Full-service brokers, including bank-owned broker-dealers, must offer "scalable" investment advice - different levels of service at different prices - to stay competitive, a consulting firm says.

Such flexibility can help stem customer flight to high-end advisers or discount brokers, says Cerulli Associates Inc. of Boston in a new study, "The State of the National Full-Service Brokerage Industry."

Financial service providers must increasingly tailor their services to the "middle market" - investors who cannot afford private-client services but who want more than discount trading, Cerulli says.

A handful of firms have already begun to offer such services, but few have introduced a comprehensive model, said Dennis Gallant, the Cerulli consultant who wrote the report.

"Everyone's got the bookends" - the high- and the low-end components - "but no one's built the scalable-advice program yet," he said.

Though brokerages moving into scalable advice might be "outclassed at the top of the market and outpriced at the bottom," Mr. Gallant said, they could capture many middle-tier investors.

Downward pressure on commissions, which has been accelerating for the past year, has forced many full-service brokers to move from selling transaction-based products to those that carry management fees. This means that they must develop diversified advisory services that all levels of investors can afford, the report says.

Cerulli's report does not address banks' non-brokerage operations, but Mr. Gallant observed that most providers of comprehensive advisory services require account minimums beyond the reach of most bank customers. Bank customers, particularly those not already invested in the market, are likely to be interested in a limited range of affordable tools that banks can offer, Mr. Gallant said.

For example, banks might get a lot of mileage out of putting an investment representative in each branch who could advise on things as basic as portfolio balancing, he said.

Customer contact puts banks in a good position to provide these services, but they will have to convince depositors that they can provide viable investment advice, Mr. Gallant said.

Another challenge for banks will be creating a product line that takes into account both the strengths of their brokers and the needs of investors, said William Belden, vice president of asset management at Northern Trust Corp. in Chicago. Banks looking to move into scalable services are likely to start modeling them after their 401(k) and retirement products, since these often have some advice component, he added.

According to the Cerulli report, providing a combination of investment services will most likely make full-service firms attractive to middle-market investors even if the advice offered is not the most comprehensive or the trades the cheapest.

There is a long-term trend of investors' wanting to manage more of their own assets, but they are still going to need advice, the report said. Developments in Internet technology will help in retaining customers, by enabling advisers to serve many of them at little cost, Cerulli said.

"Technology is making it cheaper to provide advice - and good advice," Mr. Gallant said.

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