Thread, I made it into a WSJ article this morning based on a post that I made on this thread. A reporter sent me PM and called me to do an interview. It was in relation the margin fears this thread was discussing and my post with the Schwab email I received.
interactive.wsj.com@6.cgi?clientofsteve/text/wsjie/data/SB95632893212913733.djm/&NVP=&template=atlas-srch-searchrecent-nf.tmpl&form=atlas-srch-searchrecent-nf.html&from-and=AND&to-and=AND&sort=Article-Doc-Date+desc&qand=&bool_query=fliger&dbname=wsjie%26named%3Ddbname%26period%3D%3A27&location=article&HI=
Brokers Use E-mail to Soothe
Investor Jitters About Volatility
By STACY FORSTER
THE WALL STREET JOURNAL INTERACTIVE EDITION
Online brokerages are approaching the recent market volatility like traffic cops after an
accident, waving their customers past the wreckage and encouraging them to carry on as usual.
Customers of E*Trade Group and Charles Schwab found e-mail notes from the online
brokerages in their mailboxes early this week, gently reminding them about how market cycles
work and urging them to consider their investments with an eye toward the long term.
"Especially in times like these, it's important that all investors, myself included, need to take
a step back to think about where we've been and where we're going so we don't overreact,"
wrote Christos Cotsakos, chairman and CEO of E*Trade.
The E*Trade e-mail message, which was personalized with the customer's first name in the
greeting, went on to describe the nature of market cycles and encouraged diversification of a
portfolio.
"The market activity we have been experiencing is a great reminder about why the key to
sound investing is to focus on the long term by diversifying your assets and to be wary of
jumping on any one investment bandwagon," wrote Charles Schwab, chairman and co-CEO of
Charles Schwab.
Both messages directed customers to the firms' Web sites for more information.
By taking the initiative to offer some perspective on topsy-turvy market conditions, analysts
say online brokerages were integrating the value of the Web with a traditional offline offering:
education. The move allowed the brokerage firms to enhance their relationships with
customers without crossing the line toward offering full-fledged, client-specific advice.
"The whole premise for their service is they can replace a highly personalized service, in this
case a broker, with people that effectively do that service on their own and educate
themselves," says James Van Dyke, senior financial-services analyst with Jupiter
Communications in San Francisco. "Over the Web you have the opportunity to deliver some
of that and that's an advantage."
It was an opportune time for online brokerages to reach out to their customers, as more
Americans are investing than ever before. According to research by Jupiter Communications,
there are 9.5 million American households trading online, with 46.5 million households
owning stocks. The brokerage firms acknowledge that many of their clients may be new to
investing, and because of the sustained bull market, many haven't experienced a severe market
downturn.
"There are more people who are less experienced when it comes to investing and we thought
the time was appropriate to get out there and highlight the basics, some of the things we live
by, the basic tenets of investing," says Patrick DiChiro, a spokesman for E*Trade Group.
Greg Gable, spokesman for Charles Schwab, says it's the responsibility of the firm to be
communicating with its customers during a time of turmoil.
"We felt that customers would want to know what our view and perspective was on the
market volatility," Mr. Gable says. "The events on Friday were dramatic and we felt it was
appropriate to get some word out to our customers.
Many online investors were discussing the e-mails in online message boards and said they
appreciated the brokerages' concern for their customers, but few sensed the message was
directed at them.
"For those investors who understand long holds or even that the market will have down
cycles, this was a joke," wrote one participant on a Motley Fool message board Wednesday.
"But to others who have no understanding, which I believe are quite a few, maybe it will
settle them down."
David Fliger, a Charles Schwab customer who works in the advertising industry in San
Francisco, said although he didn't feel he personally needed what he called the "Investment
101" advice in the message, he thought it was a "responsible" move on the part of the
brokerage house.
"It was a good note to send out," Mr. Fliger says. "In the end, who is really going to get hurt
is the investor."
Mike Dunn, a spokesman for Datek, says his online brokerage firm will send a similar
message to its customers in the coming days
"We have urged [customers] in the past, and continue to do so, to become educated and not to
get caught up in the sensationalism of the moment," Mr. Dunn says.
Eric Sterner, director of new business development for Suretrade, the online brokerage arm of
Quick & Reilly, says Suretrade worked to enhance educational content on its Web site in the
wake of last week's volatility. He added that the company constantly evaluates customer
surveys to get a sense of what's confusing to investors.
"Two years ago, we had a sense that customers didn't understand margin trading, so we
established additional services," Mr. Sterner says. "If there is a specific area where investors
misunderstand an investing concept, we will provide additional information."
It's difficult to tell whether or not the messages had any real short-term impact. By midweek,
when the e-mails went out to customers, the market had largely leveled off.
A survey conducted by Charles Schwab on Monday, April 17, the first trading day following
the downturn, showed that 92% of its customers remain comfortable with their investment
approach, down from 94% on April 5. Nearly all customers, 98%, seemed to accept the
downward activity, saying they had come to expect occasional market corrections.
"The general finding was that people were taking long-term view and people were not making
a lot of changes," Mr. Gable says. "They were expecting some sort of market correction and
weren't surprised."
The survey did show, however, that more customers were seeking advice from their broker,
up to 49% on April 17 from 40% the first week of April.
Mr. Van Dyke also suggested the e-mails were part of a larger strategy for the online
brokerages, preventing investors from being frightened away from the markets by a few
weeks of volatile market swings.
"What they don't want to have happen is have people say, 'I tried this, but boy did I get
burned because I overreacted'," Mr. Van Dyke says. "There's some danger in giving someone
too much too soon. We haven't seen these kinds of movements in the markets and people can
hurt themselves and there's some risk that comes out of that and turns customers away."
Online brokerage firms say they've seen their investors mature in the last couple of years,
having learned from mistakes in the past, many of them kept their cool last week.
Mr. Sterner says Suretrade investors' behavior this month was markedly different than in
October 1997, when the market experienced similar volatility. At that time, he said, the firm
saw phone queues backed up with customers panicking and selling off their investments. He
said call volumes were slightly up last Friday, but not at levels that matched earlier times of
turmoil.
"Customers are becoming more sophisticated and recognizing this is part of the market cycle,
and that this is a period when we're going to have to grin and bear it," Mr. Sterner says. |
