Sept. 11, 2000

Printer ready

Wireless Technology Pays Dividends

Financial firms confront the challenge of keeping brokers in the loop

By Sam Dickey

More on financial services:

Industry Charts: Financial Services (PDF File) sidebar: Credit-Card Companies Target Security And Data Issues sidebar: CIT Group Gains Worldwide Presense In E-Commerce Internet Week Financial Firms Fall Flat (6/26/00) Tech Web Finance Financial Services Companies Flunk Services Test (6/19/00) Internet Week Start-up To Create Financial Services Community (3/27/00)

Send Us Your Feedback

n a Friday afternoon, Joe Ferra hears the familiar beep of his pager. A stock he owns has exceeded a set price, and it's time to sell. Ferra executes the trade with his Palm Pilot, completed in seconds from a rental car--on the way to the Detroit airport to catch a flight home to Boston. Two years ago, wireless technology was rarely an option, but today Ferra, senior VP of online brokerage at FMR Corp.'s Fidelity Investments in Boston, has been known to execute trades from a Cape Cod beach.

Traditional brokerages are combining the power and reach of the Internet with a bastion of technology--including wireless access, customer-relationship management, and data mining--into a powerful strategy to fend off the advances of a new breed of online brokers, and to improve service to increasingly savvy online investors. All this is being done without abandoning their internal brokers, who still generate the bulk of revenue and who are necessary for dealing with customers who crave a personal touch. They have to. Of late, brokerages have felt the impact of less-traditional competition.

"Financial services has been more heavily affected by the Internet than any other industry, with the exception of software and music," says Andrew Bartels, a senior analyst with Giga Information Group. The challenge comes not only from the user-driven trading sites on the Web, but through new sales channels, such as wireless trades. The problem is this: How do firms let clients operate online while still keeping brokers in the loop?

Part of the answer has been to invite flesh-and-blood brokers into cyberspace to service customers at affordable prices. This year PaineWebber Inc. unwrapped Insight One, an all-inclusive brokerage account that carries a fixed charge for the client--essentially a percentage of the value of the assets in the account during the course of a year--rather than rack up commissions on each transaction or service.

While Insight One doesn't depend on use of the Internet, clients enrolled in the service can access it from PaineWebber Edge, PaineWebber's main Web site to execute trades, receive research reports, enable alerts when events occur that affect the client's account, and collaborate via E-mail with a broker. Insight One represents an additional channel that deepens a client's relationship with a broker. Since brokers receive a percentage of the fee paid by a client, their motivation is identical to the client's--to build the relationship.

In addition to more reasonable pricing, the initiative gives customers choice. "Customers trade in the fashion that suits them," says Scott Abbey, CIO at PaineWebber in New York. "If the customer wants to call a financial adviser, he can do that, or if he wants to trade himself using the Internet, he can do that. We allow them do what they want to do, rather than tell them how we think they should do it."

That's only one way the Internet can help brokerages such as PaineWebber build relationships with customers. Among the Web's many attributes is the ability to bolster interaction between customer and broker. No longer confined to the occasional phone call or monthly paper-based statements, brokers and customers can communicate daily, exchanging account information and investment recommendations in any format the customer chooses. With wireless technology and the proliferation of personal digital assistants, including the ubiquitous Palm Pilot, that communication can extend beyond the confines of an office to a plane, a hotel, a desert island, or any other place a customer may be.

In fact, during the past year Fidelity broadened its wireless InstantBroker capability by entering into a partnership with Palm Inc. so that a financial-services application from Fidelity is preloaded on the new Palm VII device. By clicking a Fidelity icon, users are connected to Fidelity's Web site, where they can get quotes or market indices, and set up watch lists for certain securities whether or not they're Fidelity customers.

"We hope they'll see the conveniences of wireless and realize that wireless isn't half a solution, that it can tell you the stock market is going gangbusters and can execute a trade for you," Ferra says.

