Predictions of the demise of the stockbroking industry have not only proved premature, but incorrect. The truth is, retail stockbroking is an industry with a lot to celebrate and look forward to.
But like any industry or company, retail stockbroking operates in a competitive environment. I’m reluctant to use the term ‘disruption’ because the reality is that today, disruption is synonymous with doing business.
Adapting to the rapid pace of change
According to McKinsey, the life-span of a company listed on the S&P 500 in 1935 was 90 years. It’s now 18 years and falling fast. Business models are changing at a much faster rate than this.
I regularly remind the team here at IRESS that the companies that will be around in the future won’t be those that are the largest. They’ll be the ones that can adapt. And even then, the ability to adapt will not be a guarantee - merely a ticket to the game.
Across all of our markets we’re seeing the same four themes dominating:
"The companies that will be around in the future won't be those that are the largest. They'll be the ones that can adapt."
The Australian retail stockbroking industry has been adapting in the face of this change. It has already moved through change including shifts in consumer behaviour, emerging technologies, increased compliance obligations, movements in the regulatory environment and new execution venues.
While these challenges will continue, there are also clear opportunities. Following sentiment stemming from the Royal Commission, the opportunity for direct investment and transparent access positions retail stockbroking well.
In our experience, the United Kingdom is a good place to look to understand these opportunities.
Learning from other markets
More than ten years ago, IRESS started expanding from Australia overseas, including into the UK and also moved into wealth management technology. We were self-conscious about this. We thought our clients, specifically our trading clients, back home would feel we were leaving them, focusing our interest elsewhere - and, in fact, this was some of the feedback we received.
Today we confidently talk about the steps we took because it has brought with it many insights that can be used across markets. For example, alongside specific Australian research, our experience with the private wealth management industry in the UK is proving invaluable to how we are helping clients in Australia (and in other countries) where retail stockbroking and financial advice is evolving and coverging.
The evolution of the stockbroker
In the United Kingdom, brokers first evolved by meeting their best execution obligations and international access through other brokers, which in turn simplified their operations and cost. With a holistic focus on clients and revenue growth, these same brokers offered discretionary services and have now evolved to being full service wealth managers, offering a wide variety of services. These include financial planning, estate planning, model portfolios, tax advisory and reporting, insurance and multi-asset classes.
"Some of the opportunities being realised by comprehensive wealth management firms are the ability to provide a true one-stop-shop for clients."
These opportunities already exist to those in the Australian market who wish to pursue them. In the UK, some of the opportunities being realised by comprehensive wealth management firms are the ability to provide a true one-stop-shop for clients, including being able to cater to all stages of someone’s life. Offering this increased breadth and depth to end-clients leads to greater opportunities to increase trust and for private client stockbroking businesses, it assists with diversification and revenue growth.
The future is technology and humans
In all of this, technology enables business strategy. Alongside technology, there sits the broader change required, as businesses seek to evolve. Our experience in the UK is that many seeking to evolve their business model underestimate the investment required in the change beyond technology, including in culture, people and systems.
There is also a danger when focusing on technology trends in isolation that humans look ‘sidelined’. Our experience - and prediction - is that the demands of end-clients will continue to be both for technology and humans. The retail stockbroking industry is well positioned to continue to evolve to meet these demands.
This article was originally published in the July 2018 edition of Stockbrokers and Financial Advisers Monthly.
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