Value Is Key as Stockbrokers Become Investment Advisors
Russel, Peter, Canadian Speeches
When Paul Halpern spoke to me about this conference in early December he asked me to give my views on the future of the retail stockbroker.
Was there in fact a future for them? Or are they being disintermediated by on-line trading?
I want to preface my remarks by saying that I don't for a minute question the future of on-line trading by people who want to self manage their portfolios. I can honestly say this because Royal Investment Services owns Action Direct, the second largest self-serve provider in the country and it is our fastest growing business.
So what is the future of the retail stock broker? There is no question that many commentators say they are "under fire." Even some of our full-service competitors seem to believe that the "death knell" is ringing for the industry.
Is there a future for them given all of these prognostications? To my mind, the short answer is "yes" -- there is a good future for them and "no" -- they are not being put out of business by on-line, self managed trading.
But -- and this is a big "but" -- in order to survive in this fast-changing world, the retail stockbroker is going to have to keep pace with the changes in their client's preferences. Fundamental to this is an understanding of what the investing public wants when they deal with a full service investment company. What they are looking for today is a long-term relationship with a well-informed and trusted investment advisor, who is focused on helping them achieve their financial goals.
What they don't want is "good ideas" and someone who can execute or broker a trade for them. Good ideas are a "dime-a-dozen." They're available at virtually no cost form a myriad of sources and order execution is $29 per trade through self-serve dealers.
I believe it was Vincent Massey who said "the past is the prologue" and what I would like to do is share with you some of the thoughts and experiences that we went through as we re-engineered our business into what I think is a very strong business with good prospects for the future.
Back in the late 80s the discounters had been on the scene in Canada for seven years, and longer in the United States. We recognized that they were in the process of fundamentally changing the business and while at that time we had no way of knowing the impact they would have once they e-enabled their customers, we did know that if we were to survive we were going to have to change.
We also understood what I think is the most important part, and also the most misunderstood part, of the equation. This is not about cost. It's about value. As we all know, cost is only an issue in the absence of value. What we had to do was give our clients value -- and on their terms.
It should be remembered that at the same time as the industry was going through these structural changes, so was the world we serve. Investors, due to declining interest rates, were looking for alternatives to traditional savings methods and the spectre of insufficient resources for retirement were pushing more and more people to find a more sophisticated investment strategy.
So, back to value and the new world. We asked ourselves what was it that our clients would be buying from us in the future. Well, first and foremost we knew they would not be buying a "trade" that was in the process of being commoditized. We narrowed it down -- in simplistic terms -- to:
1) Intellectual capital.
2) Service: making it easy for them.
We had to deliver real value in these two key areas and we had to package it so that our client understood that he or she was in fact receiving value.
I should say at this point that it sounds like we had it all nailed down. Well, in fact we didn't. It has taken a good 10 years to come to where we are today but thanks to intuition and research we worked our way through it all.
So what did we do? …