By James Langton

(December 4 – 16:55 ET) – According to a recent report from Forrester Research that focuses on the United Kingdom, online brokerages will be replaced by online wealth managers over the next few years.

Forrester says the U.K.’s online stock brokerage business models are floundering because they don’t adequately serve the needs of “mainstream” investors. It projects that wealth managers will emerge, offering portfolio consolidation, analysis and advice to investors. Forrester envisions sites that offer aggregated account information; improved analytics, allowing investors to create their own benchmark indices; and better portfolio analysis tools.

Forrester believes firms attempting to adopt the wealth management model must meet a number of tough criteria and that they must partner with multiple vendors and other financial-services providers to build online tools, broaden their product range and expand across channels to reach more customers.

It also projects that mainstream investors will comprise 80% of the U.K.’s 2.4 million expected online traders in 2005.

“The U.K. online stockbroking market has proved tougher than expected. U.K. online stockbrokers are struggling to make their business models add up, with fewer online customers and higher customer-acquisition costs than anticipated, and few sources of revenue other than volatile trading commissions,” said Charlotte Hamilton, analyst at Forrester’s U.K. Research Centre. “By 2004, nearly all new customers will be from the mainstream — investors who trade less often, have less appetite for risk, invest more of their assets in funds and want more decision support than the early adopters of today.”

“Many of today’s undifferentiated, execution-only stockbroking sites won’t survive,” Hamilton concluded. “Those that remain will assume one of three roles: compete against private banks and portals in online wealth management; adopt a niche role serving active or high-net-worth online traders directly; or act as a white-label stockbroking platform, offering their online broking services to other sites.”

For the Report Overhauling U.K. Online Investing, Forrester spoke to 27 of the 29 firms that offer online stockbroking in the U.K. – including banks, online-only and multi-channel stockbrokers.