On-Line Brokerages Add Bricks To Clicks, Seek Bank-Style Profits

Jeremy Hetherington-Gore, Tax-news.com, London

13 November 2000

Once upon a time there was an e-brokerage that provided free research, stock tickers and portfolio management tools, and had dealing margins as slim as cocaine-chic models. Investors flocked to that broker on their PCs at home and at work, while legacy stockbrokers on Wall Street and Lombard Street practised synchronised flying out of their 40th storey windows. So clicks beat bricks, right? Not!

Forced by the competition to add more and more services but also pressured by the newly-discovered fashion for having your bottom line black rather than the modish red colour that has ruled the roost for several years, newfangled online brokerages are turning to an age-old stockbroker's practice - fees. And in response to an rooted investors' preference for financial institutions with impressive buildings, the e-brokers are now flocking to open branch offices on the high street. It's probably only a matter of time before they feel the need to have headquarters buildings in London and Zurich with Corinthian columns and courtyards.

Two major US brokerages, TD Waterhouse and E*Trade, are instituting a $15 quarterly fee on brokerage accounts with less than $5,000 in assets at the end of this year. In TD Waterhouse's case, customers who make more than four trades over 12 months will be spared the fee. Customers can combine multiple TD Waterhouse accounts to meet the minimum. At E*Trade, customers with combined assets among accounts of $20,000 or who make one trade in a six-month period can avoid the fee.

Charles Schwab already had a $15 quarterly minimum balance fee, but on April 1 it raised the balance to avoid the fee to $20,000 from $10,000; frequent traders also escape the charge.

Now that volume of customers has become less of a virility symbol among brokers, the shift to fees helps by weeding out smaller, unprofitable accounts as well as generating extra revenue - both vital if the brokers' battered stocks are ever to recover some of their past lustre.

The new trend for brokers to ape high-street banks is another matter - it can hardly save them money, but is seen as a necessary move to establish market presence. E*Trade, for instance, bought a bank earlier this year, while Charles Schwab Europe is pressing ahead with plans to open bricks-and-mortar investor centres, in spite of last week's admission that a fall in private investor trading was forcing it to rein in other investment plans. Schwab, which already has 368 centres in the US will spend up to UK £10m to establish 10 new centres across the country. The third of these was opened last week in Milton Keynes.

Schwab already operates two centres in London and Birmingham - visitor numbers have been low, perhaps because Schwab has been reluctant to spend on prime high street sites. Schwab's fourth and fifth investor centres will be opened in Brighton and Bristol by the end of the year. Seven more are due to follow next year, including outlets in Manchester, Edinburgh, Leeds and Bournemouth. Schwab is not authorised to give clients investment advice, but offers generic guidance on running a share portfolio - in the US, however, it does give specific share advice in its centres.

The sight of e-brokerages opening high street outlets when there is a competition among UK banks to close them as fast as possible is heavily ironic. Wouldn't it be logical for Barclays to buy Schwab, or the other way around? You read it in Tax-News first.

.

Recommended

Write a comment