The Internet has increased the convenience and affordability of personal investing, but as more start-ups compete with decades-old brokerages, it’s also created a dizzying glut of options for consumers.

“We speak with potential users before developing the product in order to find out how they prioritize that information.”

—Maxime Rieman, NerdWallet, San Francisco, California, USA

When NerdWallet Incorporated, San Francisco, California, USA launched a project to build a tool to help guide investors, it couldn’t simply create a useful guide with a short time-to-market. The team also had to change investors’ fundamental conceptions about who handled their money.

“There are hundreds of websites that claim to promote the best broker,” says Maxime Rieman, project manager at NerdWallet. “But none of the sites seemed to tailor the results based on an individual’s trading behavior.”

NerdWallet, founded by a pair of longtime finance professionals, set out to create a brokerage-fee comparison tool that would recommend a tailored list of brokers for an investor in the United States, based on his or her trading habits and desired account features. By winnowing 74 online brokerage-account options to a mere handful, the tool would empower consumers to make the best choice—without getting mired in endless data. ”Without a tool like this, it would be nearly impossible for investors to fully consider every cost,” says Joanna Pratt, NerdWallet’s vice president of investing and financial markets. To call the timeline for the project “compressed” doesn’t do the narrow development window justice. NerdWallet kicked off the project with data collection in August 2012, and completed comprehensive development activities and pilot testing for user feedback in time to launch in mid-October.

PERSONALIZING PERSONAL FINANCE 

The NerdWallet team knew from the start that no single brokerage account would be perfect for every user, Ms. Rieman says. Some investors trade non-equity products, which are only available at a limited subset of online brokers; others require mobile-app access so they can trade on their smartphone. Some investors trade on margin and want the lowest borrow rate; others want to trade exchange-traded funds commission-free.

To arrive at the best recommendation for each individual, the comparison tool would take into account available brokerage promotions and other complexities, which affect the investor’s total cost per month. In addition, the team built in an array of criteria, including:

• trade volume and frequency

• account minimums

• asset classes: stocks, bonds, options, futures, currency and more

• research tools: research reports, real-time data and analysis software

• broker assistance

“The most powerful and complex tool… means nothing unless a user can sit down and understand how to get started.”

—Joanna Pratt, NerdWallet, San Francisco, California, USA

• physical locations

• mobile access

“As we develop more tools, our increased understanding of how visitors interact with tools and resources helps to save us significant time,” says Ms. Rieman. “Now, we speak with potential users before developing the product in order to find out how they prioritize information.”

The biggest hurdle the project team faced was building a user interface for the comparison tool that would work well with both new and seasoned investors. “Most investors will never need to consider trading commissions, margin rates or the availability of futures trading,” says Ms. Rieman. “Yet these are necessary considerations for active traders.”

To fine tune that kind of flexibility, the development team went through several rounds of user testing before releasing the final product. “After we implemented changes to our tool,” she says, “there was a marked improvement in each tester’s understanding of how it worked.”

NerdWallet’s next challenge lay in changing users’ conditioned habits. The team collected data on investor behavior and trade execution, and found that the 17 million investors currently using the three largest services—E-Trade, Charles Schwab and TD Ameritrade—could save US$1.8 billion per year in commissions if they switched to other services.

Convincing consumers to actually make the switch—and use the tool to do so—proved sticky. “Many potential users weren’t interested in switching to a less expensive account, even if it was equally trustworthy and provided the same capabilities,” says Ms. Rieman.

Respondents gave multiple reasons, but an overwhelming number expressed the belief that name-brand brokerages provide better execution. That belief was unfounded, the NerdWallet team discovered. “We analyzed the U.S. Securities and Exchange Commission filings of the three largest brokerages, as well as several deep-discount alternatives, and found that there was very little difference in execution,” she says. For instance, deep-discount brokers use the same companies for execution services as the big-name brands. The extra money investors pay in commission goes largely to advertising and infrastructure, rather than improved services.To emphasize the benefits of choosing a deep-discount broker, the software prominently displayed the total price an investor would be paying at E-trade, TD Ameritrade or Schwab on the tool’s page.

The team also used the study results to encourage users to explore brokerage differences with the comparison tool, says Ms. Pratt. “We highlighted the study in our marketing materials because it adds context to the tool, allowing investors to see the importance of comparing total costs across multiple brokerage accounts before diving in,” she says. “People are more inclined to use our tool if its importance is clear.”

 

LOOKING TO THE HORIZON 

Ms. Rieman acknowledges that while the usage has been steady since the tool launched, NerdWallet faces choppy waters ahead. “We’re still working to combat the notion that the popular brokerages are the best option,” Ms. Rieman says. “Fortunately, we have had some improvement in investor confidence by providing details about the history of each brokerage firm.”

Rather than rush to add new bells and whistles, NerdWallet plans to keep its focus squarely on the tool’s usability. “We could spend all the time in the world designing the most powerful and complex tool,” she says, “but it means nothing unless a user can sit down and understand how to get started.” PM

August 2012: 

The NerdWallet leadership team begins researching the details of every U.S.-based brokerage account available. At the same time, an in-house development team starts creating the tool.

September 2012: 

A three-week user-testing process launches to fine tune the brokerage comparison tool. User feedback drives tweaks to the existing user interface.

October 2012: 

The brokerage comparison tool officially launches.

November 2012: 

The team publishes results of the execution study—showing deep-discount brokers provide the same execution as traditional outlets—to spur use of the comparison tool.

Case study initially appeared in PM Network April 2013 issue.