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The Death of Discount Brokerage

The Death of Discount Brokerage

While powerhouse discount firms are alive and kicking, their business models are not. The truth is that discount brokerage is dead. These firms are emerging from the ashes with a new model, picking up the rivals who failed to adapt along the way.
By Adam Honoré

Boston, MA, August 22, 2005 – According to a new report by Aite Group, LLC, retail discount brokerage firms have contributed to the commoditization of investment products, and the demise of their own classic business models. These firms must evolve, or risk extinction at the hands of their competitors.

This report examines the business factors behind the recent activity in discount brokerage acquisitions, mergers, and strategic business decisions. Aite Group explores the opportunities available to discount brokerage firms that recognize the value of changing their business models to suit the needs of current and future retail investors.

According to Adam Honoré, a Senior Research Analyst in the Securities & Investments practice at Aite Group, and author of the report, “Despite their entrance to service offerings and fee structured advisory accounts, discount brokers are not sitting in front of a proverbial “How-To” manual authored by Merrill Lynch. Because they have always focused on operational efficiency, technology investment, and maximum channel efficiency in order to operate on decreasing margins, discount firms are infusing a unique flavor to the advisory brokerage model.” Honoré adds, “Discount brokers who fail to adapt will be swallowed up for their existing clients until only a few remain. If those few fail to adapt, they will in turn be swallowed up by firms looking to jump-start a brokerage operation or acquire additional clients.”