Online Brokers: DLJdirect Branching Out With Regional Offices
By Caroline Humer
Senior Writer The Street.com
5/5/00 6:52 PM ET
"The line between full-service brokers and online brokers might as well
be in invisible ink.
DLJdirect (DIR:NYSE), the online unit of Donaldson Lufkin & Jenrette
(DLJ:NYSE), on Friday said it would open branch offices, starting with
a Boca Raton, Fla., location on Monday.
DLJdirect's move to "bricks and clicks" shouldn't have surprised anyone
-- other online brokers such as E*Trade (EGRP:Nasdaq) and Web Street
Securities (WEBS:Nasdaq) also have decided to do the branch thing this
year.
But the move could mean that online brokerages not opening branches are
now going to find themselves as a very small group. Indeed, of the top
10 online brokers, only Ameritrade (AMTD:Nasdaq) and Datek Online have
no branches. Datek says it's considering opening branches in a limited
way. An Ameritrade spokeswoman said the broker isn't planning to open
branches, but she couldn't say why.
For DLJdirect, the move to branches could signal a first step toward a
more broad-based product line and financial advice, following industry
leader Charles Schwab (SCH:NYSE). And that, in turn, could help its
stock, says Richard Repetto, an analyst at Lehman Brothers, which
hasn't done underwriting for DLJdirect.
The stocks of Schwab and online broker TD Waterhouse (TWE:NYSE) have
outpaced their online brethren this year in part because they aren't so
dependent on commissions. Schwab's stock, for instance, is up about 16%
this year, while DLJdirect's has tumbled 20%.
"I just think it's a good idea in general for the online brokerages,"
says Greg Smith, an analyst at Chase H&Q. "The pendulum always swings
too far in both directions. Just as Merrill Lynch (MER:NYSE) has
resisted online trading, online brokers have resisted bricks and
mortar. At the end of the day, it's not very expensive to selectively
open a few branches."
Brokers say that customers like to use the branches to open accounts
and deposit checks even though those services are also available
online. And it's a relatively cheap way to advertise services. Schwab,
which opened its doors in 1975, stuck by its branch strategy even as
its online trading business exploded in the late '90s. The combination
worked, turning it into the biggest online broker.
In fact, Schwab's success in attracting full-service accounts pushed
Merrill and other brokers to begin offering online trading last year to
their full-service customers, including popular fee-based wrap accounts
that allow unlimited trading in exchange for a fee based on assets.
Blake Darcy, DLJdirect's CEO, says the days of the pure-play online
brokerage are gone. And he's been in the online trading business since
the days of dial-up systems 11 years ago.
"Now you're going to compete head-to-head against bricks-and-mortar
securities firms," Darcy says. "We're really not going to fight history
here. We are going to, in our first attempt here, try to model a
cost-effective branch in the right kind of location."
Depending on how the branch does, DLJdirect could open as many as 100
branches over 18 to 24 months. It will locate the branches in major
cities and other areas where it has a high-asset customer base. Darcy
also doesn't rule out the possibility that some day those branches
would have the same kind of financial advisers that Schwab has
successfully used. Schwab and rival Fidelity are discount brokers, but
with their additional advisory services, they're aiming for traditional
full-service territory.
DLJdirect is the seventh-largest online brokerage, according to a
first-quarter survey by U.S. Bancorp Piper Jaffray, with 44,100 trades
per day and market share of 3.2%. That compares with Schwab's
more-than-21% market share.
Numbers like those make it clear why DLJdirect is dabbling in real estate." |
