Analysts at Forrester Research Inc. estimate that 60% of Canadian retail households will be trading online by 2005. The firm sees the convergence of virtual and physical service to meet this demand.

In a new report, Forrester analyst Jordan Kendall, says that by the end of 2005, nearly 4 million Canadian households, approximately 60% of retail investors, will trade $1.5 trillion online. In 2000, nearly 500,000 Canadian households traded on the Web.

Forrester divides retail investors into four consumer segments:

  • Retirement By The Book investors hold online assets of $1.4 billion, this predominately female segment represents the youngest and most passive investor group trading infrequently and taking the least amount of control over investment decisions;
  • Aggressive Affluent investors hold online assets of $57.5 billion, they are older Canadian investors who have the highest household incomes and the longest online tenure;
  • Portfolio Cruise Control households hold $27.9 billion in online assets, they are older investors who are the least likely to bank and trade online; and
  • Get Rich Quick investors, this group is largely male, is the least educated and has the lowest average income.

Forrester says the so-called Portfolio Cruise Control households will drive the most online assets as baby boomers adopt online investing en masse. It sees PCCs overtaking the total trading potential of Aggressive Affluents, representing the largest slice of online wealth, most of which will be held in full-service accounts.

AAs will remain a small but critical group. “Despite the rapidly diminishing growth of new online AAs, 90%of these aggressive investors will trade on the Net — controlling more than 30% of all online assets in 2005.”

Get Rich Quick investors will start to look for advisors as less bullish markets and diminished net worth slow the growth of online investing. Although 95% will invest online in 2005. “As these active traders adopt more conservative financial strategies, they’ll move chunks of their assets out of deep discount accounts — looking for more access to advice and research.”

Retirment By The Book investors will be deceivingly unimportant online, says Forrester, although they should represent 60% of all online brokerage customers and more than 50% of online accounts, and will be the largest Canadian investor segment in 2005. “The irony: While larger in number than all other segments, RBBs’ small portfolios, minute trading volumes, and limited Net experience will make them more difficult, and costly, to serve online.”

Firms will take advantage of this growth by integrating advice and physical branches with their Net channels, says Forrester. It suggests that online brokers will need branches to compete. “Even more than their American counterparts, Canadian PCCs and RBBs prefer financial institutions with physical branches. Net-only players will fall short. Instead of disappearing into obscurity, look for Web brokers like E*TRADE Canada and eNorthern to seek out partnerships with New Age clicks-and-mortar firms like President’s Choice Financial.”

Banks will turn tellers into sellers, it suggests. “To reach RBBs, banks will augment their branch employees with accredited financial advisors. While these advisors will initially work offline with RBBs, they’ll nudge these investors online for self- service. We expect to see CIBC enhance its branch-based wealth management strategy by adding real-time advisory capability to its Net-based Investor’s Edge.”