| To: TFF who started this subject | 2/3/2001 3:44:00 AM | | From: supertip | | | | A New, Muted Era in Online Trading
By Matthew Goldstein
February 2, 2001
CALIFORNIA ISN'T THE only place suffering a power crisis. Some online brokerages are, too.
Why the brownout? While day traders continue trying to eke out a living, long-term investors have decided that the days of taking wild punts on risky stocks are over.
The main reason for the rethink: Last year's carnage in technology stocks left the average customers at four of the biggest online firms — Charles Schwab (SCH), E*Trade Group (EGRP), Ameritrade (AMTD) and TD Waterhouse (TWE) — with less money in their brokerage accounts than they had at the start of 2000, according to recent corporate filings.
The devastation was particularly bad in the fourth quarter of 2000, when the four firms' 14 million customers lost a collective $133 million in their brokerage accounts. The typical Ameritrade customer, for instance, began 2001 with $21,553 in an account, a 54% plunge from January 2000. E*Trade customers didn't do much better; the average account there slipped 39% to $14,673. Of the four firms, Schwab customers suffered the least. The average online account at the nation's biggest discount brokerage fell "just" 9%, to $116,000 from $128,000.
At first blush, the January Nasdaq Composite rally would seem to indicate that things are turning around. After all, the index has jumped 8% year-to-date and nearly 17% since the Federal Reserve made its surprise Jan. 3 rate cut. Trading volumes on the Nasdaq also surged to an all-time record daily average of 2.35 billion during the month, and so far, this year's 51.1 billion shares traded on the Nasdaq exchange represent a 47% increase over last year, when the Nasdaq was making a run toward the 5,000 mark. With those kinds of numbers, it would seem that individual investors are jumping back onboard.
Not quite. On closer inspection, the January totals aren't nearly as impressive as they seem. On a dollar-for-dollar basis, trading activity on the Nasdaq is actually down from last year. An average of $75.2 billion worth of stock changed hands on the Nasdaq each day in January. That's a hefty sum, but down 14% from last January's daily average of $87.5 billion. How can the dollar volume of stocks traded each day be down, while the number of shares traded is way up? Simple: Stocks are much cheaper now than they were a year ago.
It's also apparent that big financial institutions and professional money managers — not the little guys — are doing much of the buying and selling. How do we know? Last month there were 602,369 block trades on the Nasdaq, nearly double the number of 365,235 block trades tallied in January 2000. Given that block trades are buy or sell orders of at least 10,000 shares, these are institutions trying to move big chunks of stock at one time. For most individual investors, 10,000 shares is bigger than their entire portfolios.
Wall Street's Energy Crisis
Brokerage House Total Client Assets
(in billions) Average Account Balance Total Accounts as of 12/31/00*
(in millions)
12/31/99 12/31/00 12/31/99 12/31/00
Ameritrade $31.6 $27.9 $46,000 $21,553 1.36
E*Trade $44.7 $46.9 $23,650 $14,673 3.19
Schwab $846.0 $871.7 $128,000 $116,000 7.50
TD Waterhouse $149.0 $142.0 $67,000 $45,000 3.1**
*both online and offline brokerage accounts included
**as of 10/31/00 Sources: Company reports and press releases
Fewer individuals means less-than-spectacular volume for the online brokers. Though trading activity at several online brokerages is edging upward since it fell back sharply last November, it remains well below last March's high-water mark. In December, Schwab's 7.5 million customers made 220,000 trades a day — up from 200,000 in November but still far below the 320,000 daily trades recorded last March. Schwab won't release its January trading statistics for another two weeks, but it seems unlikely that there's been any big upward surge this year. Otherwise, Schwab wouldn't have asked some of its employees to take several Fridays off as unpaid workdays in a bid to reel in expenses.
"I think volumes are up [in January], but I don't get the sense that retail investors are banging anything out," says Greg Smith, an online brokerage analyst with J.P. Morgan H&Q. "The risk appetite has changed."
