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Retail brokers have a $22 trillion opportunity ahead of them.
That’s according to a note out of Morgan Stanley initiating coverage on Charles Schwab, E*Trade, Ameritrade, and LPL Financial.
The brokerage industry is starting to charge for financial advice as it faces regulatory burdens and other industry pressures.
The Department of Labor’s fiduciary rule was passed earlier this year. The new regulation prevents financial advisers from putting their own financial interests – earning high commissions and fees – over their own customers’ interests.
That will push full-service brokers to start charging for advice, according to Morgan Stanley, which will in turn create an opening for discount brokers like Schwab and E*Trade to compete on price. The note said:
“Digital capabilities will help expand their product set and improve efficiency of delivery to enable them to pivot to advice. This opens up a larger addressable market than was possible in the past. DOL Fiduciary Rule provides an opening in the marketplace for disruption – an opportunity for the brokers to offer advice at a lower price point than incumbents.”
The shift would also “create a more annuity-like and sustainable revenue stream that should command a higher multiple,” Morgan Stanley said. The industry currently manages about $4.1 trillion and should grow to $7 trillion by 2019.
The bank said that Charles Schwab is best positioned for the changes, citing its scale, platform capabilities, and large client base. Many of the brokers will also consolidate as brokers compete for customers’ assets.
- Morgan Stanley