Investment Services for the Mass Market

I. Executive Summary

The Market

• Full-Service Brokerage Firms
  
• Discount Brokerage Firms
  
• Bank Brokerages
  
• The Securities Act and the SEC
  
• The Glass-Steagall Act and Bank Brokerages
  
• 80 Million Brokerage Accounts
  
• Brokerage Revenues Exceed $100 Billion
  
• Full-Service Brokers Claim 80% of Revenues
  
• 79% of Brokers Are Discount
  
• Discount Brokers Lead in Growth
  
• Discount Brokerage Commissions Estimated at Over $2 Billion
  
• Table 1-1: U.S. Discount Brokerage Commissions, 1993-2002 (dollars)
  
• 45−54 Is Prime Age Bracket for Investors -54 Is Prime Age Bracket for Investors
  
• Half of 45-54 Householders Hold Stock
  
• South Is Investment Services Holdout
  
• Demographic Tidal Wave Until 2008
  
• Figure 1-1: Percent Distribution of U.S. Population by Age Bracket, 1995 vs. 2005 (percent): From Age 18 to Age 65 and Over
  
• Surge in Online Investing
  
• Flight from Individual Stocks
  
• Pockets of Substantial Growth
  

The Marketers

• Full-Service Brokers Remain at Forefront
  
• Merrill Lynch Leads Among Full-Service Firms
  
• Morgan Stanley and Dean Witter Merge
  
• Schwab Claims Half of Discount Segment
  
• Discount Commissions Grow at 18% Clip
  
• Online Boom for Discount Brokerages
  
• Charles Schwab and OneSource
  
• Banks Gear Up as Rules Relax
  
• Dean Witter Seeks Bank Bedfellows
  
• Targeting the New Investor
  
• Brand Identity Increasingly Important
  
• Fund Supermarkets Become Common Coin
  
• Schwab Takes Over Top Advertiser Spot
  

The Consumer

• One-Tenth of Adults Use Financial Planning Services
  
• U.S. Savings Bonds Are Most Popular Type of Security
  
• 5.1 Million Investors Make 1—2 Stock Transactions Yearly
  
• Over One-Sixth of Adults Have a Brokerage Account
  
• Full-Service Brokerage Firms Are Most Utilized
  
• Patterns and Variations by Brokerage Type
  
• Fidelity Investments Has Highest Number of Brokerage Accounts
  
• Demographic Variations by Brokerage Firm
  
• Merrill Lynch Has Highest Number of Primary Users
  
• One-Fourth of Adults Have a Mutual Fund Account
  
• Majority of Accounts Held Through Mutual Fund Company
  
• Indicators by Mutual Fund Provider Type
  
• Fidelity Investments Has Most Accounts
  
• Profile of First-Time Mutual Fund Investors
  

Online Services

• $120 Billion in Securities Traded Online
  
• Online Revenues at $614 Million
  
• Online Accounts at 3 Million
  
• 95,500 Daily Trades
  
• 60 Marketers, and Growing
  
• Marketers Answer Consumer Demand
  
• Charles Schwab Controls 33% of Online Volume
  
• Price Wars Remain Driving Factor
  
• Profit Centers Old and New
  
• Multimillion Marketing of Online Services
  
• Targeting the High-End Investor
  
• Shakeout Predicted
  

Scope and Methodology

• Market Parameters
  
• Report Methodology
  

II. The Market

Introduction

• Scope of Report
  
• Market Structure
  

The Service Providers

• Full-Service Brokerage Firms
  
• Discount Brokerage Firms
  
• Bank Brokerages
  
• Additional Resources
  
• Mutual Fund Firms
  
• Third-Party Providers
  
• Personal Advisors
  
• Varying Services
  

The Regulatory Environment

• SIPC and FDIC
  
• The Securities Acts of 1933 and 1934
  
• The SEC and NASDAQ Spreads
  
• SEC's "Cyberforce" Monitors Online Investing
  
• SEC's "Plain English" Rule for Mutual Funds
  
• Regulation T and "Minimum Maintenance"
  
