Stock brokerage for the "brain-impaired." This is from the New York Times, not National Lampoon (or "The Onion").
As I read further and further into the article, my jaw dropped further and further.
This is "must read."
WHO does business with places like these ???
Jon.
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May 12, 2002
At Some Online Brokers, Discounts Have a Price
By DONNA ROSATO
Online trading is on sale.
To attract new customers in a weak market, a handful of smaller brokerage firms have cut
commissions to $4 or less — or have waived them entirely — for trading stocks on the Internet. But the
deals generally come with strings.
Several online sites keep costs down by executing their trades infrequently — in one case, only once a week
— and investors must accept the current market price. One firm applies its lowest commissions only to
stock purchases, not to sales. The best bargains are often reserved for big traders.
Last month, Foliofn.com cut its fee to $4 for even the smallest trades. By doing so, it joined
Sharebuilder.com, BuyandHold.com, Brokerage America and others in offering very low per-trade
commissions to take business from better-established competitors that offer a much broader range of
services but have higher fees. For example, basic commissions range from $8 at Ameritrade (which also has
a low-cost unit called Freetrade to compete with the cut-rate firms) to $9.99 at Datek Online, $14.99 at
E*Trade and $29.95 at Charles Schwab.
With trading volume down, some of the large online firms are raising some fees. Charles Schwab is
increasing commissions on trades executed via the telephone or at a Schwab branch, although it is holding
the line on online commissions. Ameritrade and Datek, which are awaiting regulatory approval for a merger,
have imposed charges for inactive accounts. E*Trade is adding a $3 order-handling fee effective on June 3;
Schwab already imposes a $3 fee. "Prices are going up, not down, at the big players," said Jaime Punishill, a
senior analyst at Forrester Research in Cambridge, Mass. If investors can live with some potentially onerous
restrictions, they can find cheap deals through the niche brokers, Mr. Punishill said.
Foliofn helps to keep costs low by executing trades only twice a day, and investors must accept the market
price. Investors can trade in real time for a $14.95 commission, though they cannot specify a trading price.
Sharebuilder.com offers $4 commissions on stock purchases, which are executed once a week, when the
market opens on Tuesdays. Investors can cancel orders until 5 p.m. Eastern time on Monday. After that,
they are stuck with the market price on Tuesday. Sales are executed in real time, and investors may set a
price, but the commission is $15.95. The firm is trying to attract investors who want to accumulate
positions in a few stocks and do not trade often, said Jeff Seely, its chief executive.
BuyandHold.com charges a total of $6.99 for the first two trades of the month and an additional $2.99 for
each subsequent trade that month. Trades are executed three times each day, and investors must accept the
market price. The firm, acquired in March by Freedom Investments, recently cut its fee for real-time trades
to $15 from $19.99.
In some cases, firms offer trades without any commissions. Brokerage America, at
www.brokerageamerica.com, imposes no fees on stock trades of at least 1,000 shares and, in fact, gives a
$1 rebate for each such order. To qualify for a commission waiver, investors must accept the market price.
A $5 commission applies when the investor sets a price, and for trades of less than 1,000 shares. Investors
are required to maintain a $1,000 minimum in their accounts.
"We traditionally attracted the very active trader," said Andrew Sycoff, chief executive of Brokerage
America, adding that customers with large accounts at full-service firms were now signing up. "People are
looking for greater value."
CHARLES SCHWAB, a giant among the online brokers, offers a broad range of services, including rapid
execution of trades at prices set by investors. Its customers can trade in many financial instruments and
receive a variety of financial advice, not to mention mortgage and private banking services.
Schwab is focused on winning over more affluent investors. "We're interested in serving all clients, but our
customer base is looking for more than just trading," said Morrison Shafroth, a spokesman.
The firms offering cut-rate deals are tiny by comparison. At the end of last year, they each managed just
100,000 to 500,000 accounts and together accounted for less than 5 percent of the 30.8 million accounts at
brokers that offer online trading, according to an industry survey by Salomon Smith Barney. Fidelity
Investments, with 8.7 million total customers, was ranked No. 1, and Schwab, with 8 million, was second.
Some analysts say cost-cutting will provide smaller brokers with a viable business. "This really fills a gap,"
said Shaw Lively, research manager for online financial services at the International Data Corporation in
Framingham, Mass., "because mutual fund firms and big brokerages are moving away from the smaller
investor."
Copyright 2002 The New York Times Company |
