From today's NYTimes...
"October 18, 1999
Morgan Stanley to Offer Online Trading to All Its Customers
By JOSEPH KAHN and PATRICK McGEEHAN
n old-line Wall Street's latest entry into the Internet stock-trading bazaar, Morgan Stanley Dean Witter is preparing to introduce an overhaul of its brokerage business and to offer all its clients the option of buying and selling stocks online at discount prices.
The plan, expected to be announced as early as this week, is similar to an offering put forward in June by Merrill Lynch & Co., the country's largest brokerage house. But Morgan Stanley hopes to ambush Merrill by giving all its customers an online trading option immediately, beating Merrill's planned start date by at least six weeks, people close to Morgan Stanley said.
Morgan Stanley already operates Discover Brokerage Direct, an online discount broker. Its new plan envisions eliminating Discover as a separate unit and rolling it together with traditional brokerage services provided by Morgan Stanley's 11,000 full-service brokers. Renamed Morgan Stanley Dean Witter Online, the electronic service will be available either a la carte, for $29.95 a trade, or as part of a full-service brokerage account that carries an annual fee based on assets.
The firm will also take a page from Charles Schwab, the leading online broker, by converting the 450 nationwide branch offices where its brokers work into walk-in retail centers. All its brokerage customers will be able to deposit checks, research stocks, get a consultation or meet with their broker, people close to Morgan Stanley said. A spokesman for the firm declined to comment on any aspect of the plan.
"Morgan Stanley thinks it is really going to be a game of segmenting the market going forward," said Steve Galbraith, an analyst with Sanford C. Bernstein & Co., who said he had heard an outline of the planned overhaul. "They think you have to be able to cater to all segments of the wallet."
The move marks a significant strategic shift by Morgan Stanley that carries several risks. By offering its full-service customers the option of trading online for a fraction of the price they pay in commissions now, Morgan Stanley may suffer a sizable drop in the revenue it gets from commissions, at least in the short term.
Discover brokerage clients will also be slapped with a rare price increase in the ultra-competitive online brokerage business, where Discover has already been losing market share. At $29.95, Morgan Stanley has set its new online commissions to match Schwab and Merrill, making that the high-end benchmark. Discover Brokerage Direct has been charging $14.95 for most stock trades, already higher than the $5 to $8 commissions of rock-bottom online discounters.
People close to Morgan Stanley said that the firm expects Discover -- famous for its get-rich-instantly ads featuring a tow-truck driver who owns a tropical island and a schoolboy who flies his own helicopter -- to lose some of its online customers when it doubles the cost of trading. [editor's note: It's time for E*Trade...] But they said many others would pay the higher commissions because Morgan Stanley will now offer them an enriched selection of its stock research and more access to initial public offerings of issues underwritten by its blue-chip investment bank.
"They will pay more, but they will get more," one person close to the firm said.
Morgan Stanley was the first traditional Wall Street firm to dip its toes in the waters of online retail stock trading when it bought Lombard Brokerage, a small San Francisco-based company, in 1996. But it held the operation at arm's length, naming it after its Discover credit card and never integrating it with the firm's much larger full-service operation. Though some Discover customers have had access to Morgan Stanley's highly valued stock research, for example, Morgan Stanley took its name off the research reports and made them available online after a delay to avoid angering full-service brokers and customers.
Morgan Stanley spent tens of millions of dollars promoting the Discover brokerage business on television, in print and online in recent years. That investment seemed predicated in part on the belief that online stock trading was a separate subset of the brokerage business.
Like Merrill Lynch, however, Morgan Stanley has found that online stock trading is more fundamental than that, forcing it to overhaul its operations sooner and more completely than its executives had envisioned only a year ago. People close to Morgan Stanley said that the firm was most worried about the rapid growth of Schwab, which combines inexpensive online trading with efficient call centers and help lines and has lured customers away from all the major brokerage firms.
In some ways Morgan Stanley's overhaul is similar to one that Merrill announced June 1 and expects to finish introducing on Dec. 1. But Morgan Stanley is hoping to steal Merrill's thunder with its coming announcement because it thinks it can offer all its retail brokerage customers access to Discover's online trading platform immediately, while Merrill promoted its plan months before it had prepared the technology to offer the service.
People close to Morgan Stanley also said that the firm expected its plan would cause less internal dissent than was the case at Merrill, where an unusually large number of brokers have defected to rivals since the firm announced its new online trading platform and pricing structure. The key, these people said, is that Morgan Stanley will offer a broad array of pricing options that gives brokers more discretion in how much they charge each customer.
For an asset-based fee of at least $1,500 a year, Merrill Lynch is offering unlimited trading of stocks and bonds either through its brokers or online. Merrill also said it would introduce an online trading service called Merrill Lynch Direct, with individual trades for $29.95. Some Merrill brokers have rebelled because the new pricing structure reduces how much they make from some of their accounts.
Morgan Stanley has addressed that issue by allowing brokers to negotiate prices with customers who want some combination of self-directed online trading and help from a broker. Customers who want such a combination will be charged a percentage of the money they invest with the firm that ranges from less than a half-percent to 2 percent a year. The fees will vary based on the amount of assets and the discretion of the broker involved.
Customers who want to trade online with little or no help from a broker will be charged $29.95 a trade. Full-service customers who do not want to trade online will still have the option of paying higher commissions for broker-directed trading, as they have in the past.
Morgan Stanley's announcement puts fresh pressure on other full-service brokerage houses to make online trading available to all customers who want it. But some rivals say they are not planning to offer deeply discounted stock trading.
The Salomon Smith Barney unit of Citigroup, for example, is planning to introduce online trading by early next month. But the service will be offered only to customers in fee-based or traditional brokerage accounts, not at a discount.
Another traditional brokerage firm, Paine Webber Group, is introducing an account that allows clients who invest at least $100,000 and pay an annual fee to make as many trades as they want, either online or through their brokers. But Paine Webber has not set up a separate online-trading service.
Paine Webber executives stressed that their new account, called Insight One, gave brokers more "flexibility" in pricing brokerage services than Merrill is allowing its brokers. Donald Marron, Paine Webber's chief executive, said the firm kept about $1 annually of every $100 invested with it, and he did not expect that ratio to decline because of the new account." |
