Rolling the Red Carpet Onto the Web
Big Online Traders Gaining Perks Galore
By JOSEPH KAHN
nytimes.com
ot so long ago, Internet brokerage firms were the Home Depots of the investing world, offering customers a way to do it themselves for less. Now, as the battle for online accounts heats up, some of them seem more like Saks.
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Gold and platinum status. Dedicated toll-free numbers. Valuable freebies. Discounts for loyal customers. The same advertising pitches used by upscale retailers, credit card companies, airlines, and, yes, traditional, full-service stock brokers are becoming familiar online as well. The marketing push is aimed at wealthy investors who have caught the online trading buzz but still want the perks they receive at traditional brokerage houses.
E*Trade, Charles Schwab, Fidelity Investments, DLJ Direct and others now give the red-carpet treatment to anyone who invests big sums -- usually $100,000 or more -- or to people who trade stocks often.
To start, preferred customers can receive free stock research. But the perks are even better for more important clients, who may get priority access to initial public offerings, a chance to invest in private partnerships and even some hand-holding from dedicated advisers.
"The whole point is to make the best customers feel special compared to the regular guy," says Dan Burke, an online brokerage industry expert with Gomez Advisors in Lincoln, Mass. "It's the kind of thing full-service brokers have done for years, but it's new online."
The online industry itself is new, of course, and evolving quickly. Only a couple of years ago, the first Internet brokerage houses began to take aim at Wall Street's fat commissions with cut-price trading and a do-it-yourself investing ethic.
But the field has become crowded. At least 55 such companies are fighting for a share of the $600 billion that investors have so far devoted to online accounts. Schwab and E*Trade seem as worried about distinguishing themselves from lower-priced rivals like Datek and Suretrade as they are about slaying the full-service dragon.
"Trading is a commodity," said Jamie Moldafsky, a senior vice president at Schwab, the San Francisco-based firm that was founded on the principle of making trading easy and inexpensive. "We are taking a value-added approach, not going after the most price-sensitive customers."
Perhaps the most arresting changes are at E*Trade. The firm once teased Wall Street with bargain-basement trades at $14.95 each -- until rivals came along charging a third as much to buy or sell a stock. Now E*Trade says it is going after the premium customer.
Those who trade regularly -- E*Trade defines the entry level as 30 trades a quarter; 75 or a quarter for its "Platinum Power Trader" benefits -- will receive discounts for some trades as their trading volume rises, with prices falling as low as $4.95 a trade. The company will also waive fees for stock research and provide free, streaming Nasdaq price quotations, including bid-ask spreads. When E*Trade serves as an underwriter for an initial offering, it will reserve a pool of stock for its Platinum investors.
E*Trade once touted its common-man approach to new issues, with shares allocated by lottery. It still uses a lottery, but one in which different classes of investors have different odds of winning. Patrick Di Chiro, a vice president, said the firm had decided to tailor products and "give something back" to its best clients.
Schwab was among the first to divide its customers into classes. Benefits kick in for those who make at least 12 stock trades a year or entrust at least $100,000 to Schwab. For those at its Platinum level, which requires $1 million invested or 48 trades a year, Schwab offers a dedicated team of brokers, help in designing structured products or derivatives, free research, free news wires and discounts on Schwab's $29.95 standard commissions for Internet trades.
Still, Schwab seems determined, at least for now, to maintain its leading market share in the online business by adding services rather than cutting prices.
It recently rolled out a program called Velocity for top customers. Schwab says the software makes it much easier for clients to trade stocks held in multiple accounts at once from a single screen. The trading window stays active at all times, even while the client browses the Web. The program also allows trading commands to flow faster over the Internet than is typical for Web-based trading, Schwab says.
"The results will blow you away," said Ms. Moldafsky of Schwab, who suggested that Velocity, depending on Internet traffic, could speed trade execution by up to 20 seconds, giving an edge to investors who depend on moving in and out of stock positions quickly.
Fidelity has also joined the parade. It has unveiled a Web service that will be limited to active traders and has been a pioneer in portability, offering trading services through pagers and Palm Pilot personal organizers.
Like Schwab, Fidelity is also inching closer to offering the kinds of personal attention that investors expect from a full-service broker. Looking for a New Jersey municipal bond that offers a 5.5 percent yield? A Fidelity representative will keep her eyes peeled and call you when she finds one, says Tracey Curvey, who directs Fidelity's brokerage operation.
"We want more than a transaction; we want a relationship," Ms. Curvey says. Merrill Lynch couldn't say it any better. |
