Large investment brokerages are falling behind in the chaotic world of online trading, apparently content to make money the old-fashioned way.
Most brokerage firms big and small have a Web presence. But many full-service firms have designed their sites primarily for advertising and job recruitment, using them to conduct information as it has been done for generations: by visiting a broker and receiving research and brochures via the Postal Service.
"Full-service firms have the most to lose. Merrill Lynch is looking at the Internet as a competitor," said Lee Lodes, a spokesman at market research firm Prophet. "Traditionally, the broker controls the information, and when that information is being provided daily over the Internet, it is just horrifying to most full-service brokers."
To underscore that point, Prophet released a study today showing that companies do not make good use of Web sites set up for customer service, let alone online trading. "Most of the firms surveyed have yet to develop a consistent strategy to capitalize on leads generated by their sites, as 37 percent of the test inquiries sent by Prophet were completely ignored," it said.
Discount brokerage firms like Charles Schwab and E*Trade are aggressively moving into online trading, seeing it as the perfect vehicle for doing business in a real-time industry where seconds can mean millions of dollars--in either direction.
"Our online business is growing tremendously...In about 14 months, we've more than doubled our online accounts," said Tom Taggart, director of corporate communications at Schwab. He said the discount broker has 750,000 active online accounts with $50 billion in online customer assets, up from 336,600 accounts and $23.3 billion in assets at year end of 1995.
Taggart added that online trading is not taking the place of the branches, but rather offering online users also use other ways of doing business. "We want to provide multiple channels for people to reach us and let them decide which they want to use," he said.
Many of the larger houses contend that they are simply not interested in competing in the electronic market, relying instead on long-time clients who prefer to leave the management of their accounts to their brokers.
Chris Cosentino, a spokesman for Lehman Brothers, said his firm deals with "high net-worth individuals" who do not really need access to account information online. "We talk with our clients every day and they know where every penny is already," he said.
Cosentino said his firm launched its Web site last fall, but it isn't for clients. "It offers general information about what kinds of services we offer," he said, and is more a vehicle for recruiting potential employees, especially college students with Internet access.
But the free flow of information is breaking down the barriers that have forced clients to rely on brokers in the past. Companies like Schwab and E*Trade put the power of investing into the hands of the investor when they can control their own transactions electronically.
"The results of this study indicate that while full-service firms realize they need a Web presence, they are not yet equipped to communicated effectively with the prospects generated through this medium," Scott Galloway, principal at Prophet, said in a statement that accompanied the release of the study today.
Some large houses are beginning to see the advantages of handling information quickly and easily online.
Montgomery Securities launched an enhanced version of its Web site last fall as a "new way of reaching clients," spokeswoman Danielle Busignani said. "We give them a password and then they can access our research online."
However, she said, processing transactions online is not a plan in the near future.
Robertson, Stephens does have plans to offer online trading, but not until the end of the year.
For now, it maintains two Web sites, one for targeting companies that are interested in learning more about the firm's financial services and the other is for clients who want to invest in their mutual funds, said Janet Peischel, Web manager at Robertson.
"The whole premise of having a Web site is for shareholder servicing?We offer information to shareholders and prospective shareholders," said product manager Meighen Miller for Robertson.