Brokers shift marketing gears

There was a time when brokerages relied on their reputations alone to draw investors, but the Internet has changed all the rules. A shift in investor demographics and increasing demand for custom services has many online brokerages scrambling to overhaul the way they market their businesses.

As a rising tide of 20-something investors turn to the Net to take charge of their financial future, brokerage houses--buttoned-down operations that are sticklers for tradition--are facing the challenge of attracting the elusive Generation X without alienating more seasoned investors that often have vastly different needs.

Don Montanaro, chief executive of online broker SureTrade, said his company is interested in drawing investors in their 20s because of their long-term potential. At the same time, of course, brokers need to find clients who already have assets to invest--and that usually means clients in the 35- to 45-year-old range, whom SureTrade is targeting with low commissions.

Online brokerage Datek, on the other hand, has been able to capitalize on younger people's concerns about their financial future in its online investment marketing.

"The 20- to 25-year-olds express concern about retirement and if they will have Social Security when they retire," said Alex Goor, the company's chief executive. "We charge $9.99, and you can invest less money and still turn a profit and not have to worry about commissions as much."

The change in potential business is reflected in highly visible marketing and advertising campaigns in various media. Reaching out beyond their own medium, online brokerages are touting their services in print, television, and radio ads.

Online brokerage Ameritrade, for example, took out a full-page advertisement in the Wall Street Journal earlier this month to promote its three-tiered pricing plan for executing trades via the Internet, telephone, or broker assistance.

Datek uses 20 percent of its marketing budget for print and radio ads, while the bulk of its funds go toward online banner ads on some 700 sites, Goor said, adding that Internet advertising has proven effective in terms of both reach and cost. He said online advertising is also more malleable, allowing for quick and easy changes if a particualr ad campaign isn't working.

At the other end of the spectrum, many traditional brokerage houses have publicly played down the importance of online trading. At the same time, however, some brick-and-mortar brokerages have acquired online counterparts to serve the increasing number of investors turning to the Internet.

Dean Witter and PaineWebber, full-service traditional brokers, do not offer online trading from their Web sites and say they have no plans to do so. But Dean Witter must see some benefit in offering online trading, because last January it purchased Lombard Brokerage, which subsequently changed its name to Discover Brokerage Direct and unveiled an updated Web site last week. Discover allows investors to trade through a live broker, on the Internet or the company's touch-tone telephone system.

Discount giant Charles Schwab is trying to make the best of both worlds, running a single advertising campaign to market both its online and traditional trading services. The company recently combined its trading services into one type, rather than requiring investors to maintain separate accounts, a spokesman said.

The company's ad campaign tries to promote trust, experience, and reliability--but warns that such advantages come at a price. (The theme of one radio ad is: "You get what you pay for.") Schwab offers online trading for $29.95 and soon will be introducing services tailored specifically to customer needs.

The tried-and-true way to attract customers and maintain profits for the discount brokers like Schwab is to move into the mid-tier brokerage arena, which offers wider advisory services and broader product offerings in addition to online investing.

Forrester Research predicts that the mid-tier broker--an online broker that provides automated financial advice and access to live investing assistance--will become the dominant online broker by 2002. The market research company also predicts that deep-discount houses face a profit squeeze as lower commissions take a toll on earnings. Full-service brokers will continue to leverage their considerable research resources to serve the wealthy community online, Forrester speculates, but most likely will not expand into the mainstream.

 

Go to: High-tech portfolio for Generation X