The Rise Of The Financial Social Network With Zecco CEO Michael Raneri

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Today our guest is Michael Raneri, the CEO of Zecco.

How ya doing today Michael?

Michael Raneri: Very well, thank you.

Could you tell us how you got your start in the finance world?

Michael Raneri: Well, I started my career in Manhattan. I worked for a small firm called Quick & Reilly, which is now part of Bank of America Securities BAC, and started my career as a floor runner on the New York Stock Exchange as part of a management training program. We got to experience all the different pieces of the business from floor operations to sales to branch work.

How'd you get into Zecco?

Michael Raneri: After Quick & Reilly, after – wow – close to 18 years in the business, I went to work at Charles Schwab SCHW on a lot of their customer facing technology experiences. Everything from software – StreetSmart, StreetSmart Pro – to the website back on the ‘90s to wireless.

After that very long career, I was recruited to become a board member for Zecco, an online, social media-oriented broker. Before I knew it, I came into an operating role as a CIO and helped them rebuild their technology. Over time, the founders of Zecco stepped back and I took over as CEO about a year ago.

So you were at the forefront of bringing trading to the Web?

Michael Raneri: Yeah. I was working on online trading before there was software. I negotiated the first online brokerage offering with Steve Case and America Online AOL. Back then there was no user interface. I've seen so much happen since that point from the introduction of Windows MSFT to the introduction of Web browsers to wireless. It's been an amazing period of time.

What new innovations might traders be able to look forward to in the next decade?

Michael Raneri: Well, what's really interesting is the breakdown of the destination – the website. A lot of brokerage firms, a lot of portals for that matter, spend a lot of money driving traffic to their website. There's some information I saw where the number of page views on the mobile deck in 2012 will exceed the number of page views through browsers. No one expected that.

Also, the Semantic Web. We have a very innovative release called Zap Trade where you can trade from your favorite portals where you get your financial information and your ideas. So not having to come back to Zecco.com to place your trades; being able to place your trades directly from the information that you're reading – on sites like Yahoo! Finance YHOO, Google Finance GOOG, CNN Money – through a small browser plug-in, or through a relationship we have with those portals.

Do you think that online brokerages will replace traditional brokerages?

Michael Raneri: I think they already have and they're probably not two distinct things. I think any financial services firm has some kind of Web or technology experience for their customers to interface with them through. I think the need for branches will soon be no longer.

So you think we won't have branches of financial institutions in, say, 10 to 15 years?

Michael Raneri: That's my point of view. I think there will always be a certain segment of investors that want to meet with a financial professional. But there's no need for retail space.

I mean, when was the last time you went into a bank to withdraw money?

How do you think these technological changes will change the way that investors interact in the market? Do you think we'll see more social media? Do you think there's going to be Facebook-like trading? Anything like that?

Michael Raneri: As you know we have a very compelling social network called ZeccoShare, [which has] over 350,000 members. And, with social media, it's become more than just connecting and communicating with likeminded people. It's the community intelligence that comes out of it, where you can discuss investment ideas, share strategies, and share a position.

We mine that data and turn it into market data, so when you get a quote on Apple AAPL, you also see how many people in the community bought and sold Apple in the last period of time. People who hold Apple, how do they perform, versus people who don't.

So I think the community aspect isn't just the wisdom of the crowd. I don't think you'll ever see people blindly following other people they don't know to make investment decisions for them.

But the wisdom of the crowd – people digesting that content, looking at the conversations that are going on with people who look like them and approaching investment like them, and take some of that advice and make some decisions on it. Validate their ideas based on what they read, but not as a full discretion where they just pick the transaction [of others] without some thought on their part. It's another input to the decision process.

Do you think this will bring more people into the market, adding these social tools?

Michael Raneri: I think it will make it easier for people to learn. The younger generation that uses social media is much more courageous in exploring what they know and what they don't know. I think the learning curve gets shorter; the intimidation bar goes down for new investors to get interested in the stock market.

Zecco was among the first to offer commission-free stock trades. That's definitely something that's important for beginning investors. What is the impetus behind that? How did that movement get started? And it's clear that Zecco really did start a movement with that, as it's become a race to the bottom for commission rates in recent years.

Michael Raneri: I think if most people in this industry were honest they would agree that the trade itself has become a commodity and has been a commodity for a while. Firms are differentiating themselves on product and the overall customer experience. So we thought the way to enter the market was to accelerate that and just come in as the low-cost provider.

We have since moved the meaning of our brand. We are still low-cost; half of what some of the major online brokers charge. But we have built up our product and our customer service to the point where we think we have a better offer than what they do.

So while we started as a low-cost provider and a started a price war between some of the larger firms, we've now moved into the position of the best value on the Street. Really, it was a market entry strategy.

How have online brokerages been impacted by the financial crisis? Do you think it has shifted investors to the more discounted brokers? Have you guys been hurt by the overall exodus of the stock market?

Michael Raneri: I think the crisis of 2008 and the flash crash of this year really put a kink in the confidence of the individual investor. We are seeing, and I think the industry as a whole is seeing, much lower retail, self-directed volume. Even though the markets have appreciated quite a bit this year, the volume has been low. I think part of that is the recession is much more visible to the self-directed investor. They see friends and family out of work, they're much more conservative with they're money and not really willing to put it at risk.

