The brokers could also offer investment ideas directly, but that’s not necessarily a core competency. In other industries, offering recommendations can be a relatively low-risk way to encourage more customer activity. For example, Amazon.com, Inc. (NASDAQ:AMZN)‘s core competency isn’t telling me what I should buy, but if it puts product suggestions in front of me and I do more purchasing as a result, that’s a good outcome. If I buy something based on an Amazon recommendation and I don’t like it, I may return it and not be keen to jump on Amazon’s suggestions in the future. But most of the time, that’s not a terrible result for the company or the customer.
If, however, an online-broker customer follows an investment recommendation from her broker that works out terribly, it could mean the loss of a significant amount of money for the customer. And unlike an Amazon book, there are no returns in the investing world.
Two paths
In light of the clear areas of shortfall, the Investment Trends research should be interesting to executives at the online brokers. But what to do with that insight?
One obvious answer is to attack the issue directly — that is, provide more investment strategies and stock picks.
Another is to spend even more time educating customers. Taking the “teach a man to fish” approach could make customers happier without the need for specific investment recommendations. Perhaps better still, espousing tried-and-true investing approaches that include simple concepts like long-term holding and seeking to minimize fees could also help. Sure, for an online broker, that may not be a short-term win thanks to potentially lower trading fees, but the value of a happy customer over time may be much greater.
Vanguard is a broker that conspicuously lacks flash and sparkle. It was built on the back of low-cost index funds. On its website, it greets potential new customers with a message that reads:
Vanguarding: It’s feeling like an owner and keeping more of your investment returns. And it’s thinking beyond today, while others shortsightedly chase the next hot tip.
In sum
U.S. online-broker customers are mostly happy. Getting to that next rung of happiness may lie in brokers offering better stock tips. Or, if Vanguard’s success is any sign, perhaps it’s about teaching customers that long-term investing success is about a lot more than that “next hot tip.”
The article Is Your Online Broker the Best in the World? originally appeared on Fool.com.
Matt Koppenheffer owns shares of E*TRADE Financial. The Motley Fool recommends Amazon.com, Interactive Brokers, and TD AMERITRADE. The Motley Fool owns shares of Amazon.com.
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