The online securities industry has been "fundamentally altered" by the volatility that has rocked the markets for the past year, causing many Internet brokerages to retool their business models in order to survive the shift in trading dynamics and meet changing customer demands, according to a new study released Wednesday by Deloitte & Touche.
In contrast to last year, the report said that many online brokerages have turned their attention towards offsetting dwindling consumer confidence and a change in investor psychology.
Highlighting the increasingly conservative approach investors across the board are taking to manage their portfolios, Deloitte & Touche said the average activity in online accounts has experienced a 42 percent drop since the spring of 2000.
During 2000, discount and full-service online brokerages ranked a fear of system outages under surging trading volume and a limited talent pool from which to draw employees among their greatest concerns of conducting business.
"Competing on price isn't enough anymore," said Deloitte & Touche's financial services industry partner George Simeone. "The bear market has caused online securities firms to change their focus from generating trading volume to capturing longer-term investors with high-value accounts."
Giving Advice
In response to the drop-off in trading volume, the study said online brokerages have looked to gain a competitive advantage by supplying investors with more financial information and advice, quality customer service, and an array of related products and innovative technology.
These industry-wide changes also have blurred the differences between individual brokerage houses and, in particular, raised the bar for discount firms, forcing them to beef up customer service and financial product offerings in order to vie with their higher-end rivals.
The report said 46 percent of discount Net brokerages say that high-quality customer service is central to their positioning, while 31 percent believe low-cost services are important.
Tech Trends
One of the primary ways discount online brokerages are setting themselves apart from their full-service counterparts is through their widescale integration of innovative technology, the study said. A larger percentage of discounters, compared to full-service firms, offer customers wireless access, real-time streaming quotes and electronic communication networks (ECNs).
For instance, more than three quarters of lower-priced brokerages provide customers with streaming quotes. In contrast, none of the full-service firms surveyed by Deloitte & Touche do the same. As another point of difference, ECNs are available at 79 percent of discount securities companies and at only one third of full-service firms.
Full-service firms, however, are topping their lower-cost competitors when
it comes to providing professional support 
to investors looking to manage
fluctuating market conditions. While 83 percent of brokerages in the
high-end bracket offer this capacity, only 31 percent of discount firms can
provide the same.
To compile information for its report, Deloitte & Touche surveyed 40 senior
managers at leading full-service and discount online securities firms.
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