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An increasingly educated and demanding customer base is looking for more advice, choice and service from online financial sites, according to TowerGroup.

Significant shifts in consumer lifestyles and life-stages are a major force driving change within the retail banking and brokerage industries, according to a recent study released by TowerGroup.

With the demise of the longest running bull market in history, an increasingly educated, demanding, diverse and tech-savvy customer base is looking for more advice, more choice in financial services products and, most importantly, more service. Firms that respond to these consumer marketplace shifts have the opportunity to reap the dual rewards of customer loyalty and consistent, long-term profitability, the report said.

TowerGroup also found that the U.S. population as a whole is becoming more affluent, older, diverse, tech-savvy and educated. This trend has resulted in a movement of the peak borrowing years to coincide more closely with peak earning years, due in part to the fact that people are marrying, having children and buying their first homes later than in previous generations.

Though TowerGroup finds that growth in the number of U.S. millionaires may be slowing from its current 13% annual rate, the amount of money the public has available to invest has grown at more than 14% per year. The total amount of investable assets are projected to increase from $28.5 trillion in 2000 to more than $55 trillion in 2005--representing a major opportunity which all retail financial service players will be eager to tap.

With competition heating up, retaining current customers will become increasingly critical for all retail players. A mere 5% reduction in customer defections translates into a 25% increase in profitability, TowerGroup found.

Retail brokerage firms must find new ways to add value for this ever-demanding customer base. Personalizing the client relationship, providing innovative financial planning and advice offerings, and deploying the convenience of wireless access are potential strategies in the battle for market share.

As retail banks become increasingly squeezed by brokerage firms and monoline lenders (born out of consolidation within the mortgage, credit and auto loan markets), they must leverage consumer trust and their current dominance in major deposit and residential loan products.

"Convergence and consolidation in the financial services industry requires institutions to focus on profits, and forward thinking organizations will target their strategy squarely on the needs and desires of the consumer," said Dennis Ceru, director of TowerGroup's Retail Brokerage and Investing research and advisory service.

Financial institutions have an opportunity to capitalize on account aggregation services to build wealth management and advice-based offerings for the growing number of consumers who have investments across a wide range of vehicles. For retail banking and brokerage, the use of innovative combinations of "bricks plus clicks" will help address specific lifestyle and life-stage needs, and minimize the detachment that can occur as consumers move from high-touch to high-tech servicing--resulting in a more loyal customer base, broader product offerings and stronger profitability.

For traditional retail banks, the advantage lies in the trust that consumers have in the banking system in general, and the control they have over the main transaction and loan relationships with consumers.

Brokerage and investment management firms have their own advantage in their ability to leverage traditional strengths in wealth management and advisory services, TowerGroup found. Ultimately, the financial services firms that dynamically adjust to their customer's changing lifestyle and life-cycle demands will become the success stories of the future and will reap the rewards of customer loyalty and consistent profitability.

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