However, in the last couple of months, we've seen quite a bit more people enter the market. The evidence I have for that is our account growth has grown at about 30%. We're growing at about 20% to 25% in assets. So the money and the accounts are coming in. The trading volume is just staying soft.

So would you say it's the institutional investor that's propping up the market?

Michael Raneri: Absolutely. I think the institutional investor and the larger funds are the major player in the market this year.

What sort of implications do you think this might have on broader market trends?

Michael Raneri: It's changed quite a bit. I think they'll normalize next year, having elections behind us, and having less uncertainty. There's less talk of a double-dip. Mainstream media has kind of backed off of the story of a double-dip. I think you'll see individual investors get more confident next year.

But it could still very well be a protracted, low-volume year for the self-directed investor.

What do you think it will take to get back to those pre-crisis levels for the retail investor?

Michael Raneri: Frankly, I'm not sure we'll get there for a while with interest rates being low. It takes a while for people to rebuild their confidence and their portfolio to have the money to invest. A lot of people are going to remain conservative.

I think stability in the market, lowering of joblessness numbers, will boost some confidence. A lot of people are going to see how the government and congress interacts with each other in the new world after this lame duck session.

Once people return to the market, do you think we'll see these rock-bottom commission rates go back up?

Michael Raneri: I don't think you'll see much change. My experience is [that] people don't leave brokerage firms for commission rates, particularly at these levels. They are important when considering a new broker for some other reason, if they're dissatisfied with the service they're getting or the product they're getting, price is Top 5 with the consideration set.

We think we're well-positioned with having half the price and no compromise investing – a spectacular product and a spectacular service. I don't think they'll be much more changes in commission, at least for the foreseeable future.

What sort of new innovations is Zecco bringing?

Michael Raneri: It's probably premature, but we have two platforms coming out. A whole new trading platform that will particularly provide great value to more complex options traders. And we have an iPhone app in beta that we're very excited to roll out.

This year, Zap Trade has been this spectacular innovation for us. We're deployed on over 75 different sites and exposed to 26 million unique users a month across the various financial publishers.

What do you think this means for the decision makers in trading? Do you think this will lead to more impulse buys? Or will it lead them to research more stocks?

Michael Raneri: What we found is the investment process, very often there's a group of people that will go to their brokerage site to research stocks, build a portfolio, and re-balance that portfolio. But more often than not they're browsing the Internet. And either they're reading an article that gives them an idea or some piece of research that they found on the Internet causes them to take action on an idea they already had.

So, as a company strategy, we wanted to be at that point where they're getting that idea or taking action for an idea they already had. I don't think it will cause anymore impulse investing, ‘cause the self-directed investor is pretty conservative right now. But we do want them to do their trading with us once they decide to.

As the CEO of a major organization, what was it like navigating Zecco through the financial crisis and a collapsing economy?

Michael Raneri: As any young company – we're an early-stage company – the biggest issue you have to deal with is company morale. We had to reduce staff a little bit in 2008 to accommodate for the fall of revenue. That's always a hard thing to do when you're trying to create a high-energy team.

The way we describe ourselves is that we're really a technology company that happens to be in the financial services business. People want to see constant innovation and constant product development, and we had to slow that down a bit. That was probably the toughest hurdle, the people and the morale hurdle, to get them through that period of time.

But we've seen a huge turnaround. We've gotten so much done this year. We're incredibly proud of all the accomplishments. We built the whole website. We have a lot of high-end trading tools that were deployed this year, and more to come.

What would you say is the key to maintaining that innovative streak in your company?

Michael Raneri: We spent a lot of time on ideation, spending time together and with customers in focus groups and informal sessions, really listening to what they need and want. Having the community is like having your ear to the ground – you see what people are asking for and you can ask them to be part of that product development process. We've created customer advocacy groups, where they work with our product developers to come up with those innovative ideas.

I'm gonna give you the loudspeaker now, so you can sound off on anything that's going on in the world that you think needs your attention or is not being sufficiently reported, or simply give your opinion on any issue that you really care about.

Michael Raneri: I think what's really important is, and what has been most impactful for us, is the Zap Trade application. We see that as something new and different. It opens up a whole other channel for us, giving publishers the opportunity to keep viewers on their site while providing trading functionality. It's been a fairly new product release for us, but it has had incredible traction. I'd love for people to go check out Zap Trade and download the Firefox plug-in we have.

Where do you go for your news on the markets?

Michael Raneri: Mostly, to be honest, Zecco.com. We've put together an incredible quotes and research area within Zecco. The other tools I use, besides Benzinga of course, is Yahoo! Finance, Google Finance, and CNN Money.

What was the best and what was the worst investment decision that you've ever made?

Michael Raneri: Well, I have two equally good ones: I bought Yahoo! on the IPO and had a very good run. And I bought Apple on the day Steve Jobs announced his return as CEO and I still own it.

My worst investment decision was following the advice of a family member and investing in a private placement firm medical device company. Not a good investment.

What was the company?

Michael Raneri: The company was a surgical device manufacturer. It doesn't exist anymore.

It's funny, pretty much every guest that we have says that their worst pick was always something that their friend or family told them.

Michael Raneri: Absolutely.

That's how they always work out, right?

Michael Raneri: Do your research.

Do your research and don't listen to the people you love. [Laughs]

Michael Raneri: That's right.