Indeed, it appears that last year's carnage may be causing former hotshot traders to rethink their stock-picking strategies or abandon them altogether. In other words, the get-rich-quick traders of yesterday have largely been shaken out, leaving more sober, longer-term investors in their wake.
That's the explanation being offered for this week's surprising announcement that investors poured more money into stock mutual funds in 2000 than in any previous year — $309 billion, a $121 billion increase from 1999, according to the Investment Company Institute.
"We have just gone through a period of legalized gambling as the core investment principle, and too many people were swept into that frenzy," says Avi Nachmany, head of research for Strategic Insight, a mutual-fund consulting firm. "But the expansion of the mutual-fund business last year was remarkable, and you have to decide it was for a reason."
That, of course, doesn't mean that investors are going to stop trading online altogether; they just may trade less frequently and put less money in individual trading accounts. In the future, predicts Kelly O'Donnell, a researcher with the Boston-based consulting firm Cerulli Associates, investors will demand more advice and services from their online brokerages. E*Trade hopes to be one of the first to provide these things; it's teaming up with Big Five accounting firm Ernst & Young to provide online financial-planning advice.
Of course, if online investors do adopt more sober attitudes about online trading, that could be a good thing. Less mania in the markets may have a muting effect on those big one-day rallies. But when real optimism returns it may be built on something more lasting than hype and hope.
smartmoney.com |
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| To: LPS5 who wrote (8721) | 2/4/2001 9:59:25 PM | | From: TFF | | | | LIFFE Single Stock Futures Trading Premieres
By Oliver R. Witte, Managing Editor
02/02/2001 1:50:45 PM ET
Chicago (HedgeWorld.com)—The first week of Universal Stock Futures—futures contracts on single, global equities—is coming to a successful close at the London International Financial Futures and Options Exchange.
U.S. investors will have to wait until the end of the year to trade single-stock futures.
Starting Monday, customers in 23 countries—not including the United States—were able to buy and sell futures contracts on 25 blue-chip stocks listed in the United States, the United Kingdom and continental Europe. Seven U.S. companies are included: AT&T, Cisco, Citigroup, Exxon Mobil, Merck, Intel and Microsoft.
Volume was 3,004 trades on Monday, 8,081 on Tuesday, 6,187 on Wednesday and 3,761 on Thursday. Trades are in lots of 1,000 shares in the United Kingdom and 100 in other countries.
Eight market-makers in the United Kingdom, Italy and Ireland handle the trades. They use one electronic trading platform (LIFFE Connect) and clear and settle through one clearing system and comply with a one regulatory system.
Universal Stock Futures provides exposure to global share price movements with no currency exchange cost or stamp duty and without the costs associated with transferring ownership of shares, LIFFE said. Its website offers investors free, real-time prices, news of the stocks and other services. The address is www.universal-stockfutures.com.
The cost of a trade is set at 25 pence (U.S. 35 cents) per contract for each lot of any size. A London clearing house charge adds 4 cents. If a brokerage firm is used, it will charge an execution or clearing fee. Retail investors in the United Kingdom are charged $6 to $12 per contract, depending on their choice of broker.
Although the Commodity Futures Modernization Act, passed at the end of last year, set a one-year timetable for U.S. exchanges to offer single-stock futures, it set no timetable for U.S. investors to trade on exchanges outside the United States.
LIFFE is cooperating with the Securities and Exchange Commission and the Commodity Futures Trading Commission, said Laurence Walton, senior associate in regulation policy for the exchange. “The discussions have been constructive,” he said. “We believe it is achievable to get our products approved under the same timetable as for U.S. exchanges.”
The Futures Industry Association in Washington is telling its U.S. members not to expect authorization to trade single-stock futures before the end of this year, either on U.S. or foreign exchanges. Rules for both probably will be issued about the same time, said Barbara Wierzynski, the association’s general counsel. |
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| To: TFF who started this subject | 2/5/2001 8:11:47 PM | | From: supertip | | | | Online Traders' Losses Could Be Your Gain
By Bob Beaty
02/05/2001 04:08 PM EST
So there hasn't been much hullabaloo about the NYSE's trading spreads switching from eighths -- the price division of choice from way back when -- to decimals.
