frank, any idea how this will affect JBOH and the rest of the internet brokers next week ? Could be just the boost we need to go into the high teens.
February 12, 1999 18:31
Wall Street firms dip toes in online trading world
By Jack Reerink
NEW YORK, Feb 12 (Reuters) - Two of Wall Street's biggest firms plan to offer online trading to some customers, in an inevitable, if tepid, entry into the Internet fray.
Merrill Lynch and Co. Inc., the nation's largest brokerage, will offer trading via the Internet to some 55,000 account holders, or less than 1 percent of its total account base, at the end of next month. PaineWebber Group Inc., the No. 5 brokerage, also will start a pilot program to a small group of customers in the second quarter.
Investors have been funneling record numbers of trades through existing Internet services, which charge commissions as low as $5 a trade. The number of online accounts has grown fivefold since early 1996 and stands at 7.5 million. About one in seven stock trades now takes place in cyberspace, according to CS First Boston analyst Bill Burnham.
Despite recent glitches, delays and outages at leading Internet brokerages such as E*Trade Group Inc. and AmeriTrade Holding Corp., online trading remains wildly popular. Trading volumes in January rose an estimated 40 percent over the fourth quarter, when online brokers processed 340,000 trades a day.
Merrill and PaineWebber have been slow to adapt online because their broker troops -- 16,000 for Merrill alone -- dislike losing their commissions, which can run into the hundreds of dollars a trade. The firms must walk a fine line between keeping up with the times and safeguarding their traditional retail brokerage business.
"They realize that -- to the extent the Internet is a major new communications mechanism -- it is important to make it available to their existing clientele," said analyst Guy Moszkowski of Salomon Smith Barney. But he said the firms fear online trading might "cannibalize" their existing customer base, with online accounts ceasing to call their brokers.
Customers want to use the Internet not just for checking their account's value and getting research, but also for trading part of their portfolio, or "play money."
"Consumers have their serious funds and their funds with witch they like to explore their own decisions," said Frank Zammataro, director of Merrill Lynch online. "Our goal is to have all the appropriate technology in place so we'll have the flexibility to offer on-line trading in future programs."
Merrill and PaineWebber will offer cyber trading only to customers in fee-based programs, where clients pay an annual percentage of their assets for research, advice, and a number of free trades. Brokers say they have no plans to set up a full-blown Internet trading subsidiary such as DLJdirect, the online broker set up by investment bank Donaldson Lufkin & Jenrette .
"We really don't want to get into a situation where we are providing a transaction-based service to consumers who are trying to time the market on a day-to-day basis," Zammataro said. "That's not our game."
PaineWebber's director of marketing, Marten Hoekstra, agreed, saying: "Clearly, processing transactions is a very low margin business whereas the high value is in the advice piece." PaineWebber plans to offer online trading to some fee-based account holders in the second half, but Hoekstra said the firm eventually will provide online trading "as a convenience to all clients."
Critics warn that full-service brokers must expand online trading or risk losing clients.
"The affluent are taking their money online, and if the full-service firms aren't there, they are going to miss (the boat)," said Michael Gazala of Internet research firm Forrester Research. "Any claim by a full-service brokerage firm that their customers don't want to trade online is unfounded."
About half of the 3 million American households with more than $750,000 in investable assets -- prime prospects for full service brokers -- use the Internet, and 10 percent have an account with a cyberspace brokerage, double the number a year ago, Gazala said.
Close to one-fifth of the 2,600 affluent households Forrester interviewed said they will open an Internet account this year, Gazala said. That is a big shift for people who previously relied on a full-service broker.
"Obviously the full-service firms will want to prevent a full migration of high-net-worth customers to online firms," said analyst Michael Flanagan of Financial Service Analytics. "What they will do in terms of developing Internet trading will be purely defensive, to prevent market share erosion." ((--Jack Reerink/Wall Street Desk--)) |
