How Institutional Products Move to Mainstream
February 26, 2007
Sputtering
financial markets and increasingly demanding investors are
triggering a shift in the financial services marketplace.
Significant changes are already under way as today's global market
structures mature and will take on a very different shape over the
next few years. New growth opportunities have arisen from the
turbulent markets, and much of the transformation is being fueled
by the growing demand among retail investors for sophisticated
investment products. While some may view these changes as a threat
to the viability of the traditional brokerage model, others are
seizing the opportunity to chart a new course.For years, prominent institutional investors, including some of the largest Ivy League endowments, asset management firms and pension funds, have used a full range of asset classes and investment strategies to reduce volatility and increase portfolio returns. Their proven success, especially in down or sideways markets, has triggered a new wave of demands from retail investors for direct access to institutional-like investment products and strategies. This is evident in the increased demands from baby boomers and soon-to-be retirees searching for better ways to manage risk and generate income in all types of market conditions.
Retail brokerages and large institutions are working at full speed to offer a more diverse range of products and services that appeal to the masses. With the emergence of the Internet, complex financial products that previously existed only for the institutional investor are now becoming more easily accessible to the retail mass market. Sophisticated product solutions are being constructed and rolled out at a breakneck pace to address the needs of retail investors, particularly those entering retirement and the expanding mass affluent. Many firms are beginning to recognize that offering nontraditional investment products such as commodities, currencies, hedge fund strategies and even derivatives presents long-term opportunities to boost profits and to differentiate themselves in an already crowded marketplace.
To profit from this environment, firms must have the appropriate infrastructure and support models in place, and an overall strategy that creates a specialized experience for the online customer. Firms must be able to succeed in an environment where analysis and greater access are value creators, and where it's not seconds that count, but milliseconds. The fundamental task is to develop a clear plan of attack that allows firms to capitalize on this growing opportunity. Whatever a firm's size, seizing emerging growth opportunities will require deeper client relationships and a sharper focus on innovation and education.
Technological advances and the capacity for firms to remain flexible in how they integrate and deploy new technologies will continue to play a major role in determining who captures this lucrative segment of the market. The worlds of institutional and retail trading, for example, once decidedly separate entities, are beginning to move closer together in order to capitalize on this emerging opportunity. The ability for brokerage firms to process large volumes of transactions and manage varying levels of sophistication among investment products is driving the need for more innovative trading platforms. Furthermore, increased regulatory pressure, new trading technologies and corporate transparency requirements have contributed to the leveling of Wall Street's playing field. As a result, retail brokerage firms and their trading platforms will require far greater levels of sophistication, speed and flexibility just to stay afloat.