Savvy investors will notice that spreads (the distance between buy and sell prices) subsequently tightened on the more heavily traded issues, making execution prices a snick more advantageous for investors. Did the move have any effect on discount/online traders? Well, no. And as the market washes around, we seem to hear less and less about them. Whither Waterhouse?
It's no surprise that the shares of the top two online brokerages, Schwab (SCH) and Waterhouse (TWE) had their last volume and price spikes almost a year ago, when the markets appeared bulletproof. I won't bore you with the ensuing travails, as anyone who can fog a mirror is keenly aware of what markets have done in the meantime.
Whereas then the markets were analogous to a convertible cruise down Rodeo Drive, lately they're more like a 100-mile-an-hour ride through East LA in a jalopy. But, perhaps, therein lies the opportunity.
Waterhouse's Annoying Fees
TWE took some heat recently for instituting an 'inactivity' fee of $15 quarterly for it's US small accounts that are, annually, low trading or no trading customers. Schwab and E-Trade Group (EGRP) have had the same policy for sometime. And lest we forget -- at least in the case of the two leaders -- these are actually banks that trade stocks. Nickel-and-diming customers is part of the mandate of any financial institution. Get over it or move your account. Although, if this regime continues for a while, there will be fewer places to go as online brokers consolidate. Sound familiar?
While trading volume has been down, TWE has been aggressively soldiering on, expanding its influence in the wireless arena, announcing last month that it will become the premier wireless information provider to AT&T (T) Digital PocketNet customers. A small fly in the ointment, though: the joint initiative is to be powered by Bridge Information Systems, which filed for Chapter 11 on Monday, although the company says the reorganization won't affect its operations. We'll see about that.
TWE has also extended its reach worldwide, including a recent $87 million deal with Schwab to buy Scottish market maker Aitken Campbell. There's money in trading, but there's also money in making markets. Look for more of these kinds of deals over the next year. TWE and SCH will have an equal share of the company. Boasting 4.5 million accounts, TWE is the only discounter with offices in all 50 US states and has diversified North American dependency with operations in the UK, Asia and Australia.
Analysts On Same Page
Analysts are a vision in synchronicity, projecting a 12-month target for TWE at the $22 to $24 level -- about 50% higher than its current price of $15. The 52-week high and low were $27 to $12.50 respectively. Earnings forecasts (as at October 31) for 2001 and 2002 at First Call are 60 cents and 70 cents, representing respective and respectable price/earnings ratios of 25 times and 21 times against the current price. TWE made 55 cents in fiscal 1999. Earnings have been reduced slightly over the last quarter and given the vagaries of the market, may be marked either up or down as we move into the year.
No one should fool themselves into thinking that corporate machinations in the discount brokerage sector to either expand or consolidate business will curry investor favor anytime soon. Until at least the perception of retail trade volumes improves and the jitters within the market are soothed, the group's stock prices will likely idle.
Longer term, the past two deep rate cuts--and the specter of more to come -- have pumped some needed oxygen into the sector's constituents. Using this fallow period to grow operations carefully, cut costs, slip in some opportunistic fees and begin to open up new markets and products will pay off when the retail investor returns. The trick shot, of course, is that no one knows when that will be.
Fairly Bright Future
There is no argument that markets will ultimately improve and historically, rate cuts such as the ones we have seen recently have a positive affect on share prices and market psychology with roughly a three- to six-months lag. By then, the leaders in the group will likely have costs cut to the bone, improved product mix, found new revenue streams and tout trading technology that will handle heavier volumes.
The market doesn't dislike or hate the discount sector, it's merely seems indifferent at the moment. For those who believe the horizon is in sight, a long-term purchase of TWE may be smart.
