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