Discount brokerage executives feel a cure for broker-rage is on the way, Rob Carrick says.
ROB CARRICK
Saturday, March 11, 2000
The frustration investors feel about discount brokers has been captured perfectly in a phrase coined by a reader who wants to be known only as Margaret.
She calls it discount broker-rage.
If you suffer from this condition, try to hang onto your sanity for a while longer. According to discount brokerage executives, relief is coming in the months ahead.
There are two reasons behind the optimism about the future and both have to do with changes in the regulations that cover the discount brokerage industry.
Sometime this summer, discounters will be released from a requirement that they manually check each trade to make sure it's in keeping with the risk tolerance and investing objectives that a client has stated on his or her application form. Without having to do a so-called suitability check, discounters should be able to process trades faster.
Another regulatory change, this one expected as soon as the next week or so, will reduce the time it takes to train and license a discount brokerage investing representative to 30 days from 90 days. Discounters are hiring like crazy these days -- with this change, they'll be able to get the new recruits onto the front lines a lot sooner.
Service at discounters reached its nadir early in 2000 amid unprecedented levels of trading by clients. Simply put, brokers can't cope.
This is expected to change as a result of the regulatory changes and continuing technical upgrades to Internet trading systems.
Will customers notice a difference?
"Absolutely," said John See, president of TD Waterhouse's Canadian operations. "We believe there will be substantial improvements."
E*Trade Canada president Colleen Moorehead says clearing away the regulatory issues will allow the company's trading technology to shine in a way it hasn't been able to so far.
"We look so forward to being able to compete in that environment," she said.
For most investors, the biggest benefit of doing away with the manual checks for trade suitability will be faster execution of their buy and sell orders, particularly those placed on-line.
As it stands now, a representative must check each on-line trade before sending it along to the stock exchange for execution. At busy times, the queue backs up and trade execution times suffer.
Delays in having buy and sell orders executed can be costly, in terms of having to pay more for a rising stock and receiving less for a plunging stock. Right now, the delay between placing an order on-line and having it executed can last anywhere from a minute or two to an hour, or even longer in rare instances.
Discount brokerage executives feel they can speed up execution to a matter of seconds once the need to check each trade for suitability is removed. At that point, the system can be simplified so that computers perform a quick check on a trade while routing it directly to the exchange.
"Electronic processing will be virtually instantaneous because orders will go straight to the floor -- boom," said Bruce Schwenger, president of Bank of Montreal's InvestorLine discount brokerage.
Mr. Schwenger said InvestorLine has run tests where orders have been processed without the suitability check. Often, the order was filled in less time than it took to call up the order status screen to check on the trade.
Noticeable service improvements are also expected for investors who prefer to place orders through a representative over the telephone rather than on-line.
Phone waits of an hour or more on hold are not uncommon these days, while 30 to 45 minutes are typical.
Discounters figure the 30-day training regimen will let them add staff to answer phones much more quickly than in the past. Staff who now perform suitability checks for on-line trades may also be used to beef up the phone service.
How quickly will you get a discount broker representative on the phone in the future?
"I'm aiming to get back to our original stated service standard, which is 30-second waits," Mr. Schwenger said. "It seems like a dream right now, but I'm convinced we can get there."
In addition to speeding up trade executions, the elimination of the suitability check for discount trades will also cut costs for brokers.
In explaining why commissions are higher in Canada than in the United States, discount executives have always mentioned the expense of having traders check each trade. Cut out this expense and investors should have reason to hope that commissions will fall.
Brokers are playing it cagey on commissions, though.
"Our first priority is to restore service levels because that's what our customers really want first," said Mr. See. "Then we'll take a look at the productivity improvements we get and see if there's room to reduce commissions."
He said that if there are any price cuts, they'll be for on-line trades only. That's because human interaction won't be needed for on-line trading, but it always will for phone service.
E*Trade Canada's Ms. Moorehead said she will also look at the possibility of cutting commissions.
However, Mr. Schwenger of InvestorLine said the trend in the discount industry is to add new features such as research tools rather than cut prices.
"Of course, somebody could break the model and start a price war," he said.
There, does that ease your discount broker-rage? Didn't think so. Still, there's reason to believe that if you can tough it out for another few months, things will get better.
If they don't, then discounters are going to experience a whole new stage of rage. |
