Online brokerage firms are transforming the industry. The evolutionary use of the Internet as simply another channel for conducting trades or getting information is giving way to revolutionary use that leverages the unique aspects of the Internet as an access point to information, service providers and communities. Investment services firms should understand why this disruptive shift is occurring, and begin planning how to respond and compete in the new environment.

Key Findings

• Traditional brokerages, whether full-service or discount brokers, use the Internet simply as a different channel through which to provide the same content and services that they provide through branches, telephone and regular mail.
• A new class of Web-dominant brokerages has emerged that targets niche markets looking for specific functionality or services. These new-era brokers use the Web as a transformational--rather than a supplemental--channel, and will leverage Web 2.0 functionality, including new programming techniques, blogs and social communities.
• These new brokerages aren't coming from "dot-com" techies, but have senior management with previous experience at traditional full-service or discount broker environments.
• These new brokerages are taking advantage of outsourcing and external providers to enable focus and to enhance agility.