Even though financial advisors lose a majority of their customers to online brokers, 70% of advisors say that they don’t see discount brokers as a risk to their business, according to a new report released by Aite Group.
 
Yet online brokers, such as Charles Schwab, E-Trade, TD Ameritrade and Fidelity Investments, are pouring advertising dollars into emphasizing their lower cost and better results over financial advisors.

This advertising “tsunami,” in addition to the news of fraudulent money managers, and declining business due to the recession has taken a bite out of financial advisors’ business.

“Our business is thriving and without question we are benefiting from the secular trend of customers moving from traditional to online brokers and individual investors’ desire to take direct control over their investment,” Tina Martineau, spokesperson for E*Trade.

Nonetheless, advisors see no threat to their business from online brokers.
 
“There is a clear dichotomy between perception and reality as it pertains to actual business lost,” Aite said in a press release Monday.
 
After surveying 402 financial advisors, Aite found that advisors believe that they are taking business from discount brokerage firms, but the truth is that discount brokers have taken 25% more assets from advisory companies than advisory companies have taken from them in the last two years.

“Despite the barrage of advertising by discount brokers emphasizing a go-it-alone philosophy and attacking financial advisors for high fees and poor performance in the market downturn, advisors have yet to recognize the threat,” according to Adam Honoré, a research director with Aite, who wrote the report. “Advisors must wake up to reality and combat the messaging coming from the discount brokerage arena.”
 
To remain competitive, financial advisory firms need to offer a multi-tiered approach:  give their customers a discount brokerage platform to do their on-the-side trading that’s competitive with the online brokers and pour money into advertising and marketing that explains their competitive advantage of service and education.
 
The problem, Honoré said in an interview, is that the advisory firms are not doing a good job educating their retail about what the threat to their business is and how to combat these threats: “If anybody has their head in the sand it’s these firms.” #