Additional communication channels between clients and brokerages generate even more information about client preferences and behavior, which can be useful for managing customer relationships. "Data warehousing is one of the key underpinnings of CRM, as long as the information is used sensitively" says Giga Group's Bartels. "There's a fine line between being helpful and being intrusive."

Brokerages are becoming adept at mixing and blending important bits of information to get up close and personal with their customers. Trade data and account data that a firm already has on hand can be combined with clickstream data gathered from customer visits to a brokerage's Web site to create a highly personalized customer profile.

"If you see that a customer is accessing your research site and is executing queries but isn't looking at the results of those queries, he's probably not finding the information he's interested in--and you should address the problem," says Peter Cherasia, CIO and director of E-commerce at Bear Stearns & Co., a New York brokerage. "If they're executing queries and then actually executing transactions, that's 100% traction."

Customer contact information gathered from the Web and other sources, such as brokers, is combined with client financial data to provide a look at the kinds of services the customer employs. "We get a better sense of how well we're doing when we introduce a new service," Cherasia says.

The Internet has helped firms consolidate their financial services in one place, so users can simply point and click on the services they want. Until this year, for example, Fidelity's lines of business--including retirement plans, life insurance, retail brokerage, and mutual funds--had separate Web sites, one not accessible from another. Now, access to all lines is possible from a single site. "It offers a single view of Fidelity," says Alan Greif, Fidelity's VP of systems planning. "Our 401(k) customers, depending on whether their plan sponsors allow it, have the opportunity to do brokerage trades."

The quest to remain viable and vital in the world of E-commerce has even led some brokerages to partner with their competitors. A partnership among Fidelity, Charles Schwab & Co., and others lets clients continue trading electronically after the stock exchanges have closed, an ability institutions have had but individuals have not. "If you're going to trade outside the established stock exchange, what you need is liquidity--lots of trades," Greif says. "Because of the volumes we and our trading partners represent, we can have a lot of liquidity."

Bear Stearns has also partnered with two banks, J.P. Morgan & Co. and Chase Manhattan Corp., to form Market Access, a multidealer research and trading portal for institutional trading fixed-income securities. The portal gives clients the ability to compare the offerings of the partners and gain access to their combined research libraries. "What clients want is the increased price transparency and potential liquidity of having several broker-dealers making multiple markets in the same products on one site," Cherasia says.

Mortgage lenders are getting in on the act, too, using the Internet to roll out services that were impossible not long ago. During the past year, secondary mortgage market leader Fannie Mae in Washington, launched its Bond Auction system to auction off short-term debt instruments.

Every week, 20 to 25 brokers from large investment banks view Fannie Mae's issuance of three-and six-month debentures and enter their bids at the auction site. "Typically, $5 billion to $6 billion worth of notes are put up and auctioned off," says Fannie Mae CIO William Kelvie. "It's been very popular with our investor customers."

Before the Bond Auction system, all transaction activity was conducted manually via telephone; this was slow, inefficient, and limited the number of brokers who could participate. The system was developed in eight weeks and runs on Sun Solaris with an Oracle database. Since its implementation, Fannie Mae has used the system to sell $48 billion in debt securities over the Internet.

Also in the past year, Fannie Mae has Web-enabled the Desktop Underwriter mortgage-approval system used by its retail lending partners. A combination expert system and statistical modeling tool with a Sybase Inc. database of more than 50 million properties and 22 million borrowers, the tool is accessible over the Internet at partner institutions' Web sites, and reduces the loan-approval cycle from 30 days to 30 minutes, saving nearly $1,000 a loan.

While the Web hasn't exactly revolutionized the traditional financial-services industry, it has offered new channels of communication and accessibility. "The Internet allows us to reach more people and that brings economies of scale," Bear Stearns' Cherasia says. "If we can service them better, more efficiently and effectively electronically, that's what we want to do."

Illustration by Jeffrey Fisher
Photograph by Edward Santalone

Back to This Week's Issue
Send Us Your Feedback
Top of the Page

---