U.S. retail brokerage firms are bolstering their bottom lines by capturing a greater share of clients’ wallets, and diversifying their revenue bases, according to a new report from Fitch Ratings.
The rating agency on Wednesday affirmed its ratings on a couple of U.S. brokers — Charles Schwab Corp. and Scottrade Financial Services — citing the firms’ increased revenue diversification, and lower leverage.
The firms can improve their financial strength by continuing to grow their share of customer wallets with “additional products and good customer interfaces driven by investments in technology,” the Fitch report says.
“A focus on technology can help keep the retail brokers ahead of competitors all while also contributing to efficiency enhancements,” the report adds.
If they succeed at this, firms can also create a more durable business model and stickier customer relationships, the report says.
The key risks facing retail brokers, “are primarily related to extreme price competition in the form of lower or no trading commissions,” the report says, along with the cyclicality of the business, and operational risks, such as a possible cyber breach.