Over the last few years, quite a few stock brokers have been forced to shut shop due to weak business. This is true not only of broking but also of other businesses where automation has been taking its toll. To survive and thrive in the stock broking business you need to be able to extrapolate the key trends in stock broking and position yourself accordingly. How do you differentiate yourself as a stock broker? That is the only way you can realize the full potential of stock broking. Remember, each year Indian investors are investing more than $25 billion into equities either in direct equities or via equity and ELSS funds. That is a lot of money. How do you grab the most of this potential? There are five things that you need to be aware of.
The industry is getting divided into two segments:
In the broking industry, you either need to run with the hares or hunt with the hounds. The broking industry as a whole is getting stratified into the zero brokerage discount brokers and the full-service brokers. The room for the in-between brokers is increasingly reducing. If you want to be a discount broker then focus on an efficient offering at a very low cost. Alternatively, if you want to be at the full-service end then you need to be prepared to invest in research and technology. In the past, there was room for the median brokers who were somewhere between the full-service brokers and the discount brokers. With both these categories of brokers pushing their boundaries, the gap in between is getting squeezed. First, be clear on your positioning and your strategy should follow after that.
Be clear on the value proposition:
This is a logical corollary to the first point. What is your value proposition? Are you offering the lowest brokerage in the market? That is an advantage that is hard to sustain over longer periods of time and the model is always vulnerable to sudden changes in the market undertone. Secondly, are you offering the best advisory services in the business? This called multi-level skills in portfolio design, need understanding, portfolio customization, portfolio review etc. This is quite complicated and any advisory is always open to an opinion about success and failure. In a competitive market, this can work both ways. Lastly, is technology your USP? In the past, technology was just a tool, but that has changed. Today it is possible to look at broking as a software company and offering a robust trading model that is super efficient and intelligent.
Automate and employ technology intelligently:
If you look at how brokers are adding value to their customers, most of the value addition in the last few years is coming through technology. Thanks to broadband and the use of smartphones, it is possible to trade on the fly using your mobile app. Brokers are also employing artificial intelligence and machine learning to make machines increasingly think and strategize like humans. And then there is the all-powerful call to action. Here the customer is guided seamlessly through research, screening, and execution without really realizing that they are different parts of the trading system.
Engage the customer continuously through financial planning:
Broking is increasingly commoditized. That is more the case when you try to offer broking as a solution rather than as a service. For an investor, the solution is the creation of wealth in the long term. The solution could also be managing risk. The solution could also entail profiting from short-term trends. Most often brokers tend to confuse between the product and the solution. Focus on the solution in this industry. When you are in the financial services industry you always start with the financial goal in mind. Help the client identify long-term goals and then prepare a plan to reach these goals. As a broker you will find out how easily equity, mutual funds, and even bond sit prettily into this scheme of things. That is the best way to increase your customer engagement and improve your ROI per customer. It is just that in this case, the ROI flows naturally.
Provide a delivery platform that simple, elegant and actionable:
One of the critical success factors in the broking industry will be the variety and robustness of the delivery platform that you offer. If you offer more platforms like online, offline, mobile, call-n-trade, SMS trading, non-market trades etc, then your chances of engaging the customer meaningfully is much higher. Your delivery platform should also be seamless such that the movement between research ideas; advise, screening and execution should be smooth and with minimum clicks. That is when the clients can actually experience the value proposition.
The key issue here is that the opportunity in the broking industry is still huge. It is just that the nature of the opportunity is changing. As a broker, you need to position yourself in the bracket that reflects your core strengths the best. The rest will follow!