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E*Trade venturing into 401(k) management

With Oracle expected as its first customer, the company is set to be the first Internet-only broker to manage the popular retirement plan, CNET News.com has learned.

Online brokerage E*Trade plans to branch into 401(k) management, becoming the first Internet-only broker to handle the popular retirement accounts, CNET News.com has learned.

Oracle, with 21,000 workers in the United States, is expected to become E*Trade's first customer for managed 401(k) accounts, according to sources familiar with the company's plans. Oracle did not return calls seeking comment.

An E*Trade spokesman refused to comment on whether the company was expanding into 401(k) accounts.

E*Trade is making the expansion as part of a broader business-to-business plan to diversify its sources of revenue, which until recently relied heavily on stock trading activity. Roughly half of E*Trade's revenue is dependent upon stock transaction commissions.

E*Trade recently created a business unit, the Business Solutions Group, to sell financial services to corporations. The unit offers outsourced management of various retirement and employee benefits packages for large companies, providing employees with Web-based access to their accounts.

Last quarter, E*Trade estimated that based on the unit's 3,500 corporate clients, as many as 1 million employees of those companies are potential customers for its new corporate banking services.

Analysts say that by expanding into 401(k) accounts, E*Trade will greatly increase the amount of money it manages. And because E*Trade will handle the 401(k) accounts, account holders will be more likely to turn to the company for future financial services.

"They are going to have a captive audience with the 401(k) plans," said Marc Pollina, an online financial services analyst at The Yankee Group, a market research company. "This is going to position E*Trade to manage a heck of a lot more assets."

The downturn in the stock market last April pushed online brokerages such as E*Trade and Charles Schwab into looking for new ways to generate revenue. San Francisco-based Schwab, a longtime offline brokerage, already manages 401(k) accounts.

E*Trade, which ranks second in size to Schwab among online brokers, is trying to outgrow its image as simply a Web broker.

For the past 10 months, the Menlo Park, Calif.-based company has made a wide range of traditional financial services available to customers, including checking, savings and money market accounts, and has offered financial advice.

"I don't think you can call us an online trading service anymore," said E*Trade spokesman Patrick Di Chiro. "That's a vital part of our business, but we are offering so much more now than brokerage services."

E*Trade has installed ATMs at multiple Oracle facilities and acquired Card Capture Services and its 8,800 ATMs in March.

With the addition of 401(k) services through E*Trade, employees of Redwood Shores, Calif.-based Oracle will be able to use the ATMs to check their retirement plans.

"The money invested over the Net thus far has been play money. Now we're seeing serious money; 401(k)s are people's future," Pollina said.