More than ever, brokers are dealing with a very emotional commodity--people's futures. That was the message from PaineWebber CEO Don Marron to attendees at the September Securities Industry Association's retail management conference Sept. 16-17 in Chicago.
"The most profound change in our financial structure is the transfer of people's futures away from corporations and government and into their own hands," Marron said. In the three months prior to the conference, the amount of assets in defined contribution plans passed the amount of assets in defined benefit plans, he said. The defined contribution trend, together with a change in attitude toward Social Security, has caused a fundamental shift toward individual responsibility.
The shift means people need help, Marron said. "If you think you can compete just on transactions, you're a dinosaur. The computer is not too good at giving advice. I haven't met a computer yet that I would trust any money to. " Transactions have become an almost valueless commodity because "technology has allowed all of us to do equity transactions ... at almost no incremental cost," he said.
Lower costs have spurred trading volume, and the growth of on-line trading is "straining the capacity of the industry to keep up," said Bill Burnham, an analyst at Credit Suisse First Boston.
On-line customers for the most part have come from the traditional discount brokerage industry. And they were customers who were there for the quickest and fastest trade they could get, Burnham said.
"In the last nine to 12 months, the actual composition of the customer base is broadening," Burham said. Many are new investors and mutual fund investors. "So, the growth is definitely diversifying and as it's growing, it's also segmenting" into investors who want low price and speed versus those who want some information and analytical tools.
By the end of 1998's third quarter, there will be 240,000 to 245,000 on-line trades a day on average, Burnham said. By the end of next year, that number could be up to 400,000 trades a day.
Demographer Harry Dent also spoke at the event and warned about on-line trading. "Internet trading simply lets people make bad decisions quicker," he said. Based on his demographic research, he suggested four key parts for a portfolio: technology, international markets, financial services and health care/pharmaceuticals.