But there's probably little risk in waiting. TWE's first quarter 2001 numbers should be out later in February and given the volume and price ugliness of the last three months --notwithstanding the blip up in January-that horizon picture should come into clearer focus.
I'd wait until then --unless you just can't. worldlyinvestor.com |
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| To: TFF who started this subject | 2/5/2001 8:12:43 PM | | From: supertip | | | | Datek January Average Daily Trades Rose 6% From December
By Chris Frankie
Editorial Assistant
2/5/01 12:55 PM ET
Datek Online Brokerage Services said the number of average daily trades in January increased when compared with both December and the same month last year.
Dow Posts Solid Gain; Semiconductors Hamper Nasdaq
Some Numbers Suggest Turnaround Is Under Way
Wall Street Awaiting the Goods on Growth From Cisco
TriQuint Semiconductor Soars, Oxford Health Sickens After Hours
The privately held online brokerage said its average daily trades increased 8% to 117,695 trades, up from 108,555 average daily trades in the year-ago period. The total rose 6% from December, when the firm reported an average of 111,112 daily trades.
Datek Online Brokerage Services, a unit of Datek Online Holdings, reported 718,019 funded customer accounts at the end of January, a 94% increase over the 370,463 accounts in the year-ago period, and 4% above the 692,065 accounts at the end of December.
Last month the company said its average trades and customer accounts both rose substantially in the fourth quarter when compared with last year's totals.
thestreet.com |
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| To: LPS5 who wrote (8721) | 2/5/2001 9:16:33 PM | | From: TFF | | | | Mutual Fund Directors: The Dog that Didn't Bark
by John C. Bogle, President of Bogle Financial Markets Research Center, founder and past chairman of The Vanguard Group
January 28, 2001
Investigating the slaying of a racehorse in Silver Blaze,* Sherlock Holmes mentions "the curious incident of the dog in the nighttime." Watson, surprised, responds, "But the dog did nothing in the nighttime." "That was the curious incident," Holmes replies. He is able to identify the culprit simply because the watchdog did not bark. Why? Because the culprit was the dog's master.
There is a moral here for the mutual fund industry. The Investment Company Act of 1940 specifically states that the interests of fund shareholders must be placed ahead of the interests of fund managers and distributors. The Act places this responsibility in the hands of fund directors, a majority of whom must be independent of the fund manager. But the master of the funds turns out to be the fund manager, and the watchdog—a word almost universally used to describe the role of the independent director—simply doesn't bark.
What's the Crime?
If the fund manager is the culprit, what is the crime? For me, it is the change in the central ethic of the mutual fund industry from the profession of investing—the stewardship of shareholder assets—to the business of marketing—gathering assets and creating whatever "products" it takes to do so. The impact of this change can be easily measured:
1. Soaring Turnover Among Mutual Funds. Fifty years ago, there were 126 equity mutual funds, most with prudent long-term investment objectives. Today there are 4,800 equity funds, less than half of which, by my count, meet that standard. Mutual funds, increasingly created to capitalize on hot stock styles and hot money managers, come and go at an unparalleled rate. Started opportunistically, they fail frequently, their goals largely unfulfilled. During the 1960s, 14% of all funds failed to survive the decade. During the 1990's, 55% of funds—more than one half!—failed to survive. This diminution of our traditional long-term focus has ill-served fund investors.
2. Soaring Fund Portfolio Turnover. Portfolio turnover has leaped from 17% annually during the 1950s to 108% in 2000. With this change from long-term investing (a six-year holding period for the average stock) to short-term speculation (an 11-month holding period) has come higher transaction costs and far higher tax costs to fund investors. Part of the increase reflects a shift from conservative, even staid, investment committees to individual portfolio managers, who themselves last for an average of but five years. Neither of these changes has produced an observable improvement in fund performance.
3. Soaring Turnover of Fund Shares. As if learning from their managers, fund shareholders are turning over their own shares at unprecedented rates. In the 1950s, share redemptions averaged 6% of assets, an effective 16-year holding period. By 2000, the rate had leaped to nearly 40%, a 2½ year holding period. All of this shuffling around in the chase for performance has resulted in an incalculable—but significant—diminution of shareholder returns.
