E*Trade, the US Internet stockbroker, announced last week that it has signed a letter of intent to acquire privately-held PrivateAccounts.com, which provides low-cost online access to money managers and portfolio information. The deal means that E*Trade customers will be able to select their own money mangers and monitor their performance on a daily basis, instead of relying on a broker or advisor to choose a manager.
With this deal, E*Trade is aiming to boost its assets while broadening the appeal of its service to a different class of investor. The company hopes to lure high net worth investors to the Internet brokerage, with a minimum of US$100,000 to invest, as well as independent financial advisors and corporate clients. E*Trade chief executive Christor Cotsakos said: 'E*Trade is continually looking for innovative ways to return more and stronger value back to our customers, while also increasing our asset base, and this agreement with PrivateAccounts certainly achieves that goal.'
PrivateAccounts.com was established in December 1999 but it has not yet launched its service. It describes itself as an online investment resource that allows individual investors to search for, compare and hire nationally recognized private money managers. Financial advisors will also be able to label performance monitors so that their clients can then access them on the advisor's Web site.
According to PrivateAccounts' chief executive Doug Baker, the company has, to date, established contracts with 35 private money managers who have agreed to offer their services through the site. There are other web-based services similar to PrivateAccounts.com, including RunMoney.com, WrapManager.com and myMoneyPro.com, but Baker says PrivateAccounts is different because it is the first to be built from scratch on the Internet. He commented: 'The others, by and large, are vending somebody else's existing product. Wrapmanager, for example, is backed by Prudential's wrap account program. We built the whole thing from scratch in a Web based format from front to back, which is a big difference.'
A "wrap account" refers to an investment consulting relationship where a client's funds are placed with one or more money managers and the administrative and management fees, as well as commissions, are wrapped into a comprehensive fee.
Although the fees for the new service on E*Trade have not yet been determined, they will be 'much less than what has traditionally been available through full service brokerages' according to the California-based company. The new service is expected to be available through the E*Trade website before the end of the year.
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