Mass Affluent Investors Unhappy with Online Brokerages

Caroline Maxwell, InvestorsOffshore.com

17 January 2001

All is not well in the world of online investing, as demonstrated by the results of a survey recently conducted by the internet study company, cPulse. The study showed that the majority of mass affluent investors, (who, ironically, the finance industry has been falling over itself to target over the last couple of years), are unhappy with the standard of information and support offered by online brokers.

Although many online brokerages do offer some kind of news, advice, or community features, new investors especially feel that the information available is 'irrelevant' to them, and are sick of the experts talking over their heads. Jody Dodson, executive vice president of cPulse explains the possible implications of this for the service providers, should they fail to heed the warning signs: 'People are voicing their displeasure. They say that if there was any better alternative, they would switch from their current financial site.' The survey makes clear that what mass affluent investors starting out in the field require (and what, if they wish to attract this potentially very lucrative group, the online broker is obliged to provide) is information tailored to their needs, for example, tutorials, glossaries, and beginners' guides.

So much for the (well-off) newbies, then. Are more experienced investors any happier with the services provided by online brokers? Well…no. With the pundits promising that this year will be the year that the internet truly comes into its own (hang on - didn't they say that last year?), forming a seamless symbiotic relationship with the finance industry, surely the light at the end of the tunnel is in sight for online financial service providers…? The simple answer is yes. And no.

Despite concerns, more people are opting to bank online, with major online organisations such as Egg reporting recent growth in the number of new customers passing through its virtual doors. However, online investing is a more complicated process, and according to the Financial Times, only 250,000 out of a total of 12 million UK shareholders invest in shares online. This proportion is undoubtedly greater in the offshore world, where many expatriate investors have no choice but to conduct their financial business online, but there is still an atmosphere of uncertainty pervading the whole issue, in terms of security and reliability.

Although investing through an online broker does have its advantages (for example in terms of the range of investments available, and in terms of cost, which is presently about a fifth of the rate you would expect to pay to deal through a traditional offline broker), the onus falls to the online brokers to persuade investors to make the move.

Evidence suggests that investors' reluctance may stem, in part at least, from the lack of availability of personalised advice, something which has traditionally been a large part of offline investment management, and whose importance the online contingent seem to have underestimated. The financial service providers who seem to be faring best are those that have an established presence, and have developed this online, offering a range of services and customer support.

The priority, for both new investors and the more experienced (but not necessarily expert) investor would seem to be the human touch, whether that be a few friendly words of advice to ease their path into the world of global investment, or personalised guidance on request. Online brokers can offer cheap services because of the 'execution only' nature of the internet, but it is becoming clear that this is not enough for many, and their resentment at being lumped together is made manifest in consumer surveys such as that conducted by cPulse.

The human touch can be taken too far, however, as Peter Y H Wong, executive director of Tai Fook On-Line Services (one of Hong Kong's many ailing online brokerages) demonstrated recently when he took to the streets, accompanied by a model, and 200 of his colleagues, to distribute packets of tissues in the hope of attracting new customers. Good luck, to you, Mr Wong…!

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