• National Association of Securities Dealers
  
• Glass-Steagall Act
  

Market Size and Growth

• Note on Methodology and Market Estimates
  
• Over $20 Trillion in Investment, Bank Accounts
  
• Growing Share of Financial Assets for Investment Vehicles
  
• Stocks Claim 40% of Investment Assets
  
• 80 Million Brokerage Accounts
  
• 3 Million Online Accounts
  
• Brokerage Revenues Exceed $100 Billion
  
• Top Ten Brokers Claim Half of Revenues
  
• One-Fifth of Broker Revenues Earned Through Trading Fees
  
• Full-Service Brokers Claim 80% of Revenues
  
• 79% of Brokers Are Discount
  
• Discount Brokers Lead in Growth
  
• Discount Brokerage Commissions Estimated at Over $2 Billion
  
• Table 2-1: U.S. Discount Brokerage Commissions, 1993-2002 (dollars)
  
• Online Revenues at $614 Million
  
• Bank Brokerage Profits in $1-Billion Range
  
• $4.5 Trillion in Mutual Funds
  
• Cash Inflow to Stock Mutual Funds at $231 Billion in 1997
  

Consumer Composition of Market

• 45−54 Is Prime Age Bracket for Investors -54 Is Prime Age Bracket for Investors
  
• Half of 45-54 Householders Hold Stock
  
• Simmons Data on Use of Investment Services by Region
  
• South Is Investment Services Holdout
  
• Table 2-2: Regionality of Use of Investment Services by Type of Account and Firm, 1997 (percent): Northeast, Midwest, West, South
  

Factors Affecting Market Growth

• Boomers Tuned In to Money Management
  
• Demographic Tidal Wave Until 2008
  
• Table 2-3: Percent Distribution of U.S. Population by Age Bracket, 1995—2005 (percent): From Age Under 5 to Age 65 and Over
  
• Surge in Online Investing
  
• Online Investment and Bank Brokerages
  
• Online a Two-Edged Sword for Discounters
  
• The Full-Service and Online Equation
  
• Gains Through Mergers and Acquisitions
  
• The "One-Stop Shopping" Advantage
  
• The Mutual Fund Factor
  
• Flight from Individual Stocks
  
• Mutual Funds at Center Stage?
  
• The Direct Option
  
• Risk and Return
  

Projected Market Growth

• Investment Pool to Surge
  
• Pockets of Substantial Growth
  

III. The Marketers

Marketer Overview

• Marketers of Investment Services
  
• Full-Service Brokers Remain at Forefront
  
• Multiple and Overlapping Options
  
• Table 3-1: Selected U.S. Marketers of Investment Products and Services (172 Marketers and Their Firm Type)
  

The Competitive Situation

• Merrill Lynch Leads Among Full-Service Firms
  
• The Full-Service Scene
  
• The Internet Challenge
  
• Morgan Stanley and Dean Witter Merge
  
• Merrill Lynch Not Trading Places
  
• Schwab Claims Half of Discount Segment
  
• Discount Commissions Grow at 18% Clip
  
• Online Boom for Discount Brokerages
  
• Subdividing the Discounters
  
• Shopping Among the Discounters
  
• Charles Schwab and OneSource
  
• Fidelity Focuses on Brokerage Accounts
  
• Toronto Dominion Aligns Against Schwab
  
• Banks Gear Up as Rules Relax
  
• Clearing up Confusion Over FDIC
  
• Luring Bank Customers
  
• Banks Face Internet Brokerages
  
• Schwab Rents Fund Supermarket
  
• NationsBank Launches Fund, Teams with Schwab
  
• Dean Witter Seeks Bank Bedfellows
  
• Banks Expand Offerings Through Mergers
  

Competitive Profile: Merrill Lynch & Co., Inc

• Corporate Overview
  
• Entrance Into Supermarkets
  
• Rewarding the Consumer
  

Competitive Profile: Morgan Stanley, Dean Witter, Discover & Co

• Corporate Overview
  
• The Merger
  
• The Buy Back
  
• Dean Witter: Low Marks for Pushing Proprietary Funds
  
• Discover: Top Grade Among Online Brokerages
  

Competitive Profile: Charles Schwab Corp.

