2. number of online accounts; growth rates, etc. any other goodies
3/1/99 St. Louis Bus. J. 40 See Bold reference to PiperJaf report for 4Q98, which you should try to obtain
1999 WL 8434211
St. Louis Business Journal
Copyright UMI Company 1999. All Rights Reserved. Copyright American City
Business Journals Mar 1-Mar 7, 1999
Monday, March 1, 1999
Volume 19, Issue 25; ISSN: 0271-6453
Scottsdale, Stifel cultivate online trading operations
Larry Holyoke
For discount brokers like St. Louis-based Scottsdale Securities,
online trading is rapidly becoming a mainstay.
In fact, according to Scottsdale president Rodger Riney, the firm's
online trading volume has exploded. While he declined to discuss
volume, Riney said the number of daily trades is up by "more than 10
times" the rate of a year ago.
"It's an absolutely booming business, growing faster than anybody
can believe," he said.
Scottsdale has been taking trades over the Internet for two years,
but it only began promoting the service a year ago.
During the past few months, he said, the firm has doubled its
advertising budget for online trading, and the firm has landed a
prime piece of e-commerce real estate as one of three online
brokerages whose links appear on Microsoft Corp.'s "Money Central"
personal finance Web pages.
Even a few full-service firms are getting Internet religion. Local
brokerage Stifel Nicolaus & Co., for one, is getting set to launch
online trading later this year.
Scott McCuaig, director of sales and marketing for Stifel, said
major online trading operations such as E*Trade or the online
division of Charles Schwab Corp. are drawing more investors onto the
Internet, creating customers that full-service firms like Stifel can snag.
The average investor still wants to talk to a professional before
sinking his or her retirement money into a stock or bond, he said.
"Just handing that check across the desk is the hardest thing many
of them will ever do, psychologically. Not many are going to do that
without talking to someone first," he said.
So Stifel has taken the idea of starting an online trading
operation to the company's "chairman's council," the committee that
represents the company's brokers.
A few brokers are wary of losing commission income, he said, but
the majority - 75 to 80 percent of them - think the firm has to have
online trading to compete.
Stifel's online trading operation will probably be up and running
by the year's end, said McCuaig.
Meanwhile, Internet stock trading nationwide continues to snowball. One in every seven stock trades is taking place in cyberspace now,
according to an estimate by Bill Burnham, an analyst with CS First
Boston.
According to investment firm Piper Jaffray Inc., an average of
336,700 trades per day were executed online during the fourth
quarter, more than double the rate of fourth quarter 1997.
According to a recent study by Piper Jaffray, online brokers landed
3.6 million new accounts in 1998, bringing the total to 7.3 million
accounts representing more than $240 billion in assets.
That's prompted some Wall Street behemoths to dip their toes into
cyberspace. Dean Witter Reynolds Inc. offers online trading via a
separate subsidiary, for example, and Merrill Lynch announced Feb.
19 it was buying the Internet technology group of troubled
investment firm D.E. Shaw. Merrill Lynch has said it is on track to
offer Internet stock and bond trading by the end of March to about
55,000 of its wealthy clients who pay a fixed annual fee for Merrill
Lynch services.
Charles Schwab Corp. remains the largest online brokerage,
according to Piper Jaffray, with 93,000 trades per day during the
fourth quarter.
But some of the old-line discount brokerages are proving nimble at
the new online game. Indeed, Waterhouse Securities, which has two
offices in the St. Louis area, has shot up to fourth on Piper
Jaffray's list of the largest online brokers. In the fourth quarter,
its average daily number of cybertrades rose 59 percent from just
three months earlier, to 42,003 per day. But some full-service
brokers are asking themselves: can we make money online with
commissions so low?
The average online commission is less than $20, about one-tenth the
typical trading cost through a full-service broker, and some charge
much less.
Scottsdale Securities, for example, offers trades for as little as
$9, said Riney.
Chris Pauli, president of local brokerage Pauli & Co., said if the
firm could pick up some extra business processing cheap trades
online, but investors who need more service will have to pay a fair
price. "We are producing a research product and an investment
banking product that is very expensive to develop, and we need to
get it paid for," he said.
The city's biggest full-service brokers, Edward Jones and A.G.
Edwards, both have Web pages, but say they aren't planning to offer
Internet trading any time soon.
Mary Atkins, a spokeswoman for A.G. Edwards, said the firm is
looking for other ways to exploit the power of the Internet.
"We are looking for ways to use the Internet as a way to reinforce
our advice-driven model," she said. Clients can already access
account information online, for example, and get quotes and news,
but the firm is watching developments closely, she said.
"Our financial consultants see more and more clients are accessing
information online, and every time they do that they are bombarded
by ads for online trading. Everybody suspects that there is some business erosion," she said.
McCuaig of Stifel Nicolaus says most of the firm's brokers figure
they don't have much to lose. Most have decided that the
doit-yourself kind of client, the kind that used to trade via 800
numbers, has already started trading online anyway, he said.
For now, at least, no one is predicting online trading will drive
the full-service firms out of business.
Even Scottsdale Securities' Riney figures the online trading isn't
having much impact on full-commission brokers. "There will always be
a need for full-service brokers," he said.
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