It’s too early to assess the new platform for overnight investment accounts, but through the first nine months of the year, account values have grown five times faster than they did the year before.
Is there room for a replacement for traditional brokerage accounts? Overnight funds may have some appeal to people who don’t want the hassle of a regular trading account, or those who don’t want to deal with a bunch of fees on their regular trading account. They can lock up investment assets for an extended period of time, and at least a third of this category of investors (when it’s the right time to place an order) don’t mind paying a high fee for it.
But some analysts argue that this group is growing rapidly, in part because of difficulty filling the traditional office brokerage accounts that pay high commission for traditional investments. Some people think the online brokerage industry should try to create online platforms with built-in Overnight fund trading.
I think the argument is overblown. We’ve already seen enough evidence that ordinary people prefer the convenience of a physical office brokerage to a web-based equivalent. A first-hand view of the experience underscores that point. A lot of you probably used a retirement savings account for the first time this year, and I can think of five or six people who are still financially scarred by the experience.
Many older people are turning to their kids and grandkids, who can make it easy to move assets and get withdrawals — well, almost simple — from their retirement accounts. And some parents have actually been taking advantage of the availability of registered investment plans (RFPs) to set up joint accounts with their kids or grandkids. They may get a hefty commission out of that, but they’re at least in control of their situation. If you’re thinking about investing large sums of money, what will be a truly attractive online brokerage does a lot more than can a physical brokerage.
Of course, I’m not a regular user of online platforms. Some of you are. And, maybe I’m just too old-fashioned for the convenience of digital platforms. This, of course, is the problem with convenience — you will be disrupted. And it will happen, perhaps soon, but maybe not. For years, we have seen that there are always consumers who become increasingly dissatisfied with the system. And for many years, we’ve seen there are also providers who seem oblivious to those trends. Online and physical brokerage may eventually merge into a single system, but they may not yet combine in a meaningful way.