• Corporate Overview
  
• A Brief History
  
• Supermarket Investing
  
• Online Investing
  
• The Total Customer Access Promise Program Charles Schwab Enhances Services
  
• Good Relationships with Independent Advisors
  
• Future Plans
  

Competitive Profile: Fidelity Investments (FMR Corp.)

• Corporate Overview
  
• Loosening Grip on Retirement Cash
  
• Fresh Focus on Consumers
  
• An Image Makeover
  
• A Push Towards Online Services
  

Competitive Profile: Quick & Reilly Group, Inc.

(Fleet Financial Group, Inc.)

• Corporate Overview
  
• Fleet and Quick & Reilly Acquisition
  
• Suretrade May Stem Online Slip
  

Competitive Profile: NationsBank Corp

• Corporate Overview
  
• Growth Through Mergers
  
• The Brokerage Business
  
• A Link with Schwab
  
• An Internet Alliance
  

Competitive Profile: First Union Corp.

• Corporate Overview
  
• The Cap Account
  
• The Schwab Connection
  
• Expansion Plans
  
• A Brand Marketing Crusade
  

Competitive Profile: KeyCorp

• Corporate Overview
  
• The Charles Schwab Alliance
  

Marketing and Advertising Trends

• Targeting the New Investor
  
• Brand Identity Increasingly Important
  
• Fund Supermarkets Become Common Coin
  
• Investment Advertising Tops $1 Billion
  
• Schwab Takes Over Top Advertiser Spot
  
• Media Trends: Magazines Dominate
  
• Charles Schwab: "Independent, Objective"
  
• Fidelity: "Where 12 Million Investors Put Their Trust"
  
• Banks Stress Makeover, Regional Expansion
  
• Samples of Consumer Advertising
  

IV. The Consumer

Introduction

• Simmons Consumer Survey
  
• Simmons Data on Investment Services
  

Consumer Overview: Investment Patterns

• One-Tenth of Adults Use Financial Planning Services
  
• Indicators and Resisters to Use of Financial Planning Services
  
• Table 4-1: Demographic Characteristics Favoring Use of Financial Planning Services, 1997 (U.S. Adults)
  
• U.S. Savings Bonds Are Most Popular Type of Security
  
• Table 4-2: U.S. Adult Investors by Type of Security Owned, 1997 (total number, median age, and median household income)
  
• 18.6 Million Adults Own Securities Valued at Under $5,000
  
• Table 4-3: U.S. Adult Investors by Value of Securities Owned, 1997 (total number, median age, and median household income)
  
• Indicators for Holding Securities Under $10,000
  
• Indicators for Holding Securities Over $10,000
  
• Table 4-4: Demographic Characteristics Favoring Ownership of Securities: By Investment Level: Under $10,000 vs. $10,000+, 1997 (U.S. Adults)
  
• 5.1 Million Investors Make 1—2 Stock Transactions Yearly
  
• Table 4-5: U.S. Adult Investors by Annual Number of Stock Transactions, 1997 (total number, median age, and median household income)
  

Consumer Focus: Brokerage Accounts

• Over One-Sixth of Adults Have a Brokerage Account
  
• Indicators to Use of a Brokerage Account
  
• Table 4-6: Demographic Characteristics Favoring Use of Brokerage Accounts, 1997 (U.S. Adults)
  
• Full-Service Brokerage Firms Are Most Utilized
  
• Patterns and Variations by Brokerage Type
  
• Table 4-7: Demographic Characteristics Favoring Use of Brokerage Accounts: By Brokerage Type, 1997 (U.S. Adults): Full-Service Brokerage Firm, Discount Brokerage Firm, Discount Brokerage Through Bank
  
• Fidelity Investments Has Highest Number of Brokerage Accounts
  
• Demographic Variations by Brokerage Firm
  
• Table 4-8a: Demographic Characteristics Favoring Use of Brokerage Accounts: By Brokerage Firm, 1997 (U.S. Adults): Charles Schwab, Dean Witter Reynolds, Dreyfus (Mellon)
  
• Table 4-8b: Demographic Characteristics Favoring Use of Brokerage Accounts: By Brokerage Firm, 1997 (U.S. Adults): A.G. Edwards, Fidelity Investments Ids/American Express
  
