for personalized services have soared, and external forces, such as the COVID-19 pandemic and volatile political and market events, have had a profound global effect on investors and platforms alike. Barriers to enter the financial market have been minimalized due to the digital nature of today’s environment and the proliferation of information at investors’ fingertips — the markets are no longer reserved for institutional investors or HNWI. The goal of democratizing the financial markets is becoming a reality.

In the first report, Celent sized the retail investor market and provided a summary of the major differences between self-directed traders and brokerages’ offerings. Celent also addressed the impact that the COVID-19 pandemic has had on brokerage platforms and the investor base, specifically addressing the demand for ESG investing, education features, goal-based planning, and financial planning tools.

The size of the retail investor market will continue to grow as education tools become more pronounced and the accessibility to the financial markets by individual investors is increasingly prevalent. As such, segmenting the client base beyond affluence levels is critical to firms staying competitive. The change in the core client base is a key area of consideration and will be discussed in depth in Celent’s third report in this series.