There has been a lot of talk recently about online brokerage firms limiting trading on certain stocks (like some of the highly volatile Internet ones) because of execution problems with market orders. Here's an article on a different online trading company's problems.
HEARD ON THE NET: Gripes Loud As E*Trade Stokes Growth
By Carrie Lee
The Wall Street Journal Interactive Edition
NEW YORK (Dow Jones)--These are happy times for E*Trade Group Inc. (EGRP) and its shareholders. Its stock has exploded and business is booming as an aggressive advertising campaign reels in new accounts by the thousands. But for some customers, there isn't too much to cheer about when it comes to service.
E*Trade once again is being skewered on Internet bulletin boards, where investors gripe about their online brokers. Frustrated customers say E*Trade is neglecting service, acting slowly or putting them on hold indefinitely when they call, in its big push to boost its slice of the surging online investing pie.
"I think we have a situation of oversold and understaffed," said Eileen Gmerek, a telecommunications consultant in McKinney, Texas, who complained in an Internet posting that it took 11 days and a total of nearly two hours waiting on the telephone for an E*Trade representative to get her new account activated.
Many online brokers are running into service problems amid the stock-market boom and recent wild trading in Internet stocks. But customers at E*Trade are concerned that the electronic broker's aggressive growth plans are compounding its problems.
Lisa Nash, vice president of customer management for E*Trade, acknowledges that the broker has had some complaints about long waits for a service representative, and says E*Trade is attacking the problem. The company is in the process of hiring between 50 to 70 more people and is upgrading its system to provide automated answers to some common customer queries, she said.
But for some customers, such as Gmerek, that relief will come too late. Gmerek says she submitted paperwork and a check for $5,000 to E*Trade in mid-December. Eleven days later, Gmerek hadn't heard anything from the firm so she telephoned the customer service department. After remaining on hold for 45 minutes, she was told her account had indeed been set up, and was then given an account number and password. But when she tried to use them, they didn't work. It took a second phone call - and an hour's wait on hold this time - to get her problem resolved.
"How exactly does one begin trading 'In a matter of days?' " Gmerek asks, alluding to a line used in E*Trade's ad campaign. She says E*Trade's rocketing stock price made her feel safe about doing business with the company. Now, she asks "Does Wall Street really have a true picture of the services that this company is offering?"
Although there are other issues, slow service and the long wait to reach a representative by telephone are the common gripes posted by investors who feel E*Trade is being overwhelmed by the flood of new accounts. E*Trade is spending $100 million on marketing this fiscal year and hopes to add 1 million new customers over the next 12 to 18 months.
The Palo Alto, Calif., company, the second-biggest Web broker behind Charles Schwab Corp. (SCH), estimates that its share of the online trading business is now about 12% to 14%. As 1999 began, it had about 676,000 active customer accounts, an increase of 132,000, or 24%, from Sept. 30, 1998. The company has drawn a lot of attention for its trading services with a popular new Web site that offers investment information for free.
E*Trade customers can place trades over the phone as well as online, but some of them complain that the long waits on hold virtually prevent them from doing so. Robert Fogel, who develops digital-camera products in Scotts Valley, Calif., says he has tried to make phone trades with E*Trade several times, but that waits have been especially long since last fall. "It's absurd. They can't run a business this way," he said.
While analysts dismiss the slow customer service as the pains of a growing company, it is no comfort to investors who can lose money because of a split-second delay. And poor service by online brokers is still fresh on the minds of some investors.
During the October 1997 market tumult, many investors had to swallow losses due to the busy signals they received when trying to execute trades through online brokers such as E*Trade by telephone or computer. Some investors ended up buying stocks at a higher price than they wanted, selling at a lower price, or being stuck with losers.
Since then, E*Trade and other Web brokers have spent millions of dollars to increase their trading capacity and telephone lines to stem those complaints. While this latest round of gripes about E*Trade is a bit different - staffing problems rather than overburdened systems - all complaints can be troubling in an industry where competition is rough and good service is an asset. And some customers are bolting for the exits.
Paul Ferguson, an information-systems director in Newtonville, Mass., says he opened an account with E*Trade in mid-November, but closed it two weeks ago after a series of problems, including slow phone service and responses to electronic mail. "I transferred into E*Trade from two other brokerages. They lost one of the account transfer forms. I ended up resubmitting it," he said. "The last straw," he said, was when he tried to get a quote on shares he owned in a company that had recently gone public, and E*Trade's system couldn't find the stock symbol.
E*Trade's Nash said turnover in its customer base is "absolutely not an issue. We had a 95-plus [percent] retention rate last quarter." She added that E*Trade's retention rate has been "quite stable over a number of years, it's actually improving a little bit."
Despite the online griping, the investment community isn't concerned about the problems. Amid a flurry of positive news and the rage over Internet stocks, E*Trade shares have soared more than 700% since early October - even as the company posted a loss of $13.2 million in the last three months of 1998, compared with a profit of $5.1 million a year ago. Shares even hit a new high on Tuesday, but they fell 8 1/16 to 92 7/8 on the Nasdaq Stock Market Wednesday, amid a general decline in stock prices.
Analysts say E*Trade's customer service issues aren't unique. Bill Burnham, an analyst at Credit Suisse First Boston Corp., said all online brokers are facing similar problems as they grapple with rapid trading volume growth.
"It is a short-term growing pain," he said. "Lots of firms saw 40% to 60% increases in trading volume this quarter. It's very difficult to prepare for that. It's like trying to run in place in the middle of a hurricane."
Phil Leigh, who covers E*Trade for Raymond James & Associates Inc. in St. Petersburg, Fla., said E*Trade will weather the storm of customer complaints as America Online Inc. (AOL) did two years ago. He said "absorbing the penalty of temporary customer dissatisfaction" is the tradeoff for gaining market share that will breed "tomorrow's revenues."
-Carrie Lee; 201-938-5099
Copyright January 11, 1997 The Wall Street Journal
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