WealthManagement Magazine

Is It Internet Yet?

By the end of 1998, Merrill Lynch and Prudential Securities will be ready to launch Web-based trading for some of their retail clients, and PaineWebber will be at the pilot stage, if not beyond that.When it comes to the firms making greater use of the power of the Web, on-line trading clearly is the leading development of the year.But most of the major f irms are also on the brink of expanding their

By the end of 1998, Merrill Lynch and Prudential Securities will be ready to launch Web-based trading for some of their retail clients, and PaineWebber will be at the pilot stage, if not beyond that.

When it comes to the firms making greater use of the power of the Web, on-line trading clearly is the leading development of the year.But most of the major f irms are also on the brink of expanding their sites to include some version of an individualized home page for their brokers. The plans are still vague, especially when it comes to the question of "when, exactly?" But it's "something that's coming; our brokers are going to want to do it," says Lauren Mascitelli, PaineWebber senior vice president and director of electronic marketing.

Merrill has become the first major retail firm to make use of "ichat," which allows for Web-based "live chat." It has been featuring its analysts and product specialists as speakers, but in April, the firm experimented with a broker "giving a seminar in a local market," says Merrill Director and Vice President for Client Technologies Frank Zammataro.

PaineWebber and Prudential also are looking at using ichat on their sites.

Clients On-line On a year-to-year basis, the number of firms that have introduced a "client on-line" service has grown to include all of the major retail firms, with the exception of Edward Jones, which probably will launch such a service in the first quarter of 1999, says Bill Broderick, Jones' director for on-line marketing.

Broderick says the firm has put a lot of resources into upgrading its client-server system, so developing an on-line service that includes daily account information "hasn't been the highest priority for us. Given our overall investment philosophy of 'buy and hold,' monthly statements have served us well for a long time," he explains.

At this time last year, Prudential, Merrill and Smith Barney were already well established with their versions of a client on-line service. Now, they've been joined by Morgan Stanley Dean Witter, which rolled out its "ClientServ" service in January of this year, and A.G. Edwards, which introduced its "AGe-CONNECT" service last November. An EVEREN spokesperson says that "some of the clients who participate in our Advantage account can now get daily account updates through the Web."

Raymond James, which currently limits its on-line service to clients who have $500,000 or more in combined assets, is "giving some thought to bringing a very large base of clients on-line" by lowering the minimum to $200,000 or $250,000, says Larry Silver, the firm's senior vice president and director of marketing. But "we haven't made a decision yet," he adds.

If on-line account information was a hotly competitive area last year, it's become even more competitive this year, as the firms continue to add an array of information services.

"We continue to improve [our client site] daily," says Morgan Stanley Dean Witter's first vice president and manager of interactive marketing, Sandra Motusesky, in an E-mail response. "We have to," she says. "Our clients are extremely bright and computer savvy. They know what they want on-line and do not hesitate to ask for it."

Since launching the service in January, Dean Witter has added a long list of additional features, including pending trades, linked accounts, increased tax information and more research reports, she notes. "We also intend on migrating any off-line function we can to on-line. There should be no reason why a client would not be able to execute an electronic funds transfer, or any similar task, on-line in the very near future," she says.

When it comes to on-line services for clients, the one issue that's still somewhat controversial is whether customers should be allowed full access to research reports. Merrill Lynch has been the most aggressive about giving its clients access to its full library, but most firms now allow clients to access research over the Web even if it's limited to research on the stocks they own, which is now commonplace.

The one firm that does not provide clients with research on-line is Raymond James. That was true last year, and it's still true, but in the interim, the firm has come up with another mechanism for distributing research, Silver says.

"We have taught our guys how to E-mail research reports and brochures to their clients," he says. The material is stored on the firm's intranet, and "our broke rs can effectively take a research report that is announced in the morning and have it E-mailed to their clients within five minutes," he says.

On-line Trading: Still an Issue If the industry is extremely enthusiastic about its client on-line services (and all of the firms emphasize that the services are being offered to clients strictly through their brokers, and not directly by the firm), the attitudes toward instituting on-line trading range from "it's a tool" that brokers need to compete, to "not even thinking about it," to "wait and see."

At this point, there's no question that the technology that allows Web-based trading has matured to the point of being viable. If the firms want to do it, the technology is there.

Prudential Securities is already in the advanced stages of beta testing, and the technology "works very well," says Stanley Witkowski, the firm's senior vice president and director of strategic client services. "There have been no setbacks or surprises," he says.

Prudential Securities still is not sure how it will "position [on-line trading], and market that, and price that, in a full-service environment," Witkowski says. But the firm "fully expects to be up and running by year end" with Pru Trade, its on-line trading service, he says. Witkowski says the firm probably will institute "multiple pricing strategies" for on-line trades.

Merrill plans to run a pilot with a test group of 100 to 200 clients in the third quarter of this year, but the firm says it will be ready to offer Web-based trading to all of its fee-based Asset Power or Financial Advantage clients by the fourth quarter, says Zammataro.

Merrill also is considering experimenting with offering on-line trading to some of its commission-based clients. That option will be studied "in an experimental way, in the latter part of the year as well," Zammataro says.

PaineWebber also will launch its on-line trading pilot "toward the end of the year," says Mascitelli. Like Merrill, PaineWebber at first will be offering the service to holders of the firm's fee-based Premier Asset accounts.