4. Soaring Fund Expense Ratios. In 1950, fund expenses averaged just 0.77% of tiny assets of $2½ billion. By 2000, despite a 1600-fold leap in equity fund assets to a gargantuan $4 trillion, the expense ratio had more than doubled, to 1.60%. It is fund managers who have enjoyed the staggering economies of scale available in investment management. The fund shareholders, clearly, have not. As a result, they have not received their fair share of the stock market's bountiful rewards.
These trends clearly illustrate that the interests of fund managers are being placed ahead of the interests of fund shareholders, precisely what the 1940 Act was aimed at preventing. Taken together, soaring investment activity and soaring costs have had a powerful negative impact on the returns earned by shareholders. Unless reversed, these trends will continue to harm mutual fund investors in the years ahead. Indeed, in the coming era of likely lower equity returns, the damage will be even more pronounced.
Who's the Culprit?
If crimes they are, the culprit is clearly the fund manager. For whether privately-held, publicly-owned, or a subsidiary of a global financial conglomerate, it is the manager who runs the show. Yet the watchdogs do not bark. Fund directors are essential participants in the creation of new funds and the dissolution of those that don't work; they remain silent as portfolio turnover soars and managers are shuffled like chessmen; they likely remain uninformed, even today, about soaring shareholder turnover; and they approve every management fee for a new fund and every fee increase for an existing fund. There is simply no way that fund directors—whose legal duty is clearly to the shareholders who elected them—can be absolved of responsibility for the harmful trends that beset the industry.
Why do the watchdogs remain silent? One reason may well be that the directors of large mutual funds are so well paid that the line has blurred between a "disinterested" role (the word the Investment Company Act of 1940 uses to describe independent directors) and an "interested" role (the word used to describe directors who are paid employees of the fund's investment manager). A 1996 study showed that the annual fee for an independent director of the ten highest-paying fund complexes averaged $150,000, nearly double the $77,000 directors' fee paid by the ten highest-paying Fortune 500 companies.
Fund directors fees are even higher today. In a curious paradox, it is hardly unusual for independent fund directors to be paid far higher fees than those paid to the independent directors of the very corporations that manage the funds. Five of the highest-paid mutual fund directors, in fact, receive fees averaging $386,000 annually (in two cases, supplemented by $100,000-plus annual pensions!), compared to just $47,000 for their management company counterparts, directors of the companies (often large financial conglomerates), whose business includes operating the funds. (See Table 1.)
Table 1
Director Compensation
Management Company vs. Mutual Fund
Fund Manager Management Company Mutual Fund
Giant Bank (1) $44,000 $642,000
Giant Brokerage Firm 55,000 400,000
Large Fund Manager 48,000 363,000
Giant Investment Banker 41,000 286,000 (2)
Insurance Holding Co. 46,000 240,000 (3)
Average $47,000 $386,000
1- Parent of Fund Manager
2- Plus annual pension of $157,500 for 10 years.
3- Plus annual pension of $115,000.
Responsibility: Corporate Directors vs. Fund Directors
What could possibly explain this huge differential? Could these fund directors possibly be shouldering eight times the responsibility shouldered by their corporate counterparts? Consider the facts: A corporate director is responsible for approving the corporation's policies and business objectives; selecting the chief executive officer; approving often-enormous expenditures on plant and equipment; determining an appropriate capital structure, dividend policy, and stock repurchase program; and, typically, approving a mission statement focused on the creation of long-term economic value for the corporation's shareholders, measured by returns that are higher than the corporation's cost of capital.
Mutual fund directors are responsible for none of these decisions. Rather, in the industry's own parlance, they are "watchdogs" for (usually) each of the 100-300 funds managed in the large fund complexes, approving (and rarely, if ever, disapproving) each fund's advisory and distribution contracts, custodian agreements, and pricing and valuation procedures; and monitoring investments and portfolio quality and liquidity—a seemingly imposing list of 40 duties, but duties that, in the real world, are perfunctory. None of these duties, however, relate to a fund's mission and its obligation to create economic value and earn its cost of capital.