• Table 4-8c: Demographic Characteristics Favoring Use of Brokerage Accounts: By Brokerage Firm, 1997 (U.S. Adults): Kemper Financial, Kidder Peabody, Merrill Lynch
  
• Table 4-8d: Demographic Characteristics Favoring Use of Brokerage Accounts: By Brokerage Firm, 1997 (U.S. Adults): Paine Webber, Prudential Securities, Quick & Reilly
  
• Table 4-8e: Demographic Characteristics Favoring Use of Brokerage Accounts: By Brokerage Firm, 1997 (U.S. Adults): Shearson Lehman Brothers, Smith Barney
  
• Table 4-8f: Demographic Characteristics Favoring Use of Brokerage Accounts: By Brokerage Firm, 1997 (U.S. Adults): Other Full-service Firms, Other Discount Brokerage Firms
  
• Less Than One-Tenth of Accounts Were Closed
  
• Merrill Lynch Has Highest Number of Primary Users
  
• Table 4-9: U.S. Adult Investors by Primary Firm Brokerage Accounts, 1997 (total number, median age, and median household income)
  

Consumer Focus: Mutual Fund Accounts

• One-Fourth of Adults Have Mutual Fund Account
  
• Indicators for Mutual Fund Accounts
  
• Table 4-10: Demographic Characteristics Favoring Use of Mutual Fund Accounts, 1997 (U.S. Adults)
  
• Majority of Accounts Held Through Mutual Fund Company
  
• Indicators by Mutual Fund Provider Type
  
• Table 4-11a: Demographic Characteristics Favoring Use of Mutual Fund Accounts: By Type of Firm, 1997 (U.S. Adults): Full-Service Brokerage Firm, Discount Brokerage Firm
  
• Table 4-11b: Demographic Characteristics Favoring Use of Mutual Fund Accounts: By Type of Firm, 1997 (U.S. adults): Bank, Bank Discount Brokerage, Mutual Fund Company
  
• Fidelity Investments Has Most Accounts
  
• Table 4-12: U.S. Adult Investors in Mutual Fund Accounts: By Specific Firm, 1997 (total number, median age, and median household income)
  
• Profile of First-Time Mutual Fund Investors
  
• Table 4-13: U.S. Adults Making Their First Investment in a Mutual Fund Account, 1997 (5 Factors)
  

V. Online Services

Basics of Online Investing

• Advantages to Online Investing
  
• Value-Added Services
  
• Dollar Savings as Bottom Line
  
• Drawbacks to Online Investing
  
• The SEC and Online Fraud
  
• Security and Fund Transfer Issues
  
• Mixed Returns, Bright Future
  

The Online Market

• $120 Billion in Securities Traded Online
  
• Online Revenues at $614 Million
  
• Online Accounts at 3 Million
  
• 95,500 Daily Trades
  

The Online Marketers

• 60 Marketers, and Growing
  
• Range of Marketers
  
• Table 5-1: Selected Marketers of Online Investment Services (45 Marketers and Their Websites)
  

The Competitive Situation

• Marketers Answer Consumer Demand
  
• Charles Schwab Controls 33% of Online Volume
  
• Datek an Emerging Player
  
• Price Wars Remain Driving Factor
  
• Profit Centers Old and New
  
• Multimillion Marketing of Online Services
  
• Targeting the High-End Investor
  
• Full-Service Brokerages Meet the Threat
  
• Shakeout Predicted
  

Competitive Profile: Ameritrade Holding Corp

• Corporate Overview
  
• Ameritrade Consolidates
  
• "The Way To Trade. Period."
  
• Teaming Up with Internet Services
  
• Future Strategy
  
• Survival of the Fittest
  

Competitive Profile: E*TRADE Group, Inc.

• Corporate Overview
  
• "Someday, We'll All Invest This Way"
  
• Fighting the Competition
  
• Advertising Target
  
• E*TRADE Mutual Fund Center
  
• Future Options
  
• Stock Surge at WebTV Alliance
  

The Online Consumer

• Early Adopters
  
• Under-25s Among the Online Investors
  
• Online Investors and High-Tech Portfolios
  
• Online Brokerages Earn Good¾Not Excellent¾Ratings
  

Appendix I: Examples Of Consumer Advertising

Appendix II: Addresses Of Selected Marketers