Schwab online gets research area

Charles Schwab is adding third-party research and analysis services to its site tomorrow in an effort to hold rival E*Trade at bay.

2 min read
Schwab is adding third-party research services to its site tomorrow in an effort to hold rival E*Trade at bay.

The new area on the site, dubbed the Analyst Center, offers Schwab investors free investment research and analysis from third parties such as Dow Jones, First Call, Standard & Poor, and BigCharts.

The addition is part of Schwab's strategy of positioning itself firmly in the middle, in terms of features and price, between full-service brokerage houses and bargain online trading services. Schwab, however, is at a competitive disadvantage in that it charges $29.95 per trade--more than many online trading services--and is playing catch-up to E*Trade, which added research services to its mutual fund area in November.

"We think there will always be a small segment of the population that is focused on price only," said Art Shaw, Schwab senior vice president of electronic brokerage. "We're trying to provide the right value, the right service, information, price, and tools that customers really want. Price is an important component, but it's only a component."

Analysts tend to support Schwab's strategy.

"This would seem to be their only option at this point," said Vernon Keenan, a director at Zona Research. "Essentially, this is raising their competitiveness to the standard set by some of the other brokerages, specifically E*Trade."

"Most investors are not going to rationally care if a trade costs $15 or if it costs $20. They're going to care if they picked the stock at the right price and made money," pointed out Keith Benjamin, an analyst with Banc America Robertson Stephens.

Schwab, along with all online brokerage houses, is regrouping following widespread complaints about access problems and trading delays that plagued investors during record-setting-volume trading days in late October. E*Trade announced last month that it will spend $20 million upgrading its architecture in order to add capacity on heavy trading days.

Schwab says that it also has been upgrading its capacity during the last year in an effort to accommodate its active online accounts, which have grown from 336,000 in 1996 to 1.2 million today, representing almost a third of Schwab's total retail accounts.

Both Keenan and Benjamin called today's news a "defensive" maneuver. Keenan also noted that, in order to be competitive in 1998, Schwab eventually will have to expand its financial services into the online banking arena as well.

"Financial services that have built up an online infrastructure are positioned to move into that market ," Keenan said. "Schwab may have to [move to online banking] in order to look for growth in the face of increased price competition."