Further, those approvals and that monitoring take place under the direction of the fund's chairman—a chairman who is, almost without exception, also the chairman (or a high official) of the fund's management company. While it is said that "no man can serve two masters" the independent directors not only serve two masters, but are dominated by one: The management company. Experience clearly confirms that as watchdogs, fund directors are, in Warren Buffett's words, "cocker spaniels, not dobermans."
It will be no mean task to change director conduct. Directors are typically invited on the board by the chairman, and the chairman and other officers of the manager control the board agenda and dominate the discussions. Most independent directors, I'm confident, do their best to be fair, but the pervasive nature of this domination, when added to the director's self-interest in receiving fees (which obviously grows stronger as fees rise), makes it easy for even the best of directors to justify a collegial acceptance of the status quo.
Avenues of Change
But change is nonetheless possible. I suggest beginning with these four changes.
1. An independent director should serve as board chairman.
2. Independent directors should select their own successors, without management participation.
3. No more than one management company director should serve on the board.
4. The board's legal counsel should be completely independent of the management company.
I would also urge mutual fund directors to review not only expense ratios, as is the industry custom, but to require the manager to provide an accounting for the dollars of the fund assets that are spent—the sources of those dollars (investment advisory fees, 12-b fees, etc.), and their uses (investment management, distribution, operation, manager's profits, taxes, etc.)—for each fund and for the entire complex. Somehow, absurd as it may seem, studies prepared for directors by fund consultants focus all of their attention on ratios and none on dollars.
Following the Money
What might this examination of sources and uses show? Let's follow the money in a $61 billion group of money market funds managed by a large financial conglomerate. In 2000, the funds paid some $254 million in management fees, $64 million in distribution fees, and $71 million in shareholder service fees and operating costs. Total: $389 million, equal to 0.62% of assets. (See Table 2.)
Table 2
Money Market Fund Expenses For a Major Fund Complex
Total Assets: $61 Billion
$ Million
Annual Fees Estimated Annual Expenses
Investment Management $254 $ 10
Distribution 64 64
Shareholder Services 71 71
Total $389 $145
The fees spent on distribution and shareholder services probably cover the cost of those services. What about the amount spent on investment management? Consider a good-sized money market fund, regularly rolling over short-term U.S. Treasury bills and high-grade commercial paper. It might take as many as a dozen people, performing tasks that are substantive but not taxing. With office space, computers and other services, it might be possible to get the investment management costs for these money funds to $5 million—with a generous dollop of indirect overhead, perhaps even to $10 million.
Now let's do the subtraction: $254 million in management fees, minus, say, $10 million of cost. Result: a net profit of $244 million to the manager. In the money market field, where it is virtually impossible for even the best manager to add even the smallest value, and where each million dollars paid to the manager reduces by one million dollars the return of the shareholder, such a huge diversion of returns would be obvious. But only if the watchdogs are watching. Despite the collegial atmosphere and self-interest involved, when the watchdogs finally get the numbers and follow the money they'll be compelled to take action that brings fund fees down to realistic levels.
When fund directors examine the apportionment of fund returns between managers and shareholders; when directors consider the baneful trends that have developed in investment activity and fund costs; when the bright spotlight of public attention is focused on directors' fees that are grossly disproportionate to the time commitments involved and the responsibilities assumed; when board leadership devolves to independent directors served by independent counsel; and when the watchdog has no master but the investors he is duty bound to serve; then we shall at last hear the barking dog, the strong watchdog that will lead the way in giving the fund investor a fair shake.
