In an attempt to address that challenge, a number of upstart brokerages are rethinking how their services function and how they charge for them.
For example, Robinhood is a brokerage firm that has a unique proposition: _ts customers can trade only through the company’s smartphone app, which is far more simple than those offered by many brokerages.
The firm, which has raised over $60m in funding from investors, says that 80% of its users are millennials and the average age of its customers is 28.
Not surprisingly, many of Robinhood’s customers reportedly have smaller accounts, but the company is betting that as they increase their earnings and funnel more of their money into stock market investments, the loyalty it has built will pay off.
Another startup broker, Divy, aims to attract millennials by adding a social layer to investing and allows its customers to buy fractional shares of company stock with friends and family in increments of as little as $10.
“Investing in very small increments, while looking at what your friends and colleagues are doing, helps you think about the markets much more broadly,” the company’s founder, Marc Teren, told Barron’s.
Applying familiar business models
Some brokers are rethinking their business models, going so far as to apply business models from other industries.
For example, last month, Motif, a Silicon Valley-based brokerage startup that bills itself as a “next-generation online broker,” launched a subscription-based trading service called Motif BLUE.
According to Hardeep Walia, Motif’s founder and CEO:
Today’s subscription-based economy means more affordable, customizable services. We don’t think that investing should be an exception, and that’s why we’ve set out to create the Amazon Prime of our industry.
Motif BLUE allows customers to trade as frequently as they like without racking up transaction fees.
Like many subscription services, Motif BLUE has multiple subscription tiers that offer different features and costs, and a one-month free trial is available.
All tiers allow customers to create investment models, configure recurring investments and rebalance their portfolios without management fees.
Motif says that its BLUE subscription offering ”marks a shift toward business model innovation” whereas previously the company was “focused on product innovation.”
That’s an important point for financial services firms that are attempting to court younger investors.
While these firms can update their services and create new ones that are designed to appeal to their young customers, how those customers pay for those services is arguably just as crucial.
This is because young consumers are often more comfortable with business models that are not as common in financial services.
With BLUE, Motif can potentially lure customers who like the idea of all-you-can-eat trading for a flat monthly subscription fee.
And millennial-focused Robinhood doesn’t charge its customers transaction fees at all.
It relies on other sources of revenue, such as interest from margin accounts, to cover the trading costs other brokerages charge their customers.
Will it work?
There’s evidence that all of this is working. For instance, since its launch Robinhood has attracted over 1m customers.
But the real question for brokerage firms that are rethinking how their services are structured and sold is whether millenials will stick with them as they grow up and their needs change.
There’s a danger they will graduate to more traditional brokers that might not meet their needs today but will tomorrow.
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