What has provoked the rush to on-line trading is the rapid rise of the all-electronic, super-discount firms.

"Our surveys show that 8% of our clients have on-line trading at another organization, which tracks exactly with the industry, and around 33% of them are likely to open [an on-line trading account] within the next year," Mascitelli notes. The ability to place trades on-line is becoming a client expectation, and "we want to provide our brokers with the services and tools they need to meet those expectations," she says.

Zammataro likewise talks about on-line trading as being "an extra tool" and "one of many tools" that Merrill Lynch wants its brokers to have to better serve clients. Both Merrill and PaineWebber emphasize that it will be the brokers themselves who offer the service to their clients.

"There are some really interesting philosophical issues here," says Silver. "On one hand, if you're client-driven, and the clients want to be able to do it, you feel compelled to give it to them. But on the other hand, you want your sales force to have that contact, to be able to take that order" and provide other services as well.

Raymond James is going to wait to see how it goes with Merrill and some of the other firms, he says. "We may do some testing through some of our financial advisers who have told us they're interested in offering it to their clients," he says, but the firm hasn't yet made a decision.

The fact that three of the largest retail firms now are committed to offering on-line trading makes it the top subject in the on-line debate. But the other large retail firms are not necessarily ready to jump in behind them. In fact, some of the other firms haven't even considered it yet.

At Salomon Smith Barney, Lee Hunter, the firm's first vice president for interactive marketing and technology, says, "We're not even talking about it."

Morgan Stanely Dean Witter's Motusesky says, "If we decide that it makes sense in a particular type of account--for example, a fee-based account--then we will do it." But, she adds, "Frankly, that is way down the list of requests we receive from our clients for increased functionality."

Justin Gioia, a spokesperson for A.G. Edwards says, "We have no plans at this time to offer on-line trading."

Neither does Edward Jones. "We have a full plate of things to work on before we tackle that," says Broderick.

EVEREN offered no details on its plans other than to say it did not have on-line trading at the present time.

In 1995, a handful of brokers launched their own Web sites. Firms quickly let it be known that they weren't going to allow their brokers to create their own Web sites. In fact, Prudential Securities put the word out that it had hired search firms to make sure that none of their brokers were "freelancing" in cyberspace.

But now that's coming full circle. Many brokers want their own little piece of cyberspace, and firms want to give them something as a tool to foster broker-client communication. The climate for allowing home pages is a better one, now that many of the regulatory issues involving broker-client E-mail have been resolved.

Edward Jones brokers had their own sites a year ago, even though the terminals in their offices hadn't yet been hooked into a network that would allow them to view their own Web sites. Also last year, Raymond James decided its reps, including those at its independent contractor firms Robert Thomas and IM&R, could have their own sites provided they were willing to get licensed in all 50 states.

What caused a stir was when Merrill Lynch first vice president and assistant general counsel Ken Spirer made a public remark at a conference in March 1997. "I think we will move to [individual home pages for brokers] at some point, on a very templated, standardized basis," he said.

That remark was picked up and widely reported, and all of Merrill's competitors now are giving thought to the question of providing their brokers with an identity and presence on their corporate Web sites.

Merrill now has "prototyped a number of things," says Frank Zammataro, the firm's vice president for client technologies. He says he "wouldn't put any time frames" on when Merrill will be ready to launch its broker home pages, but the firm is "spending a lot of time prototyping, thinking and exploring" how to do it.

Likewise, technology chief Stanley Witkowski of Prudential Securities says that broker home pages are "absolutely on our agenda; we have it in testing right now." Prudential is working on building "superuser access" to its system so "the firm would know, and the equipment would know, which clients are your clients, and it would allow them to have access to you, on your home page," he says.

Salomon Smith Barney has come to the conclusion that individual home pages would be "too much to monitor from a compliance standpoint," says Lee Hunter, the firm's first vice president for interactive marketing and technology.

But the firm has something in mind that might not be all that different from what Merrill is talking about with its templates. Salomon Smith Barney already has a hard-copy publication called "Strategies" that brokers can customize by selecting from a menu of different articles, Hunter notes. The firm has decided to make it available on-line as well, she says, while including a photo and bio of the broker, with the bio to be approved by the branch manager. The project should be completed by the end of the year, Hunter says.

PaineWebber is going to be launching a new version of its corporate Web site in June, organized around the theme of "The Power of Advice," says Lauren Mascitelli, PaineWebber director of electronic marketing. Once that's done, the firm plans on "piloting" broker home pages in the second half of the year, she says.

A.G. Edwards also has looked at the idea of offering brokers individual home pages through the corporate Web site. "We are still in the early stages of exploring the possibilities and do not have an exact timetable," says Justin Gioia, a spokesperson for the firm.

Meanwhile, Morgan Stanley Dean Witter's "ClientServ" service already has a page that lists the broker's name, address and direct phone number, and the firm is "looking to expand this section in the near future," says Sandra Motusesky, the firm's manager of interactive marketing.

Broker Web pages also are dependent on firms rolling out new broker workstations that can "accommodate all of this increased information--graphics, design, intranets, E-mail," Witkowski notes.

"The supreme vision," says Zammataro, "is the FC using the TGA [Trusted Global Advisor, Merrill's new workstation], the client using Merrill Lynch On-line, and when the broadband technologies are there, they'll be looking at the same image, talking about it at the same exact time, and reaching a decision to proceed on a trade, investment plan or activity."

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