* by Sir Arthur Conan Doyle Return
Return to Speeches in the Bogle Research Center.
vanguard.com
©2000 Bogle Financial Center. All rights reserved. |
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| To: TFF who started this subject | 2/6/2001 9:31:00 AM | | From: supertip | | | | February 6, 2001
Online Brokerage Firms Adopt
A 'Bricks-and-Clicks' Strategy
By STACY FORSTER
WSJ.COM
If you can't beat them, join them.
Branch offices were once the antithesis of the no-frills online brokerage business, with firms citing them as one reason they are able to undercut traditional, full-service brokerage companies on commissions. But a major shift is underway.
E*Trade Group, which practically led the charge that reshaped investing across America, and several other online brokerage firms are slowly adopting a bricks-and-clicks strategy.
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These firms are deciding they need a physical presence to remain competitive, especially with full-service brokerage firms encroaching on their turf and to handle the evolving demands of online investors.
E*Trade (www.etrade.com) will open its first real-world branch on Manhattan's swanky Madison Ave. in April. The firm also announced plans about two weeks ago to open 20 trading and service mini-outlets in Target stores across the country this year. It already opened a Target branch last September in Roswell, Ga.
E*Trade isn't alone. Web Street Inc. (www.webstreet.com) and CSFBdirect (www.csfbdirect.com), a unit of Credit Suisse First Boston, all have found it necessary establish branch offices.
Web Street opened its third branch in Denver earlier this month (others are in Beverly Hills, Calif., and Boston), with plans for eight by the end of 2001. CSFBdirect has one branch in Boca Raton, Fla. Charlotte Fox, a spokeswoman for CSFBdirect, says the firm expects to open more this year, but declined to give further details.
These branches allow customers to seek in-person assistance from the firms' representatives and get a host of trading and financial-planning services.
"The Internet is great for a lot of self-service kinds of things," says Eric Wasserstrom, an analyst with UBS Warburg in New York, "but when you drill beyond that and it gets to the point of wanting more directed advice, that's when the branch and the physical content becomes important."
Firms that meld online and offline capabilities are viewed by some analysts as becoming the dominant choice for consumers in the evolving world of investing. Indeed, full-service brokerage firms, such as Merrill Lynch & Co., which had once shunned online investing, have been ramping up their Internet capabilities. These brokers have long relied on providing financial advice to investors in branch offices.
The firms are slowly trying to mirror the highly successful model of online leaders Charles Schwab Corp. (www.schwab.com) and TD Waterhouse Group Inc. (www.tdwaterhouse.com). The two have built themselves into the No. 1 and No. 2 brokerage firms on the Internet by blending their networks of branch offices with their Web services. Schwab says 70% of its new accounts are opened in one of the firm's branches. Schwab has 415 branches and Waterhouse has about 175.
In addition, online brokerage firms have struggled in the past year as the market hit a speed bump. Suddenly, retail investors were on the sidelines, and the lower trading activity has cut into the brokers' business. So firms have looked for ways to hold onto their customers and to acquire new accounts by providing more advice and services.
The branch office and target outlets will allow E*Trade customers to get "face-to-face" assistance from representatives. Investors also will have workstations where they can trade and get investing information online. "It will be a physical incarnation of our brand," says Michael Sievert, E*Trade's chief sales and marketing officer.
Mr. Sievert says the E*Trade's outlets in Target and its Manhattan trading center -- a three-story, glass and chrome building that includes a cafe -- also give the firm a new marketing platform for its expanding line of investing and retail banking services. E*Trade also owns E*Trade Bank, a no-frills online bank, which will have ATM machines in the centers.
Mr. Wasserstrom, the UBS Warburg analyst, says E*Trade and the other firms are on the right track. Customers recruited through branches, for example, tend to bring bigger accounts. Firms can generate more revenue from wealthier clients by selling them other products, such as mutual funds, which bring a more steady stream of fees than trading commission.
Branches go against the conventional wisdom of a few years ago, when firms and analysts questioned their need. At the time, it looked like the electronic experience would become standard, and firms were spending hundreds of millions of dollars on advertising to bring potential customers to their Web sites.
"When the Internet was ramping up, all of the early adopters came online and it appeared like ... [brokerage firms] were able to exist purely on the Internet," says Richard Repetto, an online brokerage analyst with Putnam Lovell in New York.
That's not the case anymore, with new group of investors entering the market. They will want to place trades online, but they also desire a place to go for advice or guidance, or if they have questions about the Web site, analysts say.
"As we got deeper demographically into mainstream America, you're away from the early adopter to a person who needs some hand-holding and feels a lot more comfortable knowing they can go to a branch location if they need to," Mr. Repetto says.
Mr. Sievert says the response to the first E*Trade branch in Target has been "tremendous." He says one out of every four people who started a conversation with a representative opened an account. The company says it expects the network to yield 40,000 accounts a year.
But analysts says it's too early to tell how well E*Trade's strategy will work. Mr. Wasserstrom says it's not clear whether the accounts that come through the zones will have the same value as those added through full branches.
Nevertheless, Mr. Sievert says the Target minibranches are worth it because their overhead costs are low. A minibranch costs one-tenth the cost of a full-service branch. "It's bricks without the bucks," Mr. Sievert says.
Joseph Fox, co-chief executive of Web Street, says the cost to operate its branch in Beverly Hills was about $45,000 a month when it opened two years ago, the same as renting a billboard along the freeway. For him, the decision was an easy one. A branch is "a living, breathing billboard," Mr. Fox said.
Mr. Fox says Web Street isn't trying to duplicate Schwab's strategy. He simply wanted to give customers a place where they could receive up-to-the-minute information about the markets and their accounts, attend seminars on investing and learn more about the firm's products.
And by adding the human element, the experience is more complete for the customer. "The key here is that someone can look them in the eye and sit down with them," he says.
But not all online-brokerage firms are going offline. Datek Online Brokerage, a unit of closely held Datek Online Holding Corp., and Ameritrade Holding Corp., say they will stick to their Internet-only strategies.
Mike Dunn, a spokesman for Datek Online Brokerage, says the firm considered opening some branches, but decided to focus on providing more tools and services through its Web site, which are more appealing to Datek's active customer base.
"The people we attract tend to be Internet savvy, and we didn't want to be burdened with a branch strategy," Mr. Dunn says. |
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| To: TFF who started this subject | 2/6/2001 9:32:48 AM | | From: supertip | | | | Datek Online Sees Growth
By BLOOMBERG NEWS
SELIN, N.J., Feb. 5 — Datek Online Holdings, the Internet-based broker, said today that the number of its accounts and trades each day increased last month, a sign of how it had weathered the fallout from last year's stock-market declines.
Trades at the online broker rose 8 percent, to 117,695 a day, compared with 108,555 in January 2000. Trading rose 6 percent from December.
Datek accounts climbed to 718,019, from 692,065 in December. The latest figure was almost twice Datek's total of 370,463 the prior year.
"Datek has been outpacing everyone" in trading and new-account growth, said Jason Lind, an analyst at U.S. Bancorp Piper Jaffray. Still, the rise in Datek's trading from December was "at the lower end" of a 6 percent to 10 percent range expected by Putnam Lovell Securities analyst Richard Repetto. His expectation stemmed partly from the 12 percent gain in the Nasdaq composite index last month.
Nasdaq stock market activity increased almost 5 percent, to a daily average of about 2.36 billion shares traded in January from 2.25 billion in December.
Datek in December was bought by a group of private investors, including Bain Capital Inc., for $700 million. |
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| To: TFF who started this subject | 2/7/2001 3:12:00 PM | | From: KymarFye | | | | | Pretty hilarious that the ECNs go down nationwide (least that's what I was told by my broker) at virtually the precise moment that the Nasdaq hit its lows for the day - helping, I think, both to ignite but perhaps also to retard the short-covering rally... I know I wasn't about to leave any shorts just sitting out there like sitting ducks when I couldn't use my trading platform... Seems like every time the techs are under pressure, the tech itself comes under pressure, too. Happened over and over last Spring. |
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