The online brokerage industry is only operating at 35 percent of trading capacity, according to a recent Celent report.
US Discount Online Brokerage Update 2005, released this month, suggests that while retail trading has recovered somewhat from the crash of 2000, Celent analysts still believe it is 21 percent below the 2000 peak.
E*TRADE’s bid for Ameritrade and the potential TD Waterhouse acquisition is only the first volley, as the pressure for online brokers to consolidate increases. In the report, Celent provides an overview and analysis of key market trends, identifying leading industry players and discussing their prospects for future growth. It also looks at the trends which are creating pressure for industry consolidation in the discount online brokerage industry.
The report also profiles several online retail brokerage firms and their product and service offerings.
As the discount online brokerage industry continues to recover from the dot-com crash of 2000, firms are getting used to the fact that retail trading levels may never return to the levels seen in 2000, and commissions are on a slow but sure decline. However, the leading online brokerages have had reasonable success in their efforts to develop new sources of revenue as the business continues to evolve.
“While the discount online brokerage industry will face extreme competition over the short run, it is not an industry that is going away, as people will always need brokerage services” said Lauren Bender, analyst in Celent’s Securities and Investments group and author of the report. “While it is clear that trading services – the traditional bread-and-butter of the brokerage business – is fast becoming a commodity, clients will gladly reward those firms that are able to help them successfully manage (and grow) their net worth.”
Despite current and future price cuts, sluggish growth and costly infrastructures, the discount online brokerage firms, in general, are well positioned to remain important providers of financial services to a growing number of Americans, as services traditionally provided by banks and investment advisors are increasingly provided by brokerage firms. The discount online brokers can expect to be a major beneficiary as this convergence in the retail financial services sector continues.
The firms examined in the report are Ameritrade, Charles Schwab, E*TRADE, Fidelity, Scottrade and